Fraud Misrepresentation - Malaysian Law

FRAUD &
MISREPRESENTATION
: Malaysian Law
1
Essential Reading:
Cheong May Fong, Chapter 12
Jenita Kanapathy (August 2020) 8/18/2020

2 1. Requirement
of Free Consent
 An agreement is a contract only if inter alia it is “made

by the FREE CONSENT” of the parties [S. 10(1) CA 1950]
 2 or more persons are said to CONSENT when they

agree upon the same thing in the same sense [S. 13 CA
1950] – consensus ad idem.
 Consent is said to be free when it is NOT CAUSED BY inter

alia ‘FRAUD’ or ‘MISREPRESENTATION’ [S. 14 (c), (d) CA
1950] as defined in Section 17 and Section 18
respectively.

3
T h e C o n t r a c t s A c t 1 9 5 0 d o e s n o t u s e
the terms ‘fraudulent misrepresentation’,
‘negligent misrepresentation’, or
‘innocent misrepresentation’.
H o w e v e r , s e c t i o n s 1 7 a n d 1 8 h a v e b e e n
treated by Malaysian courts as covering
all three types of misrepresentation
known to English Law.

4 Abdul Razak bin Datuk Abu Samah v
Shah Alam Properties Sdn Bhd [1999] 2
MLJ 500, CA
Per Gopal Sri Ram JCA
“ M i s r e p r e s e n t a t i o n s … a r e o f t h r e e
types, depending upon the state of
mind of the maker. That state of
mind may be fraudulent, negligent
or innocent, in the sense that it is
truly free of any blameworthiness or
inadvertence. The existence of a
particular state of mind on the part
of the representor determines, in
the absence of acquiescence, the
range of remedies available to the
representee.”

5 2. General Distinction between
Fraud and Misrepresentation
F r a u d : m a k e r o f s t a t e m e n t
(i) knows his statement is false or does not
believe in truth of his statement and
(ii) has the intention to deceive the other
party.
M i s r e p r e s e n t a t i o n : m a k e r b e l i e v e s i n t h e
truth of statement and has no intention to
deceive the other

6 3. General Relationship of S. 17 &
18 with Common Law
 Common Law fraudulent

misrep resentation, and fra ud under S .
1 7 CA 1 9 5 0 , are similar.
 Common Law negligent and innoc ent

misrep resentation, and
misrep resentation under S .1 8 CA
1 9 5 0 , are similar.

7 4. General effect of Fraud or
Misrepresentation
S. 19 (1) CA 1950:
“When consent to an agreement is caused by coercion, fraud or
misrepresentation, the agreement is a contract voidable at the option
of the party whose consent was so caused.”
S. 19(2) CA 1950:
“A party to a contract, whose consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist that the contract shall be
performed, and that he shall be put in the position in which he would
have been if the representations made had been true.”

8
Explanation to S. 19: there
must be a causal link
 But: “A fraud or
misrepresentation which did
not cause the consent to a
contract of the party on whom
the fraud was practised, or to
whom the misrepresentation
was made, does not render a
contract voidable.”
 i.e. if there is no causal link,
the contract is not voidable.
9 PJTV Denson (M) Sdn Bhd v Roxy
(Malaysia) Sdn Bhd [1980] 2 MLJ 136,
FC
“ W h e t h e r f r a u d e x i s t s i s a q u e s t i o n o f
fact, to be decided upon the
circumstances of each particular
case. Decided cases are only
illustrative of fraud. Fraud must mean
“actual fraud, i.e. dishonesty of some
sort”…fraud implies a wilful act, on the
part of one, whereby another is sought
to be deprived, by unjustifiable
means, of what he is entitled.”

10 5. FRAUD : S. 17 CA 1950
 Fraud under S.17 CA 1950 has 2 broad

components:
1. commission of any one of 5 specified

acts set out in S. 17(a) to (e) by one
party to the contract or with his
connivance or by his agent AND
2. intent to deceive the other party or to
induce him to enter into the contract.

