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FRAUD

• Section 17 of CA 1950
• Important elements:
1) An act done by a party to a contract –
deceitful act that is intended to induce
another party to enter into a contract
2) Intention – state of mind of the representor)
• Derry Peek [1889] 14 App CaS 337
Lord Herschell: Fraud is when it is shown that
false representation has been made-
1) Knowingly, or
2) Without belief in the truth, or
3) Recklessly, careless whether it is true or false
• Weber v Brown [1908] 1 FMSLR 12
The app sued the resp for damages in respect of
an alleged false and fraudulent misrepresentation
relating to the number of rubber trees on an
estate over which the later had the right of
purchase, which he transferred for valuable
consideration to the former. The number of trees
represented was in excess of the number, which
actually existed on the estate.
• Held: The app had made the alleged
misrepresentation falsely and fraudulently,
and such act had caused the resp to acquire
and subsequently to exercise the right of
purchase.
Five acts of fraud – s.17
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 of believe of the fact
c) A promise made without any intention of
performing it
d) Any other act fitted to deceive
e) Any such act or omission as the law specially
declares to be ‘fraudulent’
The suggestion as to a fact, of that which is
not true by one who does not believe it to
be true
Kheng Chwee Lian v Wong Tak Thong [1983] 2
MLJ 320
The resp had bought a half share in a piece of
land from the app and paid the purchase
price. Subsequently the resp was induced to
sign another agreement under which he gave
up part of the land he had previously
purchased in exchange for another, much
smaller piece.
• The resp alleged that he was induced by the false
representation of the resp to sign the second
agreement. He applied to the court for a
declaration and obtained a declaration that he
was the owner of one half of the land and an
order that the land be subdivided. The app
apeealed.
• Fed Ct: The misrepesentation was fraudulent
within the meaning of s.17(a) and (d) of CA 1950.
The agreement was voidable.
The active concealment of a fact by one having
knowledge of believe of the fact

• Illustration (c) to s.19


• Tay Tho Bok & Anor v Segar Oil Palm Estate
Sdn Bhd [1996] 3 MLJ 181
• Lim Kim Hua v Ho Chui Lan & Anor [1995} 3
MLJ 165
• Tay Tho Bok & Anor v Segar Oil Palm Estate Sdn
Bhd [1996] 3 MLJ 181
Pl purchased land from the def, whereby the def
did not inform the pl that 4.08 acres of the land
were being used by the Public Utilities Board of
S’pore for water pipelines, and 13.60 acres were
being used for transmission cables by Tenaga
Nasional Bhd. On discovering the the existance of
the encumbrances, the pl sued the def.
• Held: The def knew of the existence of these
structures prior to signing the agreement. The
def made the misrepresentation deliberately,
through an agent, to the pl, who were misled
and deceived by it.This amounted to fraud
under s.17(a). The def also suppressed the
existance of the water pipelines running
across the land. This amounted to fraud under
s.17(b).
A promise made without any intention of
performing it
• Mui Plaza Sdn Bhd v Hong Leong Bank Bhd & Ors (No
2) [1998] 7 MLJ 122
The pl –owner of Mui Plaza, rented out 13 premises to
the 1st def. The pl claimed that the 2nd def, who was the
executive chairman of the 1st def had promised – if the
pl allowed the 1st def to continue in occupation of the
pl’s premises, the 1st def would be responsible to the pl
for any loss or damage resulting from the tenancy.
Relying on the misrepresentation, the pl allowed the 1st
def to remain in occupation and thus suffered losses.
Held: There was fraud under s.17.
Any other act fitted to deceive
• Loi Hieng Chion v Kon Tek Shin [1983] 1 MLJ
31
• Ang Hiok Seng @ Ang Yeok Seng v Yim Yut Kiu
(Personal Representative of the estate of Chan
Weng Sun, deceased [1007] 2 MLJ 45
• Loi Hieng Chion v Kon Tek Shin [1983] 1 MLJ
31
Fed Ct: The Evidence clearly showed that the
app (land broker) was not honest as to the
true value of the Sibu Land when he
persuaded the resp to exchange the lands.
Any such act or omission as the law specially
declares to be ‘fraudulent’
• Example:
S.340(2)(a) of National Land Code

