Introduction The treatment of fraud and misrepresentation have always been used interchangeably. Both concepts differ especially in the remedies given, and the cases are handled accordance with their respective provisions. They brought similar effects but varies in terms of intensity or magnitude. In comparison, fraud is with an intention to deceive, bringing a more severe penalty, while misrepresentation is merely not presenting the entire information.
The misrepresented party may be short of the full knowledge about the facts but fraud occurs with the aim of gaining to the detriment of the other party. Malaysia uses Contract Law 1950, under Section 17 “Fraud” and Section 18 “Misrepresentation” which renders a contract voidable under Section 19. Contract Law in the United States (U.S.) does not have it federally. Instead, it differs from state to state. Although they adopted the standardized Uniform Commercial Code in transactions of goods, however, in other types of contracts, each state may codify their common law of contracts or adopt partially from the Restatement (Second) of Contracts. In United Kingdom (U.
K.), their basic law is common law. Misrepresentation Act 1967 covers contract matters, but Fraud Act 2006 does not.
In this assignment, we will see thoroughly how these countries deal with fraud and misrepresentation under respective Contract Law then further identify their similarities and differences, to fulfil the aim of this assignment.Contents1.0 Fraud 1.
1 DefinitionIn Malaysia, the Contract Act 1950 (hereinafter written as “CA”) statutorily define fraud into 5 commitment of acts under Section 17 (a) to (e), thus any offence according to these provisions constitutes fraud in the contract. S17(d) and (e) CA which states that “any other act fitted to deceive” and “any such act or omission as the law specially declares as fraudulent by law”, means that it falls under the discretionary power of the court to determine if it constitutes a fraud. In contrast, since U.K. has an uncodified law, there is no statutory definition of fraud, but it is acceptable to say that it is a false representation made with dishonesty. Knowing that it may be a false or misleading representation and intended to make a gain for himself, or to cause or expose others to the risk of loss, constitutes a fraud.
The landmark case Derry v Peek & Ors defined fraud as a false representation made knowingly or without belief in its truth or recklessly or carelessly whether it is true or false, which is later been referred to in Malaysia’s case Double Acres Sdn Bhd v Tiarasetia Sdn Bhd covering S17(a), (b) and (c) of the CA. Thus it can be said that definition of fraud given under S17 CA is wider than that under common law as defined in Derry’s case. On the other hand, according to the Nevada state of U.S., “Fraud” means an intentional misrepresentation, deception or concealment of a material fact known to the person with the intent to deprive another person of his or her rights or property or to otherwise injure another person under Section 42.001 of Nevada State Codes. Another significant difference is that in Nevada state they cover injury to the alleged victim but Malaysia and UK did not.
1.2 ApplicationEdgington v Fitzmaurice provides that “the state of a man’s mind is as much a fact as the state of his digestion”, proven that a statement of present intention is also recognized as a representation of fact in U.K. where the same is also applicable in Malaysia which can be seen in the case of Datuk Jagindar Singh & Ors v Tara Rajaratnam provided “a statement of intention also involves a representation as the existence of the intention which is itself a present fact”.In Malaysia, as a general rule, mere silence is not fraud unless there exists a duty for the person to speak, or the silence itself equivalent to speech, as provided under the explanation of S17 CA.
Correspondingly in U.K., silence is not fraud unless the person is under the legal duty to disclose and it was done with dishonest intent.
It was established in HIH Casualty & General Insurance Ltd. v Chase Manhattan Bank where Lord Hoffman said that it is a fraud when there exists an obligation to speak but that person does not, to induce the other party to act upon the belief that he did not speak because he had nothing to say. Similarly, in U.S., in order to prove silent fraud, one must prove that the fraudster actually knew about the facts he failed to disclose, the silence had misled the claimant and the fraudster was aware about it.The burden and standard of establishing fraud in Malaysia is similar to both U.K.
and U.S. which lies upon the claimant, and the standard of proof for fraud differs in civil and criminal proceedings. In Malaysia, higher requirement of proof beyond reasonable doubt is required in criminal proceedings, while it only need lower requirement of proof on a balance of probabilities in civil proceedings. In Lau Hee Teah v Hargill Engineering Sdn Bhd & Anor, it was held that the degree of probability differs accordance with the gravity of the allegation sought to be proved in the case. Due to the nature of a fraud allegation in reality, the evidential burden on the claimant is likely to be amplified. Thus, a stronger evidence will be needed to establish, on the balance of probabilities, that a fraud has occurred. A higher degree of probability may be needed as set out in UK’case Bater v Baterand was followed by Malaysia in Lee You Sin v Chong Ngo Khoon but it was not necessary to reach the degree of certainty as to criminal cases.