11 The 5 acts constituting fraud: S. 17
(a) – (e)
1. suggestion of an untrue fact which is not

believed to be true (S. 17 (a))
2. active concealment of a fact (S. 17 (b))
3. promise made without any intention of
performing it (S. 17(c))
4. any other act fitted to deceive (S. 17 (d))
5. any act or omission that the law
specifically declares to be fraudulent (S.
17(e))

12
Note: these 5 acts may be

committed by
➢ a party to the contract
➢ or by his agent
➢ or with his connivance

13
 S e c t i o n 1 7 ( a ), ( b ) a n d ( c ) C A 1 9 5 0
covers the common law of fraudulent
misrepresentation as defined by House
of Lords in Derry v Peek.
 S. 17 (d) & (e) CA 1950 makes fraud in

Malaysian law wider than common law
fraudulent misrepresentation.

14 (i) S. 17 (a): Suggestion of Untrue Fact
 Illustration (a) to S. 19 is an example of

fraud under S. 17(a)
◦ “A, intending to deceive B, falsely

represents that 500 gantangs of indigo
are made annually at A’s factory, and
thereby induces B to buy the factory.
The contract is voidable at the option of
B.”

15 Kheng Chwee Lian v Wong Tak
Thong [1983] 2 MLJ 320, FC
 1 9 5 4 (1 st a g r e e m e n t ) : Wo n g p u r c h a s e d ½ s h a r e
of Kheng’s land measuring 1.5 acres (i.e.
Wong’s share was approximately 62,000 sq ft)
 Wong went into occupation and built a factory

measuring 94’ x 38’ (i.e. 3,572 sq ft) and later
applied to the authorities for permission to
expand his factory to 102’ x 38’ (i.e. 3,876 sq
ft).

16 Kheng Chwee Lian v Wong Tak
Thong [1983] 2 MLJ 320, FC
 1 9 5 7 (2 nd A g r e e m e n t ) : K a p p a r e n t l y a g r e e d t o g i v e
up his ½ share in the land in exchange for an area
measuring only 90’ x 33’ (i.e. only 2,970 sq ft !)
 W c o n t e n d e d t h a t h e s i g n e d t h e 2 nd a g r e e m e n t
based on a fraudulent misrepresentation by K’s son
and it was accordingly voidable.
 [Unfortunately, the law report does not give any

particulars/details of this fraudulent
misrepresentation.]

17
Held
[ Wo n g ] “ w a s i n d u c e d b y
misrepresentation into signing the second
agreement [which] was fraudulent within
the meaning of section 17(a) and (d) of
the Contracts Act 1950.
B y v i r t u e o f t h e p r o v i s i o n o f s e c t i o n 1 9 o f
the Act the second agreement was
v o i d a b l e a t [ Wo n g ’ s ] o p t i o n … ”

18 (ii) S. 17 (b): Active Concealment of
Facts
Illustrations (c) and (d) to S.19 illustrate operation of S. 17 (b).
 “(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 enabled to buy
the estate at an undervalue. The contract is voidable at the
option of A.
 (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. The sale is voidable at the option of A.

19 Segar Oil Palm Estate Sdn Bhd v
Tay Tho Bok [1997] 3 MLJ 211, CA
 S sold T 65 acres of land. During the negotiations:

➢ T had viewed the land together with S’s agent.
➢ He saw huge water pipelines and electricity
transmission cables running through the land
(“the fixtures”).
➢ However, S’s agent told T that the fixtures did not
run through the 65 acres up for sale.
➢ Later, the agent repeated this representation to T
in S’s presence as well.

20 Segar Oil Palm Estate Sdn Bhd
v Tay Tho Bok [1997] 3 MLJ 211,
CA
 T paid a deposit upon signing the agreement,
with the balance to be paid at a later date.
 Before the balance became due for payment,
T discovered that the fixtures were, in fact,
within the land being sold, and affected more
than 17 acres.
 T asked S for a reduction of the purchase price
but S refused and instead forfeited T’s deposit.
 T applied to court for rectification of the
contract alleging fraud by active concealment
of facts by S.

