Fraud & Misrepresentation PDF

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Fraud and Misrepresentation Under Contracts Act 1950, fraud is defined under s where it consists of certain acts committed a party to a contract, or with his connivance, or his agent, with intent to deceive another party to enter into the contract. Under Common Law, fraud is categorized as misrepres...

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Fraud and Misrepresentation Under Contracts Act 1950, fraud is defined under s.17 where it consists of certain acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party to enter into the contract. Under Common Law, fraud is categorized as misrepresentation which is fraudulent misrepresentation where it must be made knowingly, without belief in its truth or recklessly. Under Contracts Act 1950, there are 3 elements to prove the commission of fraud. The first one is the fraudulent acts. Fraudulent act can be in the form of false statement, active concealment, promise made without intention of performing it, any other act fitted to deceive and any act or omission the law specially declares to be fraudulent. False statement is defined under s.17 (a) as the suggestion, as to a fact, of that which is not true by one who does not believe it to be true. In another words, the false statement but be statement of facts, not opinions or law. In the case of Bisset v Wilkinson, the court held that a mere opinion is not a statement of fact. Besides, the false statement must be made by the person who does not believe the statement to be true. In the case of Derry v Peek, the maker of the statement honestly believed it to be true, thus not liable for fraudulent misrepresentation. Another way to establish fraudulent act is the active concealment which is stated under s.17(b) of the CA 1950. There must be an active concealment of the facts and it is made by one who has the knowledge of it. It can be seen under illustration. Mere silence is considered as fraud because it must be active concealment where it involves conduct of the party. Under s.17(c), a person is considered to have committed fraud if he has no intention to perform the promise after the promise was made. In the case of Datuk Jaginder Singh v Tara Rajaratnam, the court held that fraud has been proved as the evidence shown that the defendant did not have any intention to perform their promises. Other ways to establish a fraud act are stipulated under s.17(d) and (e) which is the act fitted to deceive and act or omission declared to be fraudulent respectively. The second element in establishing the commission of fraud is the intention of the party who made the false representation. The fraudulent act must be made with the intention of deceiving another party to enter into the contract or, to induce him or her to enter into the contract. In the case of BP (Sabah) Sdn Bhd v Syarikat Jubrin Enterprise (a partnership firm) & Anor, fraud was described as a person have acted fraudently or with intent to defraud if he acts with the intention that some person be deceived. This element is to differentiate fraud with misrepresentation stated under s.18. For misrepresentation, the intention of the person who falsely represented is innocent. The third element is the inducement on the representee. The representee must have relied on or has been induced by the false statement made by the representor. The representee must be actually deceived. Under Explanation of s.19, it stated that a fraud or misrepresentation which did not cause the consent to a contract of the party on whom the fraud or misrepresentation was made, does not render a contract voidable. There must be a causation-link which shows that representee has entered into the contract based on the representation. If the representee entered the contract based on reason other than the false representation made by the representor, then no fraud has been committed. In sum, there can be no actionable fraud if the representee never knew of the existence of the fraud, did not allow the fraud to affect his judgment and was aware of the truth.

The general rule of silence in fraud is that mere silence would not amount to fraud because there is no duty to disclose facts which if known might affect the other party’s decision to enter the contract. It can be see under Illustration (a) and (d) under s. 17. In the case of Lau Hee Teah v Hargill Engineering Sdn Bhd & Anor which involves the sale and purchase of loader, the defendant respondent did not have the active duty to inform plaintiff appellant the manufacture year and the condition of the loader. Under the Explanation of s.17 of Contracts Act 1950, it stipulates that mere silence on facts that are likely to cause the consent of the other party to enter into the contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech. Thus, the exception to this general rule is the duty to speak and silence that is equivalent to speech. In the case of Haji Ahmad Yarkhan v Abdul Gani Khan & Anor, there is no fiduciary relationship established between the parties who arranged the marriage on behalf of the couple. However, there was a duty to disclose the information of the illness of the bride as this type of contract was a contract uberrimae fidei. In insurance contract, most of the time there is legal duty on the insured to disclose certain material facts that is likely to influence a prudent insurer. Illustration (c) under s.17 shows the example on silence that is equivalent to speech. The same general principle of silence on fraud is applied under Common Law as we can see from the case of Horsfall v Thomas which involves the sale and purchase of defective gun. It was stated by Bramwell B that if there be a defect know by the manufacturer, and which cannot be discovered on inspection, he is bound to point it out. However, in this case, the vendor was not guilty of fraud although he had taken some means to conceal the defect, the purchaser had not made any examination of the defective part, and he was not misled by any act of the vendor. Caveat emptor applies in this case where the parties are required to look after their own interest in making contracts. The principle of caveat emptor was stated in the case of Wei Tah Construction (B) Co Sdn Bhd v Law Wun Ing. The purchaser should make inspection and inquiry as to that which he is proposing to buy. If he omits to ascertain, he cannot complain after wards on discovering defects of which he would have been aware if he had taken ordinary steps to ascertain. The same principle is stated under Exception of s.19 CA 1950 where a contract is not voidable due to fraud by silent, if the party had the means of discovering the truth with ordinary diligence. The burden of establishing fraud lies upon the party asserting it. In the case of Datin Zainun binti Ismail v Tuan Minah binti Syed Abdul Rahman , the court held that the burden of proof on fraud is on the defence and the general rule is that fraud cannot be presumed from mere circumstances of suspicion. Fraudulent misrepresentation will render a contract voidable at the option of the innocent party. It is stated under s.19(1) of the CA 1950. However, the innocent party may insist that the contract to be performed by virtue of s.19(2). Besides, the innocent party is entitled not only the rescission of the contract by also an award of damages. In the case of Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd & Anor Appeal, the plaintiff who was induced to enter into the agreement by a false and fraudulent representation was awarded damages in addition to the remedy of rescission. However, s.74, which is a remedy for breach of contract, has no application under fraudulent misrepresentation.

