Legal Profession: Practice of law — Consultant in respect of debt recovery dispute — Person who acted on behalf of entity to appoint external legal counsel and performed functions normally associated with in-house legal counsel for that entity — Whether such person could claim benefit of fruits of litigation in form of consultancy fees on contingency basis in event of successful outcome of litigation — Whether claim ran afoul of ss 37 and 40 Legal Profession Act 1976 — Whether claim a touting arrangement which was void and unenforceable under s 24 Contracts Act 1950

This appeal concerned the issue of whether a person who acted on behalf of an entity to appoint external legal counsel and performed functions normally associated with an in-house legal counsel for that entity, could claim the benefit of the fruits of litigation in the form of consultancy fees on a contingency basis in the event of a successful outcome of the litigation, whether in respect of a matter resolved favourably in court or by way of an out-of-court settlement.

The Appellant was an Advocate and Solicitor while the Respondent was not an Advocate and Solicitor qualified under the Legal Profession Act 1976 ('LPA'). A company named Martech Consultants ('Martech') appointed the Respondent as a "consultant" in respect of a debt recovery dispute that the former had with a company known as E-Pay. The Respondent recommended the Appellant to be appointed as counsel and it was agreed that the Respondent would retain half of the 10% of any sum recovered by Martech from E-Pay in the debt recovery suit, and the Appellant would be paid the other half. The Appellant was also paid RM10,000.00 upfront for instituting the suit. Following the institution of the debt recovery suit by Martech against E-Pay, the Appellant's firm was then appointed as the solicitors for Martech. The debt recovery suit was then settled, and the sum of RM4,800,000.00 was to be paid to Martech as part of the settlement. The said RM4,800,000.00 was paid to the Appellant's firm as Martech's solicitors and the Appellant's firm retained 10% of the sum (ie RM480,000.00). The Respondent then demanded from the Appellant his half-share of the 10% retained by the Appellant (ie RM240,000.00), pursuant to the earlier agreement between the parties, which formed the basis of the Appellant's appointment. The Appellant denied that there was any agreement with the Respondent. As a result, the Respondent brought a claim in the Sessions Court against the Appellant for the sum of RM240,000.00. The Sessions Court found in favour of the Respondent and, on appeal, this decision was upheld by the High Court. Hence, the present appeal in which these two main issues required determination: (i) whether the claim as pleaded ran afoul of the provisions of ss 37 and 40 of the LPA; and (ii) whether the claim as pleaded was a touting arrangement which was void and unenforceable under s 24 of the Contracts Act 1950 ('CA').

Held (allowing the appeal):

(1) The acts and services performed by the Respondent were squarely within the description of a person engaging in legal practice. On the other hand, the finding of the High Court was that the Respondent was not in breach of s 37 of the LPA as the Respondent acted as an "in-house legal counsel" to Martech and was therefore permitted to exercise the functions he did. The High Court had therefore recognised that the Respondent was in fact providing legal advice and services but was not caught by the prohibition in s 37 as he was in effect operating as "in-house counsel". There were, however, several aspects of the Respondent's relationship with Martech which differed considerably from that of a genuine in-house counsel. In particular, the Respondent was not an employee of Martech but was merely appointed as a consultant on a case-by-case basis, remunerated contingent upon the outcome of the litigation. The High Court Judge had therefore further erred in failing to appreciate that only the actions of a fully paid "in-house" counsel were exempted under s 38(1)(d) of the LPA. Hence, the claim of the Respondent ran afoul of ss 37 and 40 of the LPA. (paras 80, 81, 82, 84, 85, 86 & 89)

(2) The Respondent's agreement, under which he would receive a "consultancy fee" amounting to half of the 10% fees retained by the Appellant from the settlement sum, clearly fell within the definition of "touting". In essence, what the Respondent did was to identify and enter into an arrangement with a lawyer where the latter would make remuneration to him in exchange for referring the case to him. There was thus no attempt to secure the services of counsel on the basis of competence or price competitiveness, but purely on the basis of favourable remuneration for the Respondent. By all accounts, what the Respondent sought to recover from the Appellant represented his fee in exchange for appointing the Appellant to act as the lawyer for Martech. Thus, whichever way one looked at it, this was a "touting" arrangement which was prohibited by r 51 of the Legal Profession (Practice and Etiquette) Rules 1978. (paras 93, 94, 99 & 100)