21 Held
 This was a case of fraud as S was aware
of the existence of the fixtures during
the negotiations but actively concealed
this fact.
 However, the correct remedy available
to T was rescission of the contract, not
rectification. Court of Appeal refused
rectification and ordered rescission
instead, plus a refund of all monies paid
together with interest to T.
 But, no order as to damages for fraud
was made because T had not led any
evidence on damages at trial.
22 (iii) S. 17 (c): No Intention to Perform Promise
Tara Rajaratnam v Datuk Jagindar Singh & ors [1983] 2 MLJ

127 (HC)
 2 nd D h a d a s s u r e d (p r o m i s e d ) P t h a t a l t h o u g h t h e
documents signed by P were in the form of a transfer of
P’s land, P’s property would not be transferred to
anyone, since the transaction was for security for a
loan, and not a transfer.
 However, P’s property was later transferred to 3rd D who
claimed vacant possession against P.
 Held: This amounted to fraud under S. 17(c) CA 1950
since the defendants when they made the promise not
to transfer the land had no intention of fulfilling it.

23 Per Abdul Razak, J
“ … a s t a t e m e n t o f i n t e n t i o n a l s o
involves a representation as [to] the
existence of the intention which is
itself a present fact. Thus the non -
fulfilment of the intention, may
be…evidence…that the intention
never existed at all…This is in effect
stated in S. 17(c)…”

24 6. Fraud, mere silence &
disclosure
 Illustrations (c) and (d) to S.19 show that fraud requires

active steps to be taken by one party
1. either to conceal facts from the other party
2. or to prevent material facts from coming to his
attention
 I.e. mere silence generally is not fraud under S. 17.
 This suggests that in Malaysian law, too, there is no
general duty of disclosure, and this is further reflected in
the Explanation to S. 17.

25
Does Silence amount to Fraud?
 The general rule is that mere

silence or non -disclosure does not
constitute fraud, but there may be
certain circumstances under which
such silence or non -disclosure may
constitute fraud – this is reflected
in the Explanation to S. 17 .

26 Explanation to S. 17
 “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…. it is the
duty of the person keeping silent
to speak, or unless his silence is,
in itself, equivalent to speech .”
27
I l l u s t r a t i o n s ( a ) a n d ( d ) t o S . 1 7 s h o w h o w t h e
general rule regarding non-disclosure operates:
“ ( a ) A s e l l s , b y a u c t i o n , t o B , a h o r s e w h i c h A
knows to be unsound. A says nothing to B about
the horse’s condition. This is not fraud in A.
( d ) A a n d B , b e i n g t r a d e r s , e n t e r u p o n 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.”
28
 Illustrations (b) and (c) to S. 17 show

how the 2 exceptions operate:
◦ “(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 t ell B if the horse is unsound.
◦ (c) B says to A, “If you do not deny it,

I shall ass ume that the horse is
sound.” A says nothing. Here, A’s
silence is equivalent to speech.”

29 Lau Hee Teah v Hargill Engineering Sdn
Bhd & Anor [1980] 1 MLJ 145 (FC)
 LHT purchased a loader on hire-purchase

terms from HE.
 During negotiations HE’s dealer did not
inform LHT regarding the machine’s year of
manufacture or that it had been previously
involved in an accident. Neither had LHT
inquired about these matters.
 Subsequently, LHT sought to rescind the
contract alleging material non-disclosure
of facts.

30 Held
 Relying on the Explanation to S.17, “there

was no active duty on [the dealer] to
inform [LHT] of these two matters” .
 The general rule is caveat emptor – let
the buyer beware.
 However, a duty to disclose material
facts exists in the case of contracts
uberrimae fidei, or where there is
fiduciary relationship between the
parties.

31
R e f e r e n c e w a s m a d e t o t h e f o l l o w i n g p a s s a g e i n
Bell v Lever Brothers Ltd [1932] AC 161, 227, HL:
“Ordinarily the failure to disclose a material fact
which might influence the mind of a prudent
contractor does not give the right to avoid the
contract…[However] there are certain contracts
expressed by law to be contracts of good faith,
where material facts must be disclosed; if not,
the contract is voidable. Apart from special
fiduciary relationships, contracts for partnership
and contracts of insurance are the leading
instances.”

