A stakeholder is one who holds documents, money or any form of property pending the outcome of a future event.  For example, in sale and purchase transactions involving land, a stakeholder holds the purchase price monies as a stakeholder pending the completion of the Sale and Purchase Agreement ("SPA"). In most of these transactions, the stakeholder is often the lawyer representing the purchaser or vendor as opposed to an independent third party.  However, a lawyer called upon to act as a stakeholder must remain neutral in his duty as a stakeholder DESPITE his appointment to represent either the purchaser or vendor.  A lawyer acting as a stakeholder is required to hold the property or money according to the terms of the undertaking, pending the future outcome of the event.

The importance of adhering to the terms of stakeholding is also set out under Ruling 14.1(3) of the Bar Council Ruling.
 

Company B was party to a joint venture agreement with Company A.  Company B then subsequently entered into an another agreement with Company C to obtain a loan to perform its duties under the joint venture agreement with Company A.  Under the subsequent agreement, (hereafter referred to A2), Company B was to transfer 30% of the shares to Company C.  Company C would then re-transfer the shares back to B when B has made the payment to A under the terms of the joint venture agreement.  The A2 was drafted by a lawyer, Zack.  After the shares were transferred to Company C, Company C passed the relevant share documents to Zack to be held as a stakeholder.  In line with A2, the covering letter accompanying the share documents stipulated that the documents were to be re-transferred back to Company B only when Company B has made the relevant payment to Company A.  The terms of the stakeholding also stipulated that in any other case, all share documents be returned to Company C.  However, before Company B could make the relevant payment to Company A, the joint venture agreement fell apart. In light of this, Company B then advised Zack to send the share documents back to Company B so that Company B could effect the re-transfer of shares.  In breach of his stakeholder’s duties, Zack transferred the share documents back to Company B.  Company C then brought an action against Zack for breaching his duty as a stakeholder.

Alan prepared a will for his wife, Bonnie and son, Clive to have the assets distributed in equal shares including a double storey link house and appointed Dexter and Eleanor as executors under the will.  A year after the will was executed, Alan passed away.  The executors, Dexter and Eleanor were subsequently granted probate in line with the will.

Five years later, Bonnie met with Yvonne from Messrs Yvonne & Co to inform him that a buyer had been found for the house and retained Yvonne to act in the SPA of the said house. The vendors on the SPA were the executors, Dexter and Eleanor.  When the SPA was duly completed and keys to the property were handed to the purchasers, the proceeds were held by Yvonne as a stakeholder.  The terms of the stakeholding provided that Yvonne was to hold the balance purchase price and release the purchase price to the vendors ie the executors, Dexter and Eleanor who were empowered under the will to distribute equally to Bonnie and Clive.

Yvonne stated that Bonnie verbally instructed her to then remit the purchase price of the property to Clive’s account.  Bonnie later informed Yvonne that Clive had refused to give Bonnie her 50% share in the purchase price monies.  Bonnie then brings an action against Yvonne for breaching her duty as a stakeholder.

From the case studies above, it is clear that a lawyer can hold any form of property as a stakeholder be it property such as money, share documents, jewelry, titles etc.  In any case, the terms of the stakeholders duty must be strictly adhered to at all times.

As demonstrated by the cases above, lawyers often make the mistake of releasing stakeholder sums or documents upon receiving instruction, without giving much thought to whether the person giving the instructions has the authority to give such instructions in line with the terms of the stakeholding.  In example 1, Zack released the documents upon receiving instructions from Company B when it was clearly stipulated that the documents were to be released to Company B only when Company B has made payment under the joint venture agreement to Company A.  Similarly, in example 2, Yvonne acted on instructions given by Bonnie who was not the relevant party under the terms of the stakeholding.

In any case, even if you receive instructions from an authorised person according to the terms of the stakeholding, if those instructions are in conflict with the terms of the stakeholding, you should obtain the express written consent of ALL relevant parties.  This is in line with the Bar Council’s Ruling 14.1(3) and reflects good practices and it protects the lawyer as well.

In conclusion, it is imperative that lawyers who act as stakeholders adhere strictly to their duties as stakeholders as set out in the terms of stakeholding to avoid facing unnecessary legal actions being brought against them.