(3) As a matter of public policy, such practices ought to be prohibited as falling afoul of s 24 of the CA, thereby barring recovery of any sum by the Respondent. (para 101)

Case(s) referred to:

Balakrishnan Devaraj v. Patwant Singh Niranjan Singh & Anor [2004] 3 MLRH 235 (folld)

Darshan Singh Khaira v. Majlis Peguam Malaysia [2021] 6 MLRA 266 (folld)

Re: Phool Din & Ors [1952] Allahabad 491 (refd)

Legislation referred to:

Contracts Act 1950, s 24

Legal Profession (Practice and Etiquette) Rules 1978, rr 51, 52

Legal Profession Act 1976, ss 3, 36(1), 37(1), (2), (2A), 38(1)(d), 40, 51

Counsel:

For the appellant: Harvinderjit Singh Manjit Singh (Harvinder Singh Kulwant Singh, Bhavanash Sharma Gurhcaran Singh & Chetna Brijmohan with him); M/s Bhavanash Sharma

For the respondent: Rathi Jebaratnam (Amrick Singh Sandu, Muhammad Zulzarif Mohd Zakuan & Kiranjeet Kaur Sidhu with her); M/s Dinesh Ratnarajah Partnership

For the Amicus Curiae: Anand Raj (Gregory Das & Abhilaash Subramaniam with him); M/s Abhilaash Subramaniam & Co

For the intervener: Prem; M/s Kumar Partnership

[For the High Court judgment, please refer to Bhavanash Sharma Gurchan Singh Sharma v. Jagmohan Singh Sandhu [2022] MLRHU 2186]

JUDGMENT

Collin Lawrence Sequerah JCA:

A) Introduction

[1] This appeal raises matters which are of critical importance to the legal profession in that it concerns the issue of whether a person who acts on behalf of an entity to appoint external legal counsel and performs functions normally associated with an in-house legal counsel for that entity, can claim the benefit of the fruits of litigation in the form of consultancy fees on a contingency basis in the event of a successful outcome of the litigation, whether in respect of a matter resolved favourably in court or by way of an out of court settlement.

[2] Consequently, this appeal also determines whether there results from the above factual matrix, a contravention of s 37 and/or s 40 of the Legal Profession Act 1976.

B) Pertinent And Material Facts

[3] The Appellant is an Advocate and Solicitor of the High Court of Malaya and practices at the law firm named Bhavanash Sharma in Kuala Lumpur.

[4] The Respondent is not an Advocate and Solicitor qualified under the Legal Profession Act 1976 ("LPA").

[5] A company named Martech Consultants ("Martech") appointed the Respondent as a "consultant" in respect of a debt recovery dispute that the former had with a company known as E-Pay.

[6] The Respondent's appointment with Martech was on the following terms, amongst others:

(1) Martech agreed to pay a total sum of RM20,000.00 as an upfront retainer fee and 10% of any sum recovered from E-Pay in the dispute;

(2) The Respondent was required to recommend and appoint solicitors to act on behalf of Martech in the debt recovery suit; and

(3) The Respondent would settle the legal fees of the lawyers appointed for Martech in the suit from the sums agreed in (1) above.

[7] The Respondent recommended the Appellant to be appointed as counsel and Messrs Kashminder & Associates as solicitors for Martech.

[8] On the basis of the Appellant being appointed to act, it was agreed that the Respondent would retain/be paid half of the 10% recovered by Martech from E-Pay in the debt recovery suit (if so recovered), and the Appellant would be paid the other half of the 10%. The Appellant was also paid RM10,000.00 upfront for the purposes of institution of the suit.

[9] Following the institution of the debt recovery suit by Martech against E-Pay, Messrs Kashminder & Associates were discharged as the solicitors for Martech. Bhavanash Sharma (the Appellant's firm) was then appointed as the solicitors for Martech in the suit.

[10] The debt recovery suit was then settled, and the sum of RM4,800,000.00 was to be paid to Martech as part of the settlement.

[11] The said RM4,800,000.00 sum was paid to the Appellant's firm (as Martech's solicitors). The Appellant's firm retained 10% of the sum (ie RM480,000.00).

[12] The Respondent then demanded from the Appellant his share of the 10% retained by the Appellant (ie RM240,000.00), pursuant to the previous agreement between the parties and under the condition on which the Appellant was appointed.