32 7. MISREPRESENTATION: S.18
“Misrepresentation includes:
(a) the positive assertion, in a manner not warranted

by the information of the person making it, of
that which is not true though he believes it to be
true;
(b) any breach of duty which, without intent to
deceive, gives an advantage to the person
committing it, or any person claiming under him,
by misleading another to his prejudice, or to the
prejudice of anyone claiming under him; and
(c) causing, however innocently, one party to make
a mistake as to substance of the thing which is
the subject of the agreement.”

33
 S. 18(a) clearly covers situations of common law

negligent misrepresentation because in effect it relates
to situations where the maker of the statement
genuinely believes in the truth of his statement but has
no reasonable grounds for holding such a belief.
 Unfortunately, it is not entirely clear how, if at all, S. 18(b)

and (c) fit into the common law scheme, and Malaysian
case law has not attempted to address this issue.

34
A literal reading of S.18(b) suggests that, apart from no

intention to deceive, its ingredients are
1. the existence of some “duty” owed by one party to the
other [when such “duty” arises is not explained in the
Act, but it would clearly cover fiduciaries];
2. there must be some “breach” of that “duty”;
3. the “breach” must give some “advantage” to the party
in breach; and
4. the “advantage” must “mislead” the other party “to his
prejudice.”
8/18/2020
Jenita Kanapathy (August 2020)
35
S . 1 8 ( b ) w o u l d a l s o s e e m t o c o v e r t h e s i t u a t i o n
where a true statement is made, but it becomes
false to the knowledge of the maker before it has
been acted upon.
I n s u c h a s i t u a t i o n , t h e r e w o u l d b e a “ d u t y ” o n
the maker to disclose the change in
circumstances; his breach of duty could give him
an “advantage” by “misleading” the other party
“to his prejudice”. (See, e.g., With v O’Flanagan
and Spice Girls Ltd v Aprilia World Service
discussed under English Law on Misrepresentation)
36 Abdul Razak bin Datuk Abu Samah v Shah Alam
Properties [1999] 2 MLJ 500 (CA)
“ M i s r e p r e s e n t a t i o n s … a r e o f t h r e e t y p e s ,
depending on the state of mind of the
maker…fraudulent, negligent or innocent…
T h e e x i s t e n c e o f a p a r t i c u l a r s t a t e o f m i n d
on the part of the representor
determines…the range of remedies
available to the representee.”

37 Kluang Wood Products v Hong Leong
Finance [1999] 1 MLJ 193 (FC)
H L F ’ s r e g i o n a l m a n a g e r ( P ) r e p r e s e n t e d t o K W P
that HLF would provide credit facilities to KWP
consisting of a bridging loan (RM3.5m) and end-
finance (RM26m) in respect of a development
project.
H o w e v e r , H L F p r o v i d e d t h e b r i d g i n g l o a n o n l y
and failed to provide end-finance, which
resulted in the failure of KWP’s project.
K W P b r o u g h t a n a c t i o n f o r d a m a g e s a g a i n s t H L F
for negligent misrepresentation.

38 Held: HLF to pay damages to KWP for
negligent misrepresentation
K W P h a d e s t a b l i s h e d n e g l i g e n t m i s r e p r e s e n t a t i o n
by HLF under the Hedley Byrne v Heller principle
[Contracts Act not referred to at all. ]
P w a s n e g l i g e n t i n m a k i n g t h e r e p r e s e n t a t i o n
regarding provision of end-finance.
K W P w a s i n d u c e d b y P ’ s r e p r e s e n t a t i o n i n t o
accepting the bridging loan and proceeding
with their project.
I t w a s r e a s o n a b l e i n t h e c i r c u m s t a n c e s f o r K W P
to have relied on that representation.

39 8. Duty to discover truth with ordinary
diligence in 2 situations
 Exception to S.19:
◦ “If…consent was caused by
misrepresentation [i.e under S.18] 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.”

