Fraud and Misrepresentation S.18 of Contracts Act in pari material with Indian Contract

Act 3 elements to consider to determine

fraud/misrepresentation:Fraud

Fraud defined under S.17

Fraudulent Acts include

Elements

Fraudulent Acts Intention

To deceive To induce

Inducement/Reliance

Elements

Representation

False

Intention

Innocently

Inducement

o False Statement [S.17 (a)] 3 factors taken into consideration

Is the statement a statement of facts? (Must not be statement of law or opinion)

Is the statement false?o Kheng Chwee Lian v Wong Tak

Thong Inducement by R to sign

another agreement which has false information to P constitutes fraud

Was the statement made by a person who does not believe it to be true?o Double Acres Sdn Bhd v

Tiarasetia Sdn Bhd If a person causes another to

act on false representation which the maker himself knows not to be true, the maker has committed fraud

o Active concealment [S.17 (b)] Few factors to take into consideration

Is there a concealment of facts?o Refer to illustrations (C) and (d)

Is there an act of active concealment?o Concealment through positive

conduct and not situations of silence

Is the concealment made by a person who has knowledge of it?

o Tay Tho Bok & Anor v Segar Oil Palm Estate Sdn Bhd

The fact that D knew of the existence of transmission lines and pipelines prior to signing of S & P agreement constitutes active concealment

o A promise with no intention to perform [S.17 (c)] 2 element are needed

Was a promise made? Was there no intention to perform the

promise?o Jong Chuk v Chong Tung Sang

& 5 Ors (Bacom Enterprises Sdn Bhd-Third Party)

Intention and conduct of the 6th D was fraudulent within the meaning of ss 17 (c) and (d)

o Magnum Finance Berhad v Tan Ah Poi & Anor

1st D used the company to enter agreement without intention to perform it and deceived P into parting loan sum

o There are 2 elements which covers the grey areas of fraud (Catch all clause)

Was there an act to deceive? [S.17 (d)] Very wide provision which makes fraud

under S.17 broader than under common law

Kheng Chwee Lian v Wong Tak Thong

Is an act or omission declared fraudulent? [S.17 €]

Applies when the law specifically declares an act or omission to be fraudulent

Also applies when disclosure of certain facts are required by law

Misrepresentation Misrepresentation defined under S.18 To prove the element of misrepresentation, the following

elements must be proven:

The following cases follows the description of misrepresentation under common law

o Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd & Anor Appeal (Gopal Sri Ram JCA)

3 types of misrepresentation which depends on the statement of mind of maker; fraudulent, negligent or innocent

o Sim Thong Realty Sdn Bdf v The Kim Dar @ Tee Kim (Gopal Sri Ram JCA)

Refer to Abdul Razak bin Datuk Abu Samah

Misrep

False Assertion Breach of Duty Mistake toSubstance

Innocent misrepresentation is when a representor believes his assertion is true and there is no intention of deceiving the representee

Fraudulent misrepresentation entitles representee to rescission and damages that comes with the fraudulent inducement

o Common law describes 3 types of misrepresentations; Innocent, fraudulent and negligent

False assertion [S.18(a)]o 3 things to consider under false assertion:

Was the statement made a statement of fact? Noted that if it is a statement of law, it is not

a false assertion Was the statement false? Was the statement made by a person who

believes it to be true? This will also depend on the state of mind of

the makero This section is similar to innocent misrepresentation

under common lawo Low Kon Fatt v Port Klang Golf Resort (M) Sdn

Bhd Representation must be distinguished from mere

statement If statement is presented in a way to represent a

fact for the inducement of the representee to enter the contract, that statement is a contractual term

o Lee Cheong Fah v Soo Man Yoke Innocent misrepresentation occurs when the

representation is false but the representor believes it to be true at the time of the contract

Remedy is rescission of contract Fraudulent misrepresentation occurs when the

false representation is made either knowingly or

without believing its truth, recklessly or carelessly regardless if it’s true or false

Remedy is either repudiation ( where contract is executory) or damages (where contract is said to be executed)

o Breach of duty [s.18(b)]

o This section is similar to negligent misrepresentation under common law

o Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance Bhd & Anor

Court held that negligent misrepresentation had occurred as the information given by the 1st R was insufficient which resulted in the 1st A to act upon the given info which resulted in failure to provide an end-finance

o Causing mistake as to substance [S.18(c)]

Difference between fraud and misrepresentation

(ii) Breach of Duty - S.18(b)