Under Contracts Act 1950, misrepresentation is defined under s.18 where it consists of the false assertion, breach of duty or mistake to substance. Under Common Law, misrepresentation is known as innocent misrepresentation. Under Contracts Act 1950, there are 3 elements to prove the commission of misrepresentation. The first element is the false assertion. Same as fraud, no relief is granted for a misrepresentation unless it is a false statement of fact. A mere puff is not a statement of fact which can be seen in the case of Carlill v Carbolic Smoke Ball. A representation as to the future does not give rise to any cause of action, unless it is binding as contract. A person who promises to do something may simply be making statement as to his future conduct but he does not mispresent a fact merely because he fails to do what he said he would do. In Bisset v Wilkinson, Privy Council held that a mere opinion is not a statement of fact, hence there is no misrepresentation that can be found on a statement of opinion. The court has held in the case of Low Kon Fatt v Port Klang Golf Resort that mere exaggeration is not representation, but if it has the object and result of inducing an affected party, it is a representation. The other instances which establish misrepresentation is the breach of duty which is stipulated under s.18(b). In the case of Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance Bhd & Anor, court held that a case of negligent misrepresentation had been made out, which is the breach of duty when the manager had been negligent in making certain statement upon which the appellant had acted upon. Under s.18(c), causing mistake to a substance is also one of the way of misrepresentation. The person who made the false assertion must believe the assertion to be true. The intention of the representor is innocent. This is the second element of misrepresent which also differentiates fraud and misrepresentation where the intention of the person who is committing fraud is not believing the statement to be true. In the case of Double Acres Sdn Bhd v Tiarasetia Sdn Bhd, the court stated that in fraud, the person making the representation does not himself believe in its truth. Whereas in the case of a misrepresentation, the person making the representation may believe the representation to be true. The third element of an actionable misrepresentation is the misrepresentation induced or caused the person to whom it was made to enter into the contract. In the case of Gemakota Enterprise Sdn Bhd v Public Bank Berhad, high court found that the misrepresentation which is the mis-description in the first proclamation of sale, was the material factor that has induced the plaintiff into entering the contract. There can be no actionable misrepresentation if the plaintiff never knew of the existence of the misrepresentation, did not allow the misrepresentation to affect his judgment or the plaintiff was aware of the truth. In the case of Attwood v Small, the court held that the plaintiffs are not entitled to rescission because he had relied on their own expert and not the word of the defendant seller when they entered the contract of purchasing the property and mines. In general, silence itself cannot give rise to an action for misrepresentation, since no statement would have been made. However, where such silence amounts to a breach of duty within the meaning of s.18(b), it may amount to a misrepresentation. Under Exception of s.19, a contract is not voidable due to misrepresentation, if the party had the means of discovering the truth with ordinary diligence. The case of Tan Chye Chew v Easatern Mining and Metals Co Ltd have illustrated this point when the appellant was alleged of committing fraud when they have shown the wrong piece of land to the respondent company. However, the respondent company could have discovered the mistake

had they exercised ordinary diligence. The contract was not voidable because of misrepresentation, because the respondent company “had the means of discovering the truth with ordinary diligence”. The effect of misrepresentation is the contract rendered voidable at the option of the innocent party, which is stated under s.19(1) of the CA1950. S.19(2) allows the innocent party to affirm or insist the performance if he thinks fit. The usual remedy for misrepresentation is rescission. Under the case of Sim Thong Realty Sdn Bhd v The Kim Dar, it was held that the innocent party may sue for rescission and consequent restitution, but he may not recover damages. In the case of Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd, Gopal Sri Ram JCA stated that an innocent representation entitles the representee to merely rescission, and in certain cases, with addition of indemnity....