40
 I .e. the Excep t io n t o S . 1 9 (i.e. t he

duty t o disco v er the truth of a
rep resentat ion b y exerc ising ordinary
diligence) ap p lies only to ca ses of
1 . only fraud b y silenc e under S .1 7
(no t o ther t yp es of fraud) and
2 . any misrep resent a t ion under S .1 8 .

41 Weber v Brown (1908) FMSLR 12
Fraud established, but not fraudulent silence; therefore

Exception to S.19 did not apply; contract voidable
 W agreed to transfer to B an option to purchase

an estate. W fraudulently represented that he had
counted number of trees on estate and even wrote
that number on piece of paper and gave it to B.
 Later B found number of trees to be fewer and
sought rescission grounds of fraud.
 W sought to rely on exception to S.19 to resist B’s
claim (arguing that B could with ordinary diligence
have discovered the truth – i.e. B could have
easily counted the trees for himself).
42 Held
W ’ s c o n d u c t d i d a m o u n t t o f r a u d w i t h i n m e a n i n g
of S. 17. [court did not specify which limb of S. 17
applied]
F u r t h e r , t h e e x c e p t i o n t o S . 1 9 a p p l i e d t o f r a u d
by silence and not an expressly false and
fraudulent assertion.
H e r e t h e f r a u d d i d n o t a r i s e b y s i l e n c e b u t b y a
false and fraudulent assertion and so the S. 19
exception did not apply.
R e s c i s s i o n a l l o w e d .

43 Tan Chye Chew & Anor v Eastern Mining and
Metals Co Ltd [1965] 1 MLJ 201 (FC)
Misrepresentation (S. 18) established but Exception to s.

19 applied; contract not voidable
 Misrepresentation by TCC’s agent to EMMC’s

geologist that the land inspected by both parties
was included in the prospecting permit when in
fact it did not.
 EMMC’s sought to rescind the contract. TCC

argued that Exception to S.19 applied and so
EMMC were not entitled to rescind.

Held
44
 There was misrepresentation within the

meaning of S. 18 (court did not identify
which limb) but, on the facts, the
Exception to S. 19 applied i.e. EMMC
could with ordinary diligence have
discovered whether the representation
was true or false.
 Therefore, despite the misrepresentation,
the contract was not voidable
45
 “…this substantial company [i.e. EMMC] had

the facilities for checking the position at any
time and…its executive officers realised the
risk that was involved in …entering into a
contract…without a further check. It is plain
that the company ‘had the means of
discovering the truth with ordinary
diligence…a mining company of this size has
the facilities for making proper checks of an
area and its boundaries, including surveying
facilities…”

46 Gemakota Enterprise Sdn Bhd v Public
Bank Bhd [1999] 1 AMR 235 (HC)
Misrepresentation established; innocent party had the means to

discover the truth through ‘extra’ ordinary; Exception to S.19 did
NOT apply; contract voidable
Misdescription by PBB of area and terrain of property which it
had put up for sale by public auction.
GE successfully bid for the property and paid a deposit.
Later GE’s surveyor’s report showed property had been
misdescribed and GE sought to rescind the contract and
recover the deposit.
PBB sought to rely on exception to S. 19.

47
Held
P B B h a d m a d e a n i n n o c e n t m i s r e p r e s e n t a t i o n
within meaning of S. 18(b) CA 1950 and GE
had been induced by the misrepresentation
to enter into the contract.
P u r s u a n t t o S . 1 9 C A 1 9 5 0 t h e c o n t r a c t w a s
voidable at GE’s option.
F u r t h e r , o n t h e f a c t s , P B B c o u l d n o t r e l y o n
the Exception to S. 19.
C o n t r a c t r e s c i n d e d a n d G E w a s e n t i t l e d t o
recover the deposit.
48
“ E v e n t h o u g h [ G E ] … h a d t h e m e a n s o f
discovering the truth…employing a
surveyor to give a report before the bid
and thus expending money even before
[GE] becomes a successful bidder, is
requiring of [GE] to exercise extraordinary
diligence…[GE] through its two directors
exercised ordinary diligence when they
inspected the site of the said property.”

