Notes Misrepresentation and Fraud PDF

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MISREPRESENTATION • • •

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Misrepresentation is a false per-contractual statement that induces a contract or other transaction. At common law there are 3 types of representation: Innocent, negligent, and fraudulent. Under section 18 of the CA1950, misrepresentation is confined to innocent misrepresentation: which is an untrue statement which the speaker believes is accurate. It covers both innocent and negligent misrepresentation at common law. Expression ‘fraud’ is equivalent to fraudulent misrepresentation at common law. o Fraudulent misrepresentation: representee is entitled to recission and damages. o Innocent misrepresentation: may sue for recession; but may not recover damages. Silence in certain situations where there is a duty imposed to disclosed, may amount to a misrepresentation. (Section 18(a) of the CA1950)

SCOPE UNDER SECTION 18(a) • The false statement under section 18(a) is made ‘before or at the time of contracting’. • Plaintiff must prove the following factors: o A false representation made before or at the time of contracting; o The representation must be one of fact; o The maker addressed the statement to the misled party; and o The maker believes in the truth of the statement. 1. False representation: Must be clear and not ambiguous May be made expressly in writing or by an oral statement or by some conduct from which statement can be implied If there was a representation, it must be false (Lau Hee Teah v Hargill Engineering Sdn Bhd [1980] 1 MLJ 145) 2. The representation must be one of fact: Mere expression of opinion or a statement of law is not a representation of fact. (See Bisset v Wilkinson [1927] AC 177, PC (New Zealand)) A misrepresentation as to the state of a man’s mind is a misstatement of fact. 3. Addressed to misled party In the case of Peek v Gurney (1873) LR 6 HL 377, the court held that action against the promoters failed since the false statement in the prospectus were not addressed to him. 4. The maker believes in the truth Has no intention of deceiving the misled party. Basic distinction between fraud and misrepresentation.

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FRAUD •

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Section 19 of CA1950 defines fraud to include certain acts that are committed by a party to a contract (or by his agent) with INTENT to DECEIVE another party thereto or his agent, or to INDUCE him to enter into a contract. The maker of the statement does not believe in the truth of the statement made or made it with intent to deceive another party. Elements of fraud: o False statement/representation o Given with intention to deceive o The representation must induce the contract and the representee must have relied on the representation o Misled party must have exercised their ordinary diligence "Fraud" includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract: (a) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true; (b) the active concealment of a fact by one having knowledge or belief of the fact; (c) a promise made without any intention of performing it; (d) any other act fitted to deceive; and (e) any such act or omission as the law specially declares to be fraudulent. Explanation--Mere silence as to facts likely to affect the willingness of a person to enter into a 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. What amount to fraud?

Representation as to fact • The provisions of section 17(a) have similar requirements as section 18(a) in that there must be a false representation of fact addressed to the misled party. • See illustration (a) to Section 19. • Case: Kheng Chwee Lian v Wong Tak Thong [1983] o The Respondent had been persuaded by the appellant to enter into second contract on the false representation that the area of land to be transferred was the same size as the last which the respondent had agreed to buy under the first agreement. In fact, the area was smaller. The FC held that the respondent had been induced into signing the 2nd agreement by the appellant’s misrepresentation, which was fraudulent within the meaning of S. 17 (a) and (d) of CA1950. Active concealment of a fact • Where a party to a contract actively conceals or prevents certain material information from reaching the other party to the contract, his active concealment amounts to fraud. • See illustration (c) and (d) to Section 19.

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Case: Horsfall v Thomas (1862) o The claimant purchased a gun which had a concealed defect. His action for misrepresentation failed as he had not inspected the gun before purchasing it. Therefore, the misrepresentation did not induce him to enter the contract as he was unaware of it. The active concealment under S.17(b) must not be confused with the general rule of caveat emptor that silence does not amount to misrepresentation or fraud. Under the general rule, the alleged party does not do anything active to hide the information. See illustration (a) and (d) to Section 17. Case: Lau Hee Teah v Hargill Engineering Sdn Bhd [1980] o In this case, the appellant had entered into an agreement on August 14, 1968 to take a loader on hire-purchase as hirer, with the first respondent as dealer and the second respondent as owner. The first respondent (as seller) did not inform the hirer of the year of manufacture of the machine and the fact it has been previously been involved in an accident. o The Federal Court held that this did not amount to misrepresentation as there was no active duty on the part of the seller to inform the hirer of these matters.

Fraudulent promises • S. 17 CA 1950 • Either the promisor knows that when he makes the promise, he cannot perform it or he makes a promise he intends to break. Any other act fitted to deceive • This is a catch-all clause to prevent any fraud escaping the net of the law. • Case: Loi Hieng Chiong v Kon Tek Shin [1983] o The courts could only determine fraud from acts and circumstances of a particular case. It usually takes the form of a statement of what is false or a suppression of what is true. o There is fraud if the designed object of a transfer is to cheat a man of a known existing right; or where by a deliberate and dishonest act a person loses an existing right. • Case: Datuk Jagindar Singh v Tara Rajaratnam [1983]

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Effect of Misrepresentation and Fraud Contract is voidable (See S.19 CA1950) On discovering the misrepresentation or fraud, the misled party may make an election: to affirm or to rescind the contract. If affirm: carry on with the contract, claiming compensation for any loss suffered. If rescind: may resist any claim for specific performance or he may ask the court to set aside the contract.

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