Assets Company Ltd v Mere Rishi & Ors [1905] AC


176
Held: Fraud may occur when the designed object
of a transfer is to cheat a person of an existing
right or where by a deliberate and dishonest act a
person is deprived of his existing act.
Exception to Fraud
• Explanation of s.19 CA 1950
₋ False representation does not per se give rise
to a cause of action
₋ Represented must have relied on the
statement – if with open eyes, he cannot
repudiate the contract if entered into
• Mithoolal v Life Insurance Corporation Of
India AIR [1962] SC 814
• Letchemy Arumugan v Annamalay [1982] 2
MLJ 198
• Mithoolal v Life Insurance Corporation Of
India AIR [1962] SC 814
A false representation, whether fraudulent or
innocent, is irrelevant if it has not induced the
party to whom it is made to act upon it by
entering into the contract
Does silence amount to fraud?
• Explanation of s.17 – mere silence as to facts
likely to affect willingness of a person to enter
into a contract is not fraud.
• Illustration (a) and (d)
• Caveat emptor – lets the buyer beware
• Lau Hee Teah v Hargill Engineering Sdn Bhd &
Anor [1980] 1 MLJ 145
• Exceptions to the rule:
1) Where there exists a duty for persons to speak
Illustration (b) of s.17
eg. Insurance contract

Lowther v Lord Lowther [1806] 33 ER 230


Toh Kim Lian & Anor v Asia Insurance Co Ltd [1996] 1 MLJ 149
Lim Kim Hua v Ho Chui Lan & Anor [1995] 3 MLJ 165

2) Where silence is equivalent to speech


Illustration (c) of s.17
MISREPRESENTATION
• Misrepresentation is a false statement made by a
representor and which induces the other party to
enter into a contract.
• The basic difference btw fraud and
misrepresentation is that in fraud there is
intention to deceive – the person making
representation does not himself believe in the
truth of the representation – Double Acres Sdn
Bhd v Tiarasetia Sdn Bhd [2001] 1 AMR 111
Misrepresentation under common law
• The English law divides misrepresentation into:
1) Fraudulent misrepresentation
2) Innocent misrepresentation
3) Negligent misrepresentation
• In Malaysia, fraudulent misrepresentation is
covered by s.17 of CA 1950 – fraud
• Negligent misrepresentation is covered under
s.18(b)
Misrepresentation under CA 1950
• Section 18

• In Hedley Byrne v Heller, the court laid down


4 conditions for misrepresentation:
There must be a false representation
• There must be some positive statement or
conduct
• Mere silence does not constitute
misrepresentation
• If a person makes a representation which is
true at the time when it is made but which
subsequently becomes false & this has come
to his knowledge, he must disclose the change
of the circumstances to the other party
The representation must be one of fact

• The false statement made must not be based


merely on a person’s own opinion
• The false statement made must be a
statement of fact
Addressed to the misled party.

• The false statement must have been directed


to the party who later relied on the false
statement to enter into the contract
• A person who obtained the false information
/statement indirectly cannot rely on the false
statement to bring an action for
misrepresentation as the statement was not
directed to him - Peek v Gurney
The representation must induce the misled
party to enter into the contract

• A mere representation which does not induce


a person’s decision to enter into a contract
does not cause the contract to be voidable
• Cases:
• Sim Thong Realty Sdn Bhd v The Kim Dar @ Tee
Kim [2003] 3 MLJ 460
• Chuah Tong Yeong v Kuala Lumpur Golf & Country
Club [2003] 6 MLJ 577
• Low Kim Fatt v Port Klang Golf Resort (M) Sdn
Bhd [1998] 6 MLJ 448
• Kluang Wood Products Sdn Bhd & Anor v Hong
Leong Finance Bhd & Anor [1999] 1 MLJ 193
Effect of fraud and misrepresentation
• Section 19
• Exception of s.19
─ Illustration (b)
Remedies
• S.19(2) of CA 1950 – right to affirm the contract
and put in the position in which he would have
been if the representation made had been true
• S.65 of CA 1950 – restoration of any benefit
received
• S.66 of CA 1950
• S.37 of Specific Relief Act 1950 – appropriate
compensation
• S.34(1)(a) of Specific Relief Act 1950 – right to
rescind
• June 2016, Part C, Question 1
• Jan 2013, Part C, Question 1
• Dec 2013, Part C, Question 1
• July 2017, Part C, Question 1

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