49 English law differs – no duty to discover
truth with ordinary diligence
Nocton v Lord Ashburton [1914-1915] All ER

Rep 45 (HL)
 “No one is entitled to make a statement

which on the face of it conveys a false
impression and then excuse himself on the
ground that the person to whom he made it
had available the means of correction.”
 See also Redgrave v Hurd on the same point

50 9. EFFECT OF, AND RELIEF FOR FRAUD
& MISREPRESENTATION
See Slides 7 & 8 above.

1. RESCISSION
 S. 19 (1): innocent party has the right to rescind
(“voidable” at his option)
2. AFFIRMATION & DAMAGES
 S. 19 (2): alternatively, innocent party may affirm
and require that he be put in the position in which
he would have been if the representations had been
true.

51
9.1 Rescission
When a voidable contract is rescinded party rescinding

must restore benefit received: S. 65.
 S. 66 (any party who has received any advantage must

restore it or make compensation for it to the other) also
applies – Yong Mok Hin v United Malay States Sugar
Industries; Satgurprasad v Har Narain Das
 The common law principles as to rescission and bars to

rescission will apply.
52
T h e i n n o c e n t p a r t y m a y e x e r c i s e h i s
right to rescind by:
1. either giving notice to the other
party of his intention to rescind;
2. or he may apply to court for
rescission under S. 34(1)(a) of the
Specific Relief Act 1950.
A l t e r n a t i v e l y , t h e i n n o c e n t p a r t y m a y
set up the fraud or misrepresentation
as a defence.
53 Admiral Cove Development Sdn Bhd v v
Balakrishnan a/l Devaraj & Anor [2011] 5 MLJ
309, FC
In 1995 ACD sold a condominium to B and his wife

(collectively referred to as ‘B’) in Port Dickson.
The transfer from ACD to B was duly completed and
vacant possession was given to them in 1998.
After accepting the keys to the condominium, B put the
condominium up for sale but, apparently, never
physically saw the condominium until 2002.
In 2002 B’s solicitors notified ACD that their clients were
rescinding the agreement on grounds of
misrepresentation by ACD.
Balakrishnan a/l Devaraj & Anor [2011] 5
MLJ 309, FC
B then brought proceedings seeking a declaration that
their rescission was lawful and seeking a sum of RM
505,000 being the purchase price, interest on it and other
miscellaneous expenditure that they had incurred.
The alleged representations were that during
negotiations:
(a)B had been shown a miniature a model and a printed
brochure of the proposed project 'showing a sandy
beach front, umbrellas, relaxing easy chairs and sail
boats close to the beach’; and
(b)ACD’s servant or agent had represented to B that B 'will
be able to swim directly upon exiting the said unit'.
MLJ 309, FC
The representations were said to be false in that when B visited
the condominium in 2002 they saw:
(a) a wall was erected 'right across the sea fronting' the
property;
(b) 'rocks, stones and boulders all along the front of the sea'
outside the property;
(c) 'sewerage discharge being led off visibly into the sea' in front
of the property; and
(d) that the wall and rocks affected their 'enjoyment of the
aforesaid unit by reason of the diminish[ed] aesthetic and/or
environmental conditions arising out of the seating and
positioning of the wall and rocks'.
MLJ 309, FC
ACD denied that there was any misrepresentation. Further,
ACD argued that, in any event, B had lost the right to rescind
due to lapse of time and affirmation of the contract.
The High Court dismissed their claim, accepting ACD’s
arguments.
The Court of Appeal, however, allowed B’s appeal.
ACD appealed to the Federal Court on a question of law:
'what relief is applicable in a case of innocent
misrepresentation?’ [As B had not pleaded whether the
alleged misrepresentation was fraudulent or negligent, the
High Court and Court of Appeal both dealt with the case as
one of innocent misrepresentation].

57 Held: ACD’s appeal allowed
(1) A representee who had been induced by an innocent

misrepresentation may sue for rescission and consequent
restitution if the contract was still executory and if all parties
could be restored to their original position. However, such
remedy was not available where dealings in land were
concerned where the conveyance had been properly
executed by both vendor and purchaser and completed (see
paras 21 & 32).
(2) The sale and purchase agreement for the property could not
be set aside for innocent misrepresentation after it had been
completed by conveyance and payment of the purchase price.
What had been performed was what was agreed to be
performed (see para 27).