As a result in Ang Hiok Seng v Yim Yut Kiu, in all civil proceedings, the standard of proof for all matters excluding facts that amount to conspiracy to defraud; misappropriation of money; and criminal breach of trust is on a balance of probabilities. Whereas, different states of U.S.
apply different standard of proof in establishing fraud. 5 V.I.C. § 740(5) provides that all civil claims brought under Virgin Islands law are governed by a preponderance of the evidence standard.
Contrarily, in Beardshall v Minuteman Press International Inc., the Supreme Court of Pennsylvania’s held that fraud must be proved by a higher standard than by a preponderance of the evidence. In some civil cases, the burden of proof is elevated to a higher standard known as “clear and convincing evidence”. This standard sets a higher threshold compare to the preponderance of the evidence standard, yet it does not quite rise to the standard of “beyond a reasonable doubt” used in criminal cases which is similar to what Malaysia and U.K practices.1.
3 Effects Malaysia, U.K. and U.S. are similar where fraud makes a contract voidable at the option of the innocent party. In Malaysia, Section 19 of the CA provides that the innocent party can rescind or affirm the contract. In Chiropractic Specialty Centre Sdn Bhd v Orthorelief & Care Sdn Bhd, the respondent claimed for rescission and restitution of the sum of the machines as he alleged there was fraud due to false representation by the appellant.
The Court allowed the respondent’s claim as no competent person would allow fraud or misrepresentation in an agreement. In Liaw Hen Kyun @ Alex Liaw & Ors v Ho Mui Fen @ Ho Kon Thiam, it was held that rescission was allowed as there was fraud due to dishonest concealment of information which led the plaintiff entering into the agreement. In Lee Soo Eng & Ors v Majlis Perbandaran Manjung & Anor, the Court held that the second defendant must make restitution as they committed fraud by having total control of the development and making representations that misled the plaintiff into the agreement. In a U.K. case of Spence v Inland Revenue Comrs, the taxpayer must make restitution to the shareholder as he was induced into buying the shares by fraud.
In Pettitt v Pettitt, it was held that rescission could be granted for fraud transaction. In the U.S.
, The Mandatory Victims Restitution Act of 1996 (MVRA) provides that victims would be entitled to full amount of losses without considering the defendant’s resources. In United States v Michelson, the defendant committed fraud and must make restitution to the petitioners under 18 U.S.C. § 3663A of MVRA which provides mandatory restitution for telemarketing fraud.
In Wickre v Allen, the agreement to purchase the radio station is rescissbible due to the seller’s fraud. In short, the effects for fraud contracts in these 3 countries are similar by making the contract voidable.1.4 ExceptionIn Malaysia, there is an exception under Section 19 of the CA where the contract is not voidable if the innocent party can ascertain the truth by exercising ordinary diligence, or the case is fraud by silence. In Karuppannan Chellappan v Chong Lee Chin, maxim caveat emptor applied to the plaintiff although the defendant did not disclose the condition of the house prior to the plaintiff’s purchase of the building as the plaintiff failed to take precautions and committed this mistake by his own. In Haji Ahmad Yarkhan v Abdul Ghani Khan & Anor, the Court initially stated that the third party is not required to disclose the fact that the bride had a disease as there was no fiduciary relationship but later discovered that there is a need to disclose the fact as marriage contracts falls under “uberrimae fidei”. Therefore, Malaysia has an exception for the effect of fraud contracts as the contract is not voidable by applying maxim caveat emptor in contract law while this principle is generally applied in U.K.
consumer law and U.S. commercial law instead.1.5 Remedies Malaysia, U.K.
and U.S. are similar in remedies given such as monetary compensation, damages, restitution and rescission, but not specific performance for fraud contracts.
In Malaysia, Section 27(a) and (b) of the Specific Relief Act states that specific performance cannot be obtained if consideration was obtained inadequately by fraud or undue influence or if consent was obtained by misrepresentation, concealment, circumvention of any party which performance and promise has yet to be fulfilled. In Ng Pak Cheong v Global Insurance Co Sdn Bhd, specific performance was denied because the deceased had committed fraud by deceiving the shareholders on the purchase of the defendant’s asset. In California Code, CIV § 3294 , claimants can be given damages for fraud contracts. In Olson v Laun, the plaintiff was entitled to damages as the defendant made fraudulent statements on the taxes paid and plough lands by referring to Weber v Mylie which dismissed specific performance when the plaintiff committed fraud or given damages to the plaintiff when the defendant committed fraud. However, there is a notable difference between these 3 countries where reformation of fraud contracts is not available in Malaysia and U.K.
but is available in the U.S..
Reformation is applied when the agreement does not comply to the contract as there was fraud or mistake when drafting the original document. Therefore, the contract is rewritten to express better intention of the parties. In the U.
S., the Statute of Frauds allows reformation of fraud contracts by identifying the contracting parties in the original document and requoting the subject matter of the contract with the terms and conditions of the agreement. In Glass v Hulburt, reformation was applied to remove some section of the tract which was made by fraud from the conveyance as no other remedies are suitable for the case.