[13] Thereafter, the Appellant issued an invoice to the Respondent for the sum of RM250,000.00, stated to be in respect of past work the Appellant had done for the Respondent and for which he had not been remunerated.

[14] The Respondent stated that the said invoice was a "sham legal invoice" that "sought to obtain payment for the said previous personal court matters, in which the Defendant had previously agreed to act as counsel pro bono...".

[15] The Appellant did not remit to the Respondent the RM240,000.00 that the latter demanded.

[16] The Appellant denied that there was any agreement with the Respondent for the sharing of the 10% retained by the Appellant from the sum paid in settlement of the debt recovery suit. The Appellant further contends, in any event, that any such agreement with the Respondent was illegal and void as it constituted a touting arrangement.

[17] The Respondent as a result, brought a claim in the Sessions Court against the Appellant for the sum of RM240,000.00.

[18] The Sessions Court held inter alia as follows:

(1) There was an agreement between Martech and the Respondent that 10% of the recovered sum in the debt recovery suit would be payable to the Respondent;

(2) There was an agreement between the Respondent and the Appellant for the sharing of the 10% paid to the Respondent, for appointing the Appellant to act in the matter; and

(3) Ultimately ruled in favour of the Respondent and allowed the claim of RM240,000.00 with interest.

[19] On appeal to the High Court, the learned Judicial Commissioner upheld the decision of the Sessions Court.

[20] In respect of the issue of whether the appointment of the Respondent with Martech had violated the Legal Profession Act 1976 ("LPA") and the validity of the agreement between the Respondent and the Appellant, the High Court ruled that the Respondent did not act as an authorized person in this case and s 3 LPA was not offended.

[21] Thus, the agreement between the Respondent and Martech was lawful, and accordingly did not invalidate the agreement between the Respondent and the Appellant.

[22] The Appellant then filed the instant appeal.

C) Parties' Contentions

Appellant

[23] In summary, the Appellant submitted that the Respondent was an "unauthorized person" as his claim for purported "fees" for acts allegedly undertaken by him on behalf of Martech was in contravention of the provisions of the LPA.

[24] The Appellant contended that the Respondent had acted as an agent for Martech, and he had advised Martech to commence legal proceedings against E-Pay.

[25] The Respondent had, in the course of that, further rendered legal advice to Martech in relation to the legal dispute between Martech and E-Pay and advised that Martech had merits in its claim and that the chances of success of recovery through the filing of a legal suit were good.

[26] The Respondent had also come to an arrangement as to the amount of the legal fees payable in the event of the success of the suit, and also charged a consultancy fee in relation to the initiation and conduct of legal proceedings to be commenced by Martech against E-Pay, which also included the legal fees to be paid to the Appellant.

[27] The Appellant further submitted that the Respondent had apportioned a percentage of the amount recoverable in respect of the suit as payment towards the Respondent's consultancy fees.

[28] The Respondent had arranged for the appointment and the services of solicitors and legal counsel to initiate and conduct legal proceedings on behalf of Martech.

[29] The Appellant accordingly submitted that the acts of the Respondent fell squarely within the unauthorized acts prohibited under s 37 of the LPA,

[30] The Appellant further submitted that the acts of the Respondent amounted to touting and had flouted rr 51 and 52 of the Legal Profession (Practice and Etiquette) Rules 1978 (LP "Rules").

Respondent

[31] The Respondent took the position that he was not subject to the LPA because he was not an advocate and solicitor but only a consultant to Martech.

[32] The Respondent submitted that contrary to the position of the Appellant, that the arrangement or agreement amounts to "touting" because the Appellant was sharing his legal fees with the Respondent, it was the correct finding by the Sessions Court that it was the Respondent who was sharing consultancy fees with the Appellant.

[33] The Respondent submitted that he was not appointed by the Appellant to seek clients for the Appellant, but it was the Respondent who appointed the Appellant to act as advocates and solicitors for Martech pursuant to his consultancy arrangement with the latter.

[34] The Respondent's claim was thus against the Appellant in respect of his consultancy fees from Martech, which Martech had paid to the Appellant on the Respondent's behalf and that it was not the Appellant's legal fees which was paid by Martech to the Appellant directly.

[35] The Respondent submitted further that the Appellant was holding the Respondent's consultancy fee for the sum of RM240,000.00 on trust, which Martech had paid to the Appellant.