58 Held: ACD’s appeal allowed
(3) The innocent misrepresentation complained of related to

the physical state of the property, namely, its accessibility
directly to the beach. There could not be a rescission of an
executed contract where the misrepresentation related merely
to the physical state. The conversation, if any, between the sale
staff of the appellant and the first respondent did not amount to
a misrepresentation inducing the contract (see para 31).
(4) Rescission of an executed contract could not be had for
mere innocent misrepresentation unless it rendered the subject
of the sale different from what was contracted for. The property
here did not differ so completely in substance from what the
respondents intended to acquire (para 26).

59
(5) The conduct of the respondents after accepting the keys to

the property showed an election to affirm the agreement. The
long lapse of time without complaint showed an intention to
affirm the contract and was a strong indication that they were
not really induced by whatever was said by the appellant's
servant or agent to enter into the agreement (see paras 28–29).
(6) There was a delay of more than four years before the
respondents decided to pursue the action for rescission. Such
delay could be fatal (see paras 23–25).

60 9.2 Rescission of Contract &
Damages in Tort
In assessing damages for fraud or

negligent misrepresentation,
Malaysian courts have resorted to
common law principles relating to
assessment of damages.

61
Abdul Razak bin Datuk Abu Samah v Shah
Alam Properties [1999] 2 MLJ 500 (CA)
P b o u g h t p r o p e r t y t o g e t h e r w i t h a c l u b m e m b e r s h i p
from SAP based on certain fraudulent
misrepresentations.
T h e t r a n s a c t i o n w a s r e s c i n d e d a n d a l l m o n i e s p a i d
by P were ordered to be refunded.
H i g h C o u r t a l s o a s s e s s e d d a m a g e s f o r d e c e i t
payable by SAP to P.
 P appealed to Court of Appeal against the High
Court’s award of damages.
 Issue: had the High Court assessed damages on a
correct basis?

62 Abdul Razak bin Datuk Abu Samah v Shah
Alam Properties [1999] 2 MLJ 500 (CA)
The High Court had allowed the following heads of damage:

(i) loss of value of the appreciation of the property;
(ii) loss of value of the appreciation of the club membership together
with interest;
(iii) interest paid to the financial institution for the loan utilized for the
purchase of the property;
(iv) interest at 8% per annum on each of the monthly interest
payments made by the plaintiff to the said financial institution;
and
(v) cost of the valuation report.

63
Held
 Damages are available in addition to

rescission because an action for fraudulent
misrepresentation is grounded on tort of
deceit, and negligent misrepresentation on
tort of negligence.
 Innocent misrepresentation (one that is

neither fraudulent nor negligent) entitles
representee to merely rescission, and, in
some cases, to an indemnity, but not to
damages.
64 Held
 Damages must take into account any sum

recovered as restitution under the claim
for rescission to prevent double recovery.
 All expenditure incurred reasonably and

properly in consequence of and flowing
directly from the deceit is recoverable for
fraud.

65 Held
I n a s s e s s i n g d a m a g e s f o r b r e a c h o f c o n t r a c t
the object is to place the innocent party in
the same position as though the contract had
been performed.
I n a s s e s s i n g d a m a g e s f o r f r a u d u l e n t
misrepresentation the object is to place the
innocent party in the same position as he
would have been had he not been induced.
Hence the rules as to remoteness of damages
contained in S. 74 Contract Act 1950 have no
application in assessing damages for
fraudulent misrepresentation.
66
Held
P t h e r e f o r e w a s n o t e n t i t l e d t o r e c o v e r l o s s o f
value of the appreciation of the property, loss
of value of the appreciation of the club
membership, and loss of rental of the property
as they amount to damages for breach of
contract.
T h e H i g h C o u r t w a s w r o n g i n a l l o w i n g r e c o v e r y
of such losses by P.

