FRAUD

(S.17) Explanation to S.19

(S.17)

Kheng Chwee Lian Example

Double Acres S/BIllustrations (a) to s.19

State mind of the maker

Not opinion/Law

Example

Illustrations (c) and (d) Concealment by positive conduct, not mere situations of silence (fraud by conduct)

Tay Tho Bok

Example Tara Rajaratnam

Jong Chuk v Chong Tung SangMagnum Finance Berhad

(iv) Act fitted to deceive: S.17(d)This provision is very wide and makes fraud under s.17 broader than common law fraudulent misrepresentation.

Kheng Chwee Lian v Wong Tak Thong

(v) Act or omission declared to be fraudulent: S.17(e)Applies where the law specifically declares an act or omission to be fraudulent. It also applies where the disclosure of certain kinds of fact is expressly required by law.

* Catch all clause

2nd and 3rd Elements

(ii) IntentionThe fraudulent act must be made with intention-to deceive another party to enter into the contract; or -to induce him to enter into the contract. BP (Sabah) S/B V Syarikat Jubrin Enterprise (sued as a partnership firm)

This requirement differentiate fraud with misrepresentation under s.18.

(iii) Inducement/Reliance The representee must have relied on/been induced by the statement of the representor and must have been actually deceived.This essential element has been emphasised in the Explanation to S.19(causation-link, what caused representee to enter contract)

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.

Illustration (d)

Illustration (a) & (d)Illustration (b)

Silence not amount to fraud

Lau Hee Teah

Haji Ahmad Yarkhan

(S.17)

(1) First Limb: General Rule

Fraud is not committed simply by keeping silent about a certain fact that could affect the decision/willingness of another to enter into the contract. Rule of caveat emptor (let the buyer beware). A seller does not have the duty to inform a buyer the condition of the goods he is selling. It is on the buyer to satisfy himself before making a purchase. (to discover)

Karuppannan Chellappan v Chong Lee Chin

(2) Second Limb: Exception

a. Duty to speakCertain circumstances require a party to disclose information to each other. (because of special relationship-trust &confidence)In insurance contracts, there is a legal duty on the insured to disclose material facts that is likely to influence a prudent insurer. b. Silence equivalent to speech

Duty to Discover [Exception to S.19]

A contract is not voidable due to fraud by silent, if the party had the means of discovering the truth with ordinary diligence.(Explanation to s.17 must be read with Exception to s.19)

Weber v BrownThe exception does not apply to a fraudulent assertion.(can apply caveat emptor)

Burden The burden of establishing fraud lies upon the party asserting it. Datin Zainun binti Ismail v Tuan Minah binti Syed Abdul Rahman

Standard of ProofOn the balance of probabilitiesSinnaiyah & Sons S/B v Damai Setia S/B [2015] 7 CLJ 584, FC

Effect of Fraud

S.19(1) - Voidable (option void/valid)S.19(2) - Affirm/Insist performance

Relief for Fraud – Rescission

If the party chooses to rescind, the effects of rescission as provided in S.66 apply. (Restitution/Compensation by person who has received benefit)Only the innocent party can claim not the wrongdoer. Wrongdoer cannot use S.65 to claim from the innocent party. Court will not help wrongdoer – must come with clean hand

Mithoolal Nayak v Life Insurance Corpn of IndiaThe Indian Supreme Court held that a person who has committed fraud cannot seek to recover money in an action for money had and received under s.64 of the Indian Contract Act (s.65 of the Contract Act).

Can claim Damages

Lee Cheong Fah v Soo Man YokeAbdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd

Cannot claim Specific PerformanceS.27(a) and (b) of the Specific Relief Act. A remedy for specific performance will not be obtainable where there is evidence of the exercise of fraud.

Ng Pak Cheong v Global Insurance Co Sdn Bhd

Common Law Position

Fraudulent misrepresentation

Derry v Peek

Occurs where there is an absence of honest belief in the truth of the statement made. This would include false statements made knowingly, or without belief in its truth, or recklessly, careless whether it is true or false.