[36] The Respondent emphasised that he was not seeking for a share of the Appellant's legal fees but rather for his consultancy fees, which Martech had paid to the Appellant.

[37] The Respondent therefore submitted that he had not contravened the LPA or r 51 of the LPA Rules.

Malaysian Bar (Amicus Curiae)

[38] Upon the application of the Malaysian Bar ("Bar"), we granted them leave to appear as Amicus Curiae ("friend of the court"), given that the subject matter involved provisions of the LPA.

[39] The Bar was asked to address the panel in respect of the following two issues:

a) Whether the claim as pleaded, contravenes ss 37 and 40 of the LPA; and

b) Whether or not the claim as pleaded is a touting arrangement which is void and unenforceable under s 24 of the Contracts Act 1950.

[40] The Bar unsurprisingly answered both questions and issues posed in the affirmative.

[41] The Bar premised their submissions upon the definition of who is an "unauthorized person" within the meaning of ss 36 and 37 LPA.

[42] They stated that the acts performed by the Respondent such as providing legal advice generally, drafting and vetting contracts and authorization documentation, giving advice of the prospects of legal success by the institution of legal suits and providing the service of suggesting and placing an advocate and solicitor at the disposal of Martech, all fell within the acts that are regularly performed by a qualified advocate and solicitor and the Respondent therefore had contravened s 37 LPA.

[43] The Bar also submitted that the arrangement that the Respondent would be paid half of the 10% recovered by Martech from E-Pay in the debt recovery suit if successfully recovered, and that the Appellant would be paid the other half of the 10%, had also resulted in the contravention of s 40 LPA.

[44] The Bar also submitted that the Respondent had also infringed r 51 of the LP Rules for touting.

The Applicant Intervener Allen David Martinez (NRIC No: 750625-10-5631) (Formerly Trading Under The Name And Style Of Martech Consultants (Business Registration No: 200703222582/0011732818-A)

[45] The panel had earlier given leave for Allen David Martinez (formerly trading under the name and style of Martech Consultants) to intervene in the appeal proceedings, albeit only in respect of the issue of consequential orders to be made in the event this court allows the Appellant's appeal.

D) Analysis And Findings

[46] After hearing submissions of parties and also hearing the views of the Malaysian Bar as Amicus Curiae and considering the factual matrix of the case, we find that there are two main issues requiring determination in this appeal.

[47] Firstly, whether the claim as pleaded runs foul of the provisions of ss 37 and 40 of the Legal Profession Act 1976 ("LPA").

[48] Secondly, whether or not the claim as pleaded is a touting arrangement which is void and unenforceable under s 24 of the Contracts Act 1950.

(a) Whether The Claim As Pleaded Runs Foul Of The Provisions Of Sections 37 And 40 Of The LPA

[49] It is pertinent in this regard to examine the position of the law with regard to persons who are not authorized within the meaning of the LPA.

[50] In this regard, s 36(1), which contains a definition of an "unauthorized person", reads as follows:

"(1) Subject to this section, no person shall practise as an advocate and solicitor or do any act as an advocate and solicitor unless his name is on the Roll and he has a valid practising certificate authorizing him to do the act; a person who is not so qualified is in this Act referred to as an "unauthorized person".

[51] Section 37(1) LPA, on the other hand, enumerates the kinds or types of conduct of such "unauthorized person" which could lead to the commission of an offence.

[52] Section 37(1) reads:

(1) Any unauthorized person who-

(a) acts as an advocate and solicitor or an agent for any party to proceedings or in any capacity, other than as a party to an action in which he is himself a party, sues out any writ, summons or process, or commences, carries on, solicits or defends any action, suit or other proceedings in the name of any other person in any of the Courts in Malaysia or draws or prepares any instrument relating to any proceedings in any such Courts; or

(b) wilfully or falsely pretends to be, or takes or uses any name, title, addition or description implying that he is duly qualified or authorized to act as an advocate and solicitor, or that he is recognized by law as so qualified or authorized, shall be guilty of an offence and shall on conviction be liable to a fine not exceeding two thousand five hundred ringgit or to imprisonment for a term not exceeding six months or to both."