67 Sim Thong Realty v Teh Kim Dar [2003] 3
MLJ 460 (CA)
“In the case of an innocent

misrepresentation, our law is the same as
that of England before the passing of the
Misrepresentation Act 1967…A
representee may sue for rescission and
consequent restitution, but he may not
recover damages…”
68 Sim Thong Realty v Teh Kim Dar
[2003] 3 MLJ 460 (CA)
“ … i f t h e m i s r e p r e s e n t a t i o n i s m a d e
fraudulently, then the representee is entitled
to rescission and all damages directly flowing
from the fraudulent inducement. The relevant
law governing the measure of damages for
fraudulent misrepresentation is set out in the
judgment of Lord Denning MR in Doyle v
Olby…All such damages can be recovered:
and it does not lie in the mouth of the
fraudulent person to say that they could not
reasonably have been foreseen.”
69 Sim Thong Realty v Teh Kim Dar
[2003] 3 MLJ 460 (CA)
F o r n e g l i g e n t m i s r e p r e s e n t a t i o n , “ t h e
remedy…lies in damages in the tort of
negligence under the assumption of
responsibility and reliance doctrine laid
down in Hedley Byrne…representee must
plead and prove a special relationship
giving rise to a duty of care as well as the
other elements [of] the tort of
negligence.”

70 9.3 Affirmation & Damages
The express wording of s. 19(2) suggest that if the

innocent party chooses to affirm the contract the
assessment of damages will be on the contract
basis (putting the party in a position as if the
contract had been performed) and not the tort
basis (putting the party back into the original
position as if the tort had not been committed).

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FRAUD &

Jenita Kanapathy (August 2020) 8/18/2020

 An agreement is a contract only if inter alia it is “made

 2 or more persons are said to CONSENT when they

 Consent is said to be free when it is NOT CAUSED BY inter

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

 Common Law fraudulent

 Common Law negligent and innoc ent

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

 Fraud under S.17 CA 1950 has 2 broad

1. commission of any one of 5 specified

Jenita Kanapathy (August 2020) 8/18/2020

1. suggestion of an untrue fact which is not

Jenita Kanapathy (August 2020) 8/18/2020

Note: these 5 acts may be

Jenita Kanapathy (August 2020) 8/18/2020

 S. 17 (d) & (e) CA 1950 makes fraud in

Jenita Kanapathy (August 2020) 8/18/2020

 Illustration (a) to S. 19 is an example of

◦ “A, intending to deceive B, falsely

Jenita Kanapathy (August 2020) 8/18/2020

 Wong went into occupation and built a factory

Jenita Kanapathy (August 2020) 8/18/2020

 [Unfortunately, the law report does not give any

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

Illustrations (c) and (d) to S.19 illustrate operation of S. 17 (b).

 “(c) B, having discovered a vein of ore on the estate of A,

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

Jenita Kanapathy (August 2020) 8/18/2020

 S sold T 65 acres of land. During the negotiations:

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

Tara Rajaratnam v Datuk Jagindar Singh & ors [1983] 2 MLJ

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

 Illustrations (c) and (d) to S.19 show that fraud requires

Jenita Kanapathy (August 2020) 8/18/2020

 The general rule is that mere

Jenita Kanapathy (August 2020) 8/18/2020

 “Mere silence as to facts likely to

 Illustrations (b) and (c) to S. 17 show

◦ “(b) B is A’s daughter and has just

◦ (c) B says to A, “If you do not deny it,

Jenita Kanapathy (August 2020) 8/18/2020

 LHT purchased a loader on hire-purchase

Jenita Kanapathy (August 2020) 8/18/2020

 Relying on the Explanation to S.17, “there

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020

(a) the positive assertion, in a manner not warranted

Jenita Kanapathy (August 2020) 8/18/2020

 S. 18(a) clearly covers situations of common law

 Unfortunately, it is not entirely clear how, if at all, S. 18(b)

Jenita Kanapathy (August 2020) 8/18/2020

A literal reading of S.18(b) suggests that, apart from no

Jenita Kanapathy (August 2020) 8/18/2020

Jenita Kanapathy (August 2020) 8/18/2020