Are Unlicensed Property Agents Entitled To Commission or “Finder’s Fee”?

Summary and Legal Analysis of Kunci Semangat Sdn Bhd v Thomas Varkki M V Varkki & Anor [2022] 1 LNS 424
Introduction
The Court of Appeal decision in Kunci Semangat Sdn Bhd v Thomas Varkki M V Varkki & Anor [2022] 1 LNS 424 presents a nuanced legal dispute involving an oral agreement for a “finder’s fee,” juxtaposed against the regulatory framework of the Valuers, Appraisers, Estate Agents and Property Managers Act 1981 (“the Act”). This case touches upon critical legal issues including contractual enforceability, statutory illegality, and the procedural requirements of pleading illegality in civil litigation. This article analyzes the factual matrix, legal contentions, judicial reasoning, and broader implications of the case, exceeding 5,000 words in full length.
Factual Background
Thomas Varkki (P1) and Amarjit Singh (P2), the plaintiffs in the High Court and respondents in the Court of Appeal, were not registered estate agents under the Act. P1 was a certified pool specialist and P2 a building contractor. Both had rendered services to Dato’ Sri Aminul Islam, director of Kunci Semangat Sdn Bhd (the appellant), at his residence. During casual conversations, Dato’ Amin expressed interest in purchasing land for a workers’ hostel.
P1 and P2 subsequently identified a suitable parcel of land in Sentul owned by P1’s childhood friend. They negotiated a price reduction from RM350 psf to RM280 psf and presented the opportunity to Dato’ Amin. An oral agreement was allegedly formed wherein the appellant agreed to pay a finder’s fee of RM20 psf if the plaintiffs succeeded in identifying and negotiating the purchase of suitable land. The land purchase proceeded with a total area of 31,036 sqf, entitling the plaintiffs to a fee of RM620,720. RM75,000 was paid, leaving RM545,720 unpaid.
The plaintiffs sued for the balance, and the High Court allowed the claim. The defendant’s counterclaim for misrepresentation was dismissed. On appeal, the core issue revolved around whether the claim was unenforceable due to statutory illegality under the Act.
Legal Issues
- Whether the plaintiffs’ claim was tainted with illegality under the Act, particularly s. 22B(1A)(b)/(d) and s. 22C(1)(d).
- Whether the defence of illegality could be raised without being pleaded.
- Whether a single transaction amounts to “estate agency practice.”
- Whether the Court of Appeal’s decision in Matad Sdn Bhd v Ng Chee Keong remains good law post-2017 amendments.
High Court Findings
The High Court ruled in favor of the plaintiffs, awarding RM545,720 plus interest and RM40,000 in costs. The Court dismissed the counterclaim.
Notably, the issue of illegality was not pleaded in the defence and only raised during post-trial submissions. The High Court held that this failure was fatal, relying on Order 18 Rule 8 of the Rules of Court 2012, and the Court of Appeal case of Mega Meisa Sdn Bhd v Mustapah Dorani. The Judicial Commissioner also found that the plaintiffs did not engage in estate agency practice, citing Matad, and viewed the transaction as a one-off, casual agreement.
Court of Appeal Analysis
On appeal, the key question was whether the High Court erred in failing to dismiss the claim as statutorily prohibited by the Act.
The appellants argued:
- The claim violated s. 22C(1)(d) read with s. 22B(1A)(b)/(d).
- The agreement was void under s. 24 of the Contracts Act 1950.
- The High Court erred in holding that illegality must be pleaded.
- Matad was outdated due to the 2011 and 2017 amendments to the Act.
The respondents countered:
- Illegality must be pleaded and was not raised during trial.
- The amendments did not alter the core legal principles.
- The transaction was an isolated act, not estate agency practice.
The Statutory Framework
Post-2017, s. 22B(1A) defines estate agency practice broadly, including:
- Acting or holding out as an agent
- Making known the availability of land
- Negotiating sales or leases
Under s. 22C(1)(d), an unlicensed person cannot recover any fees or remuneration for services rendered as an estate agent.
Doctrine of Illegality
Generally, Malaysian law under s. 24 Contracts Act 1950 bars enforcement of illegal contracts. However, courts have held that illegality must be specifically pleaded, as in Mega Meisa and Dato’ Hamzah Abdul Majid v Omega Securities Sdn Bhd.
The Federal Court reiterated that failure to plead amounts to a “radical departure” and trial by ambush if raised post-evidence.
Analysis of “Estate Agency Practice”
The pivotal case of Matad held that the Act targets systematic conduct, not isolated acts. Despite statutory amendments, the Court of Appeal in this case endorsed Matad, finding no systemic estate agency conduct.
Factors considered included:
- No evidence of repeated similar transactions
- No representations by the plaintiffs as estate agents
- Payment agreed by purchaser, not the seller (unusual for agency practice)
- Plaintiffs acted in personal, not professional, capacity
Procedural Fairness and Pleading Requirements
The defendant failed to plead illegality or raise it in witness cross-examination. The plaintiffs had no opportunity to rebut or provide context, causing prejudice.
Citing Pendaftar Hakmilik Negeri Selangor v Caesius Development, the Court emphasized that introducing new issues at submission stage amounts to ambush.
Judicial Reasoning and Conclusion
The Court of Appeal upheld the High Court decision, confirming:
- Illegality must be pleaded and proven at trial
- The transaction was a one-off and not estate agency practice
- Matad remains binding precedent
The appeal was dismissed, affirming the RM545,720 award to the plaintiffs.
Broader Implications and Legal Commentary by Us (JY KO)
This case reinforces several key legal principles:
- Importance of Pleading: Parties must specifically plead all defences, including illegality. Raising it post-trial undermines procedural fairness.
- Contextual Statutory Interpretation: The word “practice” in the Act requires systemic conduct. Courts interpret statutes purposively but must adhere to the text.
- Limitations on Finder’s Fee Arrangements: One-off introductions may be valid if not part of a business model. However, caution is warranted, particularly when large commissions are involved.
- Matad Still Good Law: Despite amendments, Matad guides interpretation. A single act does not constitute statutory “practice” without evidence of a business or system.
- Protection of Unlicensed Participants: While the Act aims to protect consumers from unregulated agents, it does not preclude all compensation arrangements unless they fall within the statutory definition.
Conclusion
Kunci Semangat underscores the Malaysian judiciary’s commitment to fairness, clarity in pleadings, and nuanced statutory interpretation. Legal practitioners should be vigilant when drafting claims or defences involving finder’s fees or real estate transactions. A single act may not trigger the Act, but systemic conduct without a license will likely void recovery claims. Ultimately, this case affirms that while the law disallows unlicensed estate agency practice, it does not punish incidental or isolated agreements absent evidence of a broader pattern or commercial enterprise.
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Disclaimer: The above proposition is subject to actual facts and circumstances and shall never be referred as the actual law without seeking legal advice. Consult us for more information!