[Emphasis Added]

[53] Further, s 37(2) provides as follows:

"(2) Without prejudice to the generality of subsection (1), any unauthorized person who either directly or indirectly-

(a) draws or prepares any document or instrument relating to any immovable property or to any legal proceedings or to any trust; or

(b) takes instructions for or draws or prepares any document on which to found or oppose a grant of probate or letters of administration; or

(c) draws or prepares any document or instrument relating to the incorporation or formation of a limited company; or

(d) on behalf of a claimant or person alleging himself to have a claim to a legal right writes, publishes or sends a letter or notice threatening legal proceedings other than a letter or notice that the matter will be handed to an advocate and solicitor for legal proceedings; or

(e) solicits the right to negotiate, or negotiate in any way for the settlement of, or settles, any claim arising out of personal injury or death and founded upon a legal right or otherwise, shall, unless he proves that the act was not done for or in expectation of any fee, gain or reward, be guilty of an offence under this subsection."

[54] Section 37(2A) reads:

"(2A) Any unauthorized person who does or solicits the right to do any act which is customarily within the function or responsibility of an advocate and solicitor, including but not limited to advising on law, whether Malaysian or otherwise, unless he proves that the act was not done for or in expectation of any fee, gain or reward, shall be guilty of an offence under this subsection".

[Emphasis Added]

[55] Section 40 reads:

"Section 40 LPA. No cost payable to unauthorized person

(1) No costs in respect of anything done by an unauthorized person as an advocate and solicitor or in respect of any act which is an offence under ss 37 or 39 shall be recoverable by any person in any action, suit or matter.

(2) Any payment to an unauthorized person for anything done which is an offence under ss 37 or 39 may be recovered in a Court of competent jurisdiction by the person who has paid the money"

[56] The question to be asked here is what was the exact nature or scope of work that the Respondent undertook in consideration of his entitlement to the sum of RM240,000.00 as claimed?

[57] The facts reveal that Martech had appointed the Respondent as a Consultant in charge of their legal portfolio, and the Respondent was authorized to appoint external counsel and solicitors as and when required.

[58] The Respondent was to be paid consultancy fees on a case to case basis for such matters. The Respondent was appointed as a Consultant in relation to a Business Consultancy Agreement (BCA) between Martech and E-Pay, which subsequently resulted in a dispute.

[59] The Respondent had advised that E-Pay had breached the BCA and recommended that a legal suit be initiated by Martech against E-Pay for breach of contract and advised further that Martech had a 'strong chance' of recovering damages.

[60] With regard to the fees for the legal action against E-Pay, it was agreed that a sum of 10% of the subject matter of the suit or any settlement sum therefrom would be sufficient to cover legal fees and the Respondent's own consultancy fee, and a sum of RM20,000.00 would be paid to initiate the suit.

[61] It was also the arrangement that the Respondent would apportion payment of the legal fee due to counsel appointed on the Respondent's recommendations from the 10%.

[62] The Respondent recommended the appointment of Messrs Kashminder as solicitors and the Appellant as counsel to represent Martech in the legal suit to be initiated against E-Pay.

[63] The Appellant agreed that half of the 10% of the subject matter of the suit or any settlement sum would be paid towards the Respondent's consultancy fee, and the balance half share from the 10% would be paid towards the Appellant's legal fee.

[64] When the E-Pay suit was settled for the amount of RM4,800,000.00, the settlement sum was paid to the Appellant, and the Appellant retained RM480,000.00 therefrom as part of the agreed legal fees (10%).

[65] The Respondent then alleged that the Appellant refused to pay the sum of RM240,000.00 to the Respondent, being the Respondent's consultancy fees pursuant to the Consultancy Agreement with Martech.

Did The Respondent Act As An Unauthorized Person Within The Meaning Of The LPA?

[66] The Respondent claims to be entitled to half of 10% of the sum of RM480,000.00, ie RM240,000.00.

[67] This sum claimed is premised on a "consultancy fee" pursuant to the Respondent's agreement with Martech.

[68] This "consultancy" included being in charge of handling their legal portfolio internally which included legal compliance with existing contracts, including an agency agreement with E-Pay.

[69] In other words, the Respondent provided services to Martech with regard to both legal advice and legal compliance.

[70] The evidence also disclosed that the Respondent had the authority to recommend and appoint external solicitors and counsel.

[71] The Respondent also undertook advising and drafting of contracts for Martech, as evident from draft versions of agreements sent in the form of a Word document to the Respondent for vetting.

[72] In addition, the Respondent also had the authority to recommend and appoint external solicitors and counsel.

