Fraud

Introduction
 Fraud is, quite simply, any acts made with the
intention to deceive
 For the purposes of contract, this is covered
under s.17
 Note that the “fraud” in this aspect is civil and
not criminal fraud
 Burden of proof is different
 Elements needed to prove are different
 Derry v Peek
The company prospectus stated that it had the right to use steam
powered trams. However, the right to use it was dependent upon
the approval of the Board of Trade. When prospectus was printed,
approval not yet obtained but had been applied. Such approval
was regarded as mere formality / procedural. However, the
approval was never given.

Claimant bought shares in the company in reliance of the ‘steam

powered trams’ statement. Claimant is now suing for fraudulent
misrepresentation.
Held…

Statement was not fraudulent but made in the honest belief

that approval was forthcoming.

Fraudulent misrepresentation is a statement:

(a) known to be false, or

(b) made recklessly or carelessly as to the truth of the
statement
 S.17
“Fraud‟ includes any of the following acts committed by a party
to a contract or with his connivance, or by his agent, with the
intent to deceive another party thereto or his agent, or to induce
him to enter into the contract:
a) the suggestion, as to 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
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.
 s.17(a)

the suggestion, as to fact, of that which

is not true by one who does not believe
it to be true

 Includes fraudulent misrepresentation

 Derry v Peek
 Kheng Chwee Lian v Wong Tat Thong
 Will be covered more later under ‘misrepresentation’
 s.17(b)

the active concealment of a fact by

one having knowledge of belief of
the fact

 This refers to the positive act of hiding a fact

 S.17 illustration (c) and (d)
Illustration
c) B, having discovered a vein of ore on the estate of A,
adopts means to conceal, and does conceal, the
existence of the ore from A. Through A’s ignorance B is
able to buy the estate at an undervalue…

d) A is entitled to succeed to an estate at the death of B; B

dies; C, having received intelligence of B’s death,
prevents the intelligence reaching A, and thus induces A
to sell him his interest in the estate.
 s.17(c)

a promise made without any intention of performing

it;
 MUI Plaza Sdn Bhd v Hong Leong Bank (No2)
P pleaded that D2 (executive producer) represented to him
that D1 (bank) would be responsible to P for any loss or
damage. Evidence shows that P relied on D2’s representation
by allowing D1 to remain in occupation, and thus suffered a
detriment by loss of possible bargaining power with
prospective new tenants.

D claims that it was in the nature of a promise, and it was not

capable of having the character of being true or false at the
time representation was made.
Held:

D2 had no actual intention of fulfilling his representation at the

time it was given, or was reckless to the fact.

Such a statement was capable of being either true or false at the

time he made it because it related to D2’s present state of mind
and his particular intention at the time he made it.

Note:
Even though s.17(c) was not used, this case is a good example of
its usage and meaning.
 s.17(d)
any other act fitted to deceive; and

s.17(e)
any such act or omission as the law specially declares to
be fraudulent
Burden of Proof
 Introduction

 How does one prove fraud?

 What sort of burden is placed for fraud?

 Beyond reasonable doubt, or

 Balance of probabilities
 Sinnaiyah & Sons v Damai Setia [2015]

The correct principle to be applied was as explained in In re

B (Children)(Care Proceedings: Standard of Proof)(CAFCASS
intervening) [2008] UKHL 35 i.e.

At law, there were only two standards of proof, namely,

beyond reasonable doubt for criminal cases while it was
balance of probabilities for civil cases.
As such, even if fraud was the subject of a civil
claim, the standard of proof was on the
balance of probabilities.

There was no third standard; and (N)either the

seriousness of the allegation nor the
seriousness of the consequences should make
any difference to the standard of proof to be
applied in determining the facts.
“Fraudulent Silence”
 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.
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.
 This refers to “fraudulent silence”

 NOTE: Merely being silent about a fact is not

fraudulent
 Caveat emptor

 Let the buyer beware

 S.17 illustration (a)
A sells, by auction, to B, a horse which A knows to be
unsound. A says nothing to B about the horse’s unsoundness.
This is not fraud in A.

s.17 illustration (d)

A and B, being traders, enter upon a contract. A has private
information of a change in prices which would affect B’s
willingness to proceed with the contract. A is not bound to
inform B.
 However, there are times when being silent IS not
allowed
 Fraudulent silence

 There are two situations:

1. It is the duty of the person keeping silent to

speak, or

2. His silence is, in itself, equivalent to speech

1. Duty to Speak
 s.17 illustration (b)
B is A’s daughter and has just come of age. Here, the
relation between the parties would make it A’s duty to
tell B if the horse is unsound.

 s.17 illustration (d)

A and B, being traders, enter upon a contract. A has
private information of a change in prices which would
affect B’s willingness to proceed with the contract. A is
not bound to inform B.
2. Silence equivalent to speech

 S.17 illustration (c)

B says to A, “If you do not deny it, I shall assume that
the horse is sound.” A says nothing. Here, A’s silence is
equivalent to speech.
Effect of Fraud
 Introduction
 By s.19(1), a contract caused by fraud or
misrepresentation is voidable
 Rescind, or
 Affirm

 However, two things should be noted when dealing with

fraud
 When rescinding, the relief is different
 When affirming, s.19(2) allows an additional aspect
 In addition to the ordinary equitable remedy of restitution
and of compensation of liabilities arising under the
contract, there is an additional remedy :
 Damages

 This is because an action for fraudulent

[misrepresentation] is grounded upon the tort of deceit
 Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd
(will be discussed under ‘misrepresentation’)
s.19 Exception
 Introduction

 This is a situation when a contract is not voidable

 Ie it is VALID

 Even though certain situations of misrepresentation, or

fraud, happens

 Certain conditions need to exist

 s.19 Exception

If such consent was caused by misrepresentation or

by silence, fraudulent within the meaning of section
17, the contract, nevertheless, is not voidable, if
the party whose consent was so caused had the
means of discovering the truth with ordinary
diligence.
 If such consent was caused by misrepresentation
or by silence, fraudulent within the meaning of
section 17,

 Thus, it only applies to

1. Misrepresentation as per s.18 ie:
 Innocent, and
 Negligent
2. Fraudulent silence
the contract, nevertheless, is not voidable,
if the party whose consent was so caused
had the means of discovering the truth with
ordinary diligence.

 Thus, the contract is valid

 If the truth could have been discovered
with ordinary diligence
 What is ‘ordinary diligence’?

 Depends on the facts of the case, and on a case-by-case

basis

 Essentially, however, it would generally refer to something

that could have been discovered, if he/she had only made
some effort to do so

 Taking into account the capabilities of the person in

question
 Will be covered under ‘misrepresentation’ later
END