Duty of Disclosure Breach of Duty

False statement

Advantageto Maker

Misleading Another

Causing Mistake as to Substance

False Statement Causing Mistake Substance of Subject of

agreement

Fraud [S.17(a)] Misrep [s.18(a)]

Statement False pre-contractual statement

False pre-contractual statement

Intention With intention to deceive

Absence of the intent to deceive -Innocently

Representor State of mind

Knowing or believes it to be false

Not knowing or honestly believes it to be true

Intentiono Fraud

Has the intention to deceive or to induce a party to enter into a contract

BP (Sabah) Sdn Bhd v Syarikat Jubrn Enterprise (a partnership firm) & Anor (Ian Chin J)

Fraud is described as a party with intention to deceive and as a result of the deception has given the party some advantage or a form of loss to the innocent party

o Misrepresentation No intention to deceive Lee Cheong Fah v Soo Man Yoke

Inducement/ relianceo Similar in both fraud and misrepresentationo Fraud

Representee relied/ was induced by the statement of the representor and, because of this, has been deceived

Refer to Explanation to S.19 for essential element (Causation-link)

o Misrepresentation

Misrepresentation must have induced a party to enter into the contract

Gemakota Enterprise Sdn Bhd v Public Bank Berhad

Misdescription of proclamation of sale induced and caused P to enter into contract

The misdescription is the misrepresentation No actionable fraud is present if the representee:

Was not aware of the existence of the misrepresentation;

Was not influenced by the misrepresentation in his judgment

Was aware of the truth Does silence amount to fraud/ misrepresentation?

o General rule is that silence does not amount to fraud/misrepresentation

o Difference between the general rule for fraud/misrepresentation are the exceptions

Fraud There is a duty to speak

Certain contracts require parties to disclose information to each other (Contract of ubberimae fidei)

Haji Ahmad Yarkham v Abdul hani Khan & Anor

There is no fiduciary relationship between P and D as the negotiations of marriage was held by 2 independent persons who represent their proteges

However, it is a contract of uberrimae fidei

Silence is equivalent to speech Refer to illustration (a) and (d)

Misrepresentation

If the silence amounts to breach of duty as defined under S.18(b)

o Duty to discover Refer to exception to S.19 A contract is not voidable by either fraud by silence

or misrepresentation if parties have the means of discovering the truth through ordinary diligence

Fraud Explaination to s.17 must be read with

exception to s.19 Weber v Brown

Exception does not cover fraudulent assertion

Caveat emptor is applicable Misrepresentation

Gemakota Enterprise Sdn Bhd v Public Bank Berhad

There was a misrepresentation of sales by D on the description of proclamation of sales

Effect of fraud and misrepresentationo S. 19 is applicable

S.19 (1)= The contract becomes voidable at the option of the innocent party

S.19 (2)= The innocent party has the right to insist performance of the contract

Relief of fraud and misrepresentationo Rescission of contract

S.65 and S.66 becomes applicable if the innocent party rescinds the contract

o Fraud Mithoolal Nayak v Life Insurance Corpn of India

Party who committed fraud is unable to recover money in an action for money had and receivedunder

Can claim for damages

Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd & Anor

Recoverable damages should not be assessed on same footing as damages for breach of contract so as to put the innocent party in same position as if contract had been performed

Damages should be assessed on footing that contract had rescinded to put the innocent party in a position which it would have been if the party had not relied on fraudulent inducement

A remedy for specific performance is unobtainable if there is evidence of fraud

S. 27 (a) and (b) of Specific Relief Act Ng Pak Cheong v Global Insurance Co Sdn Bhd

Specific performance is rejected if a contract contains elements of fraud, positive misrepresentation, fraudulent suppression or misleading conditions of sale

o Misrepresentation Sim Thong Realty Sdn Bhd v Teh Kim Dar @

Tee Kim A representee who has been induced by an

innocent representation may sue for rescission and consequent restitution, but he may not recover damage

Haji Ahmad Yarkhan v Abdul Gaul Khan S.76 is not applicable as it covers damages

sustained through non-fulfilment of contract and not cases of rescission ab initio

Remedy for negligent misrepresentation Hedley Byrne’s case

“If the misrepresentation was made negligently, the remedy of the representee lies in damages in the tort of negligence

under the assumption of responsibility and reliance doctrine laid down in Hedley Byrne & Co Ltd v Heller & Partners 119641 AC 465. In such a case, the representee must plead and prove a special relationship giving rise to a duty of care as well as the other elements that go to constitute the tort of negligence.”

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