[73] Draft versions of agreements were sent in Word format to the Respondent for vetting, which means that the Respondent had undertaken the advising and drafting of contracts for Martech.

[74] The Respondent further provided his advice in respect of the chances of the success of any legal action initiated by E-Pay and concluded that the suit stood a high chance of being resolved in favour of Martech.

[75] The services offered to be performed and which were performed by the Respondent can be summarized as follows:

i) Appointing the Appellant to act for Martech;

ii) Handling the internal legal portfolio for Martech which included legal compliance with existing contracts including the agency agreement with E-Pay;

iii) Recommending and appointing external solicitors and counsel to act for Martech;

iv) Drafting and vetting contracts and authorization documents for Martech; and

v) Providing advice on the chances of legal success and in advising to initiate legal action.

[76] Now it is clear from a plain reading of s 37 LPA that it is designed to impose restrictions upon an "unauthorized person" performing services that only an advocate and solicitor can perform.

[77] A reading of the section as a whole will clearly indicate that the acts and services performed by the Respondent as enumerated above fall within the prohibition envisaged by s 37.

[78] In addition, s 40 LPA prohibits the payment of costs to an "unauthorized person" and reads as follows:

(1) "Section 40 LPA. No cost payable to unauthorized person. No costs in respect of anything done by an unauthorized person as an advocate and solicitor or in respect of any act which is an offence under ss 37 or 39 shall be recoverable by any person in any action, suit or matter,

(2) Any payment to an unauthorized person for anything done which is an offence under ss 37 or 39 may be recovered in a Court of competent jurisdiction by the person who has paid the money".

[79] The decision of the Federal Court in Darshan Singh Khaira v. Majlis Peguam Malaysia [2021] 6 MLRA 266 is also instructive. That case adopted Australian precedents which employed the acid test of whether a person has engaged in legal practice as follows:

"If a person does a thing usually done by a solicitor, and does it in such a way as to lead to the reasonable inference that he is a solicitor — if he combines professing to be a solicitor with action usually taken by a solicitor — I think he then does act as a solicitor.

The three ways in which a person could be said to be practising as a solicitor was summarised by the court as follows:

Based upon the foregoing, I conclude that a person who is neither admitted to practise nor enrolled as a barrister and solicitor may "act or practise as a solicitor" in any of the following ways:

(1) by doing something which, though not required to be done exclusively by a solicitor, is usually done by a solicitor and by doing it in such a way as to justify the reasonable inference that the person doing it is a solicitor. This is the test in Sanderson.

(2) by doing something that is positively proscribed by the Act or by Rules of Court unless done by a duly qualified legal practitioner. Examples of such prohibitions in a statute are s 93 and s 111 of the LPPA. (Legal Profession Practice Act 1958).

(3) by doing something which, in order that the public may be adequately protected, is required to be done only by those who have the necessary training and expertise in the law. For present purposes, it is unnecessary to go beyond the example of the giving of legal advice as part of a course of conduct and for reward.

[22] In conclusion, JD Phillips J observed:

In my opinion, the giving of legal advice, at least as part of a course of conduct and for reward, can properly be said to lie at or near the very centre of the practice of the law, and hence of the notion of acting or practising as a solicitor, which is itself central to s 90...It is thus something required to be undertaken only by the legally qualified, and not by those not properly qualified.

[23] Daubney J alluded to each of the following matters which can be said to lie near the very centre of the practice of litigation law:

(a) advising parties to litigation in respect of matters of law and procedure:

(b) assisting parties to litigation in the preparation of cases for litigation;

(c) drafting court documents on behalf of parties to litigation;

(d) drafting legal correspondence on behalf of parties to litigation; and

(e) purporting to act as a party's agent in at least one piece of litigation.

On our part, we find no reason to think that the matters listed above are not matters which lie at the heart of the practice of law"

[Emphasis Added]

[80] Having applied the tests described above to the factual matrix of the instant case, we are of the view that the acts and services performed by the Respondent are squarely within the description of a person engaging in legal practice.

[81] On the other hand, the finding of the High Court was that the Respondent was not in breach of s 37 of the LPA as the Respondent acted as an "in-house legal counsel" to Martech and was therefore permitted to exercise the functions he did.

[82] The High Court had therefore recognized that the Respondent was in fact providing legal advice and services but was not caught by the prohibition in s 37 LPA as he was in effect operating as "in-house counsel".

