STAKEHOLDING BY LAW FIRMS

Dr Ker Sin Tze asked the Minister for Law whether the existing law allowing law firms acting as stakeholders to retain the interest on the stakeholding fund will be amended so that the interest will be paid to the owner of the fund.

Prof. S. Jayakumar: A stakeholder holds the money on behalf of both the buyer and seller. If the sale is completed without incident, he will pay the money to the seller. If the sale is aborted through no fault of the buyer, the stakeholder returns the money to the buyer. In the meantime, neither the seller nor buyer can rightfully claim that the money, and the interest earned from it, belong to him as it is not certain who will finally be entitled to the money. Therefore, in a stakeholding situation, it is not meaningful to speak of "owner of the fund".

The law allows stakeholders to retain the interest earned on the stakeholding funds as remuneration for the valuable service they provide to both seller and buyer. The stakeholder, who holds the money on behalf of both parties, is accountable to them for the safekeeping of the money. He must act fairly as between the parties and pay out the money only in accordance with law. This is especially important in cases where there is a legal dispute between the parties and they both lay claim to the money. As he provides a service which protects the interests of both buyer and seller, it is only fair that he is adequately remunerated.

I should clarify that it is not only law firms who act as stakeholders in property transactions. For uncompleted units sold directly by developers, the Singapore Academy of Law acts as stakeholder. In other property transactions, parties are free to decide who the stakeholder should be, even though they usually appoint the lawyer. Whoever the stakeholder is, the law governing the treatment of interest on the stakeholding fund is the same.