[83] However, the Respondent here was not employed and was not acting solely for Martech as a full-time paid employee.

[84] The learned High Court Judge had therefore further erred in failing to appreciate that only the actions of a fully paid "in-house" counsel were exempted under s 38(1)(d) LPA.

[85] In this regard, it is material to note that there were several aspects of the Respondent's relationship with Martech which differed considerably from that of a genuine in-house counsel.

[86] First, the evidence revealed that:

(a) he was not an employee of Martech;

(b) he was appointed as a consultant for a single contract and on a case-by-case basis and not in respect of all legal matters;

(c) he did not have a written contract of employment with Martech;

(d) he was paid a fee on the contingency of there being a successful outcome and not on a fixed fee basis; and

(e) he could appoint lawyers and decide on allocation of fees dependent upon the outcome of litigation.

[87] Secondly, and with the greatest of respect, the interpretation employed by the learned High Court Judge consequent upon her finding that what the Respondent did was akin to the work of in-house legal counsel, if followed, would have the effect of circumventing the prohibitions, restrictions and the protection afforded by s 37 LPA by the artificial utilization of a "consultancy" arrangement.

[88] Thirdly, employing a purposive interpretation of s 37, it can hardly be denied that the section was meant for the protection of an unsuspecting public against those who engage in the practice of providing legal services but without the safeguards contained within the LPA.

[89] Drawing all of the above threads together, we are therefore of the view that the claim of the Respondent ran afoul of ss 37 and 40 of the LPA.

(b) Whether Or Not The Claim As Pleaded Is A Touting Arrangement Which Is Void And Unenforceable Under Section 24 Of The Contracts Act 1950

[90] The prohibition against touting is contained in r 51 of the Legal Profession (Practice and Etiquette) Rules 1978 ("the Practice and Etiquette Rules") and reads as follows;

"Rule 51. Advocate and solicitor not to do or cause touting.

An advocate and solicitor shall not do or cause or allow to be done, anything for the purpose of touting directly or indirectly, or which is calculated to suggest that it is done for that purpose."

[91] There appears to be no definition of the term "touting" in the Rules, but there is a body of case law helpfully cited by learned counsel for "Stricter Enforcement Against Touting", the Malaysian Bar described 'touts' as "persons who receive commissions from law firms in return for securing clients for the law firms". According to the press release, "Touting is abhorrent to the legal profession and detrimental to the public interest, and the Malaysian Bar views touting seriously" [Emphasis Added].

[92] Yet another case cited by learned counsel for the Bar is the Indian case of Re: Phool Din & Ors [1952] Allahabad 491 cited and followed in the case of Balakrishnan Devaraj (supra), to the following effect:

"(12.) Two essential ingredients for a person to be a tout are necessary: (1) he must be engaged in the procurement of a legal practitioner's employment, and (2) in consideration of some remuneration moving from the legal practitioners. If any of these elements is absent, he is not a tout. A person is not a tout if he gives gratuitous advice to a litigant to engage a particular lawyer, or gratuitously procures the employment of a lawyer.It is only when he charges a remuneration from a lawyer for this purpose that he falls in the definition of a tout.

(15.) Legal profession is one of the honourable professions. Every litigant should be at liberty to find out for himself as to which lawyer will render him the best service.

If he engages a lawyer through a tout, the tout is likely to take him to a lawyer who gives him the largest remuneration. A tout would not be concerned with affording the best service to a litigant. The litigant may thus be deprived of the best service. The system of toutism is bound to corrupt the legal profession. A most talented lawyer may not be able to get work, because he does not stoop down to accept an engagement through a tout: but a lawyer who has no scruples to accept employment through a tout may have large work, because he gives a large share of his remuneration to the tout. The administration of justice itself may be affected by permitting toutism, as the Courts may not have the advantage of the services of the best lawyers before them. We have no doubt in our mind that it is not in public interest to permit toutism".

[Emphasis Added]

[93] Based upon the principles derived from the above case law, the arrangement entered into by the Respondent, where he would receive a "consultancy fee" of half of the fees recovered from the Appellant, would fall under the definition of "touting".

[94] In plain and simple terms, what the Respondent did was to identify and enter into an arrangement with a lawyer where the latter would make remuneration to him in exchange for referring the case to him. There was accordingly no attempt to secure the services of a lawyer on the basis of competence or price competitiveness, but purely on the basis of a favourable remuneration for the Respondent.

[95] This fell squarely within the acts of touting as described in Balakrishnan Devaraj (supra).

[96] In this regard, it is also pertinent to note with interest that both the Sessions Court and the High Court had recognized that the Respondent had effectively entered into a touting arrangement.

[97] The following excerpt from the grounds of judgment of the High Court neatly summarized the findings of the Sessions Court and clearly reflected that the Respondent had entered into a touting arrangement:

"(iii) Martech had acted on the advice of the Respondent and agreed to appoint the Respondent as consultant for the E-Pay suit where the Respondent had appointed and arranged for Messrs Keshminder & Associates as solicitors and the Appellant as counsel for the civil suit against E-Pay;

"(iv) The Respondent and Martech then agreed that 10% from the settlement amount is for legal fees and the Respondent's consultancy fees."

[98] The High Court itself held:

"This Court finds that there was indeed an agreement between the Appellant and the Defendant to evenly share the 10% of the successful settlement sum"

[99] By all accounts, what the Respondent seeks to now recover from the Appellant represents his fee in exchange for his appointing the Appellant to act as the lawyer for Martech.

[100] Thus, any which way that one looks at it, this was a "touting" arrangement which is prohibited by r 51 of the Legal Profession (Practice & Etiquette) Rules 1978 ("the Practice and Etiquette Rules") which is prohibited. The decision of the Sessions Court and upheld by the High Court, which ruled that there was no contravention of s 37 and s 40 LPA, was, in our view, a misdirection warranting appellate intervention.

Decision

[101] herefore, as a matter of public policy, such practices ought to be prohibited as falling afoul of s 24 of the Contracts Act 1950 and therefore barring recovery of any sum by the Respondent.

[102] In light of our analysis and findings above, we have come to the unanimous decision that this appeal is allowed. Accordingly, the decision of the High Court is set aside.

[103] Insofar as consequential orders are concerned, it is necessary to mention that we had earlier given leave for Allen David Martinez (formerly trading under the name and style of Martech Consultants) to intervene in the appeal proceedings, albeit only in respect of the issue of consequential orders to be made in the event this court allows the Appellant's appeal.

[104] Accordingly, having allowed this appeal, we invited Counsel for the Applicant, Allen David Martinez, to address us on the subject of consequential orders to be made.

[105] Counsel for Allen David Martinez submitted that since we allowed the appeal, the said sum ought to be refunded to the Appellant, Bhavanash Sharma.

[106] Learned Counsel for the Respondent, on the other hand and in response to the submission for the Applicant, submitted that since the arrangement was held to be illegal, refunding the money would amount to a windfall for the Applicant and tantamount to getting a prize for engaging in an illegal transaction.

[107] Learned Counsel for the Appellant, unsurprisingly, argued that the subject matter sum ought to be refunded to the Appellant.

[108] Learned Counsel for the Amicus Curiae, the Malaysian Bar, submitted that as it is a matter of principle, it would not be right to refund the said sum to the Appellant as it would establish a bad precedent.

[109] After hearing the respective parties' submissions, in respect of the consequential orders, we decided as follows.

Consequential Orders

[110] On the facts of the case, it is clear that the Appellant, being an advocate and solicitor, was aware that his appointment was on the sole basis that he agreed to share half of the 10% recovered with the Respondent.

[111] We are therefore attracted to the argument raised by the Malaysian Bar, that as the Appellant had been in pari delicto, a balance according to the notions of equity and fairness has to be struck between the parties.

[112] In the circumstances, although the appeal is allowed, the appropriate consequential orders which we make are as follows:

(a) We order that the sum of RM240,000.00 plus all interest and the costs totaling the sum of RM309,325.00 held in the clients' account of the firm of Messrs Dinesh Ratnarajah Partnership (Solicitors for the Respondent) pursuant to the Order of the High Court dated 10 August 2023, together with all interest accrued thereupon, be paid to Messrs Kumar Partnership as the solicitors for the intervener, Allen David Martinez (formerly trading under the name and style of Martech Consultants) within 7 days from the date of service of the sealed order of this Court on the firm of Messrs Dinesh Ratnarajah Partnership.

(b) We order that there be no costs in respect of this appeal.

(c) We hereby set aside all previous orders of costs made by the Sessions Court and the High Court.

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