July 2011

What rights does Mr. Lim have against Clear Stock Sdn Bhd?

Mr. Lim has taken delivery of the car. Can Mr Lim:

§ Reject the car?

§ Or is Mr. Lim’s only recourse in claiming damages?

Q : Are the “saleable features” part of the contract and legally binding?

They are pre-contractual statements – are they enforceable?

Pre-contractual statements – mere representation (ie statements made to induce

a party to enter into the contract), or form part of the contract?

§ If they are mere representation, a party induced to enter into a

contract by such statements may be entitled to relief for
misrepresentation (ie a non-contractual relief)
§ If they are part of the contract, a breach of which would give rise to a
remedy in contract.

To determine whether a statement is merely a representation or a term of the

contract:

q Oscar Chess Ltd v Williams [1957] 1 All ER 325 – the intention of the
parties, as gathered from the surrounding circumstances (a statement
that the car was a 1948 model when it was in fact a 1939 model was not a
term of the contract)

q Dick Bentley Productions & Anor v Harold Smith (Motors) Ltd [1965] 2
All ER 65 – Defendant’s statement that the car had done only 20,000 miles
when it had actually done 100,000 miles – was held to be a term of the
contract

Lord Denning: “It seems to me that if a representation is made in the course

of dealings for a contract for the very purpose of inducing the other party
to act on it, and it actually induces him to act on it by entering into the
contract, that is prima facie ground for inferring that the representation
was intended as a warranty. It is not necessary to speak of it as being
collateral. Suffice it that the representation was intended to be acted on and
was in fact acted on”

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q Tan Chong & Sons Motor Company Sdn Bhd v Alan McKnight [1983] 1 MLJ
220 – car salesman made statements that the car complied with the
Australian Design Regulation – and it induced the plaintiff to purchase
the car. Such statements were held to be binding, the breach of which
gave rise to a cause of action in damages.

FC : it would lead to a great mischief in the law and certainly would

not be in the interest of business efficacy if representations made
by a salesman in the course of his employment could not be relied
upon by an intending purchaser whom he was dealing with.

q JKP Sdn Bhd v PPH Development (M) Sdn Bhd and Another Appeal [2007]
CA – the court applied Dick Bentley and also quoted GH Treitel in The
Law of Contract which states that:

A statement is likely to be a term of the contract where its importance is

such that, if it had not been made, the representee would not have entered
into the contract at all.

à The following would likely be construed as terms of the contract (at the
minimum), considering that the car is priced at RM200k:

o Free sensor touch radio worth RM50k

o A tv screen worth RM50k
o GPS system worth RM50k
o Assurance of 90% financing (this is likely already fulfilled since Mr.
Lim has taken delivery of the car – which means that loan has been
disbursed to Clear Stock Sdn Bhd)

w Mr. Lim signed a booking form – the only written contractual document

i. Would s.91 EA 1950 apply to exclude all terms not in the booking form?

ii. The order form had a condition excluding liability of Clear Stock Sdn
Bhd in relation to any guarantee or warranty

S.91 EA 1950 –

When the terms of a contract or of a grant or of any other disposition of property

have been reduced by or by consent of the parties to the form of a document,
and in all cases in which any matter is required by law to be reduced to the form
of a document, no evidence shall be given in proof of the terms of the contract,

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grant or other disposition of property or of the matter except the document itself,
or secondary evidence of its contents in cases in which secondary evidence is
admissible under the provisions hereinbefore contained.

q Tan Chong & Sons Motor Co Ltd v Alan McKnight [1983] 1 MLJ 220 FC –
the court had to decide whether an oral representation made by a car
salesman which was in direct conflict with some of the terms of a written
agreement (the order form) was admissible. The court allowed such
evidence to be admitted,and held that the prohibition against such
admission in s.91 & s.91 only applies where all the terms in the contract
have been reduced in writing.

q Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229 – s.91 does NOT
only apply where all the terms in the contract have been reduced in
writing – otherwise s92 would have too narrow an application – s92 does
not apply only to a case where all the terms of the agreement have been
reduced to writing

§ Tindok Besar – the danger of admitting oral evidence in cases where

there is a written agreement is that it would be open to any party to a
litigation to say that the said agreement did not contain ALL the terms
and seek to introduce new terms or different terms. No agreement
would then be safe from being re-written by one party in a court of
law
§ The provisos in s92 qualify, but do not eliminate the main provisions
of the section, so unless the additional evidence falls within any of the
provisos, it should not be allowed.

q In Sime Bank Bhd v Kuala Lumpur Securities Sdn Bhd [2001] 5 MLJ 670, the
court cited Chitty on Contracts which stated that the parole evidence rule
has no application until it is first determined that the terms of the parties’
agreement are wholly contained in the written document.

à However, since the only written document is the order form (instead of a
comprehensive agreement setting out various terms), the rationale in
Tindok Besar ought not apply in this case.

q Tan Chong & Sons Motor v Alan McKnight [1983] 1 MLJ 220, FC

- There was clear evidence that had it not been the promise of the salesman
that the car complied with Australian Design Regulations, the respondent
would not have signed the Buyer’s Order and bought the car
- The representations of the salesman were binding

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- The prohibition in s92 only applied where ALL, as opposed to some, of

the terms were written into the agreement. Where it is partly written and
partly oral, oral evidence can be given to prove the terms agreed to orally
- Where the oral representations are in conflict with the printed condition
– the representations must be given an overriding effect.

à In conclusion, based on Tan Chong & Sime Bank Bhd, it is reasonable to

argue that evidence of the terms agreed to orally can be adduced to show
that they form part of the contract – that they are not excluded by virtue
of s.91 EA 1950.

Q : How about the “condition” in the booking form? Would that exclude liability
on the part of Clear Stock, since it has the effect of excluding any guarantee or
warranty pertaining to the car?

Principles adopted by the court to correct the imbalance and control the
possibility of abuse of such clauses:
i. The parties seeking to rely on them must show that it is incorporated
+ sufficient steps were taken to bring it to the notice of the other party
ii. Such clauses are construed against the party introducing it and
seeking to rely on it

Notice must be given before the contract is made

1. Notice of the clause must be given before or contemporaneous with the
making of the contract.

q Thornton v Shoe Lane Parking Ltd (1971) CA Eng

- CA: contract is concluded as soon as the customer cause the ticket to be

issued
- hence the terms of the contract are those contained in the notice placed at
or near the ticket machine stating what is offered for the money and the
customer is bound by these terms provided that they are sufficiently brought
to his attention beforehand.
- he is not bound by any terms printed on the ticket – if such terms are
contradictory, because the ticket comes too late
- for terms which seek to exclude liability – it has to be brought to the
attention of the other party in a way that he realised, at or before the time of
making the contract, that such terms was sought to be included

2. Halsbury’s Laws of England – the more onerous the consequences of the EC,
the more forceful would be the need to notify – also Lord Denning in

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Thornton “It is so wide and so destructive of rights that the court should not
hold any man bound by it unless it is drawn to his attention in the most explicit
way..printed in red ink with a red hand pointing to it, or something equally
startling”

The notice must be reasonably sufficient

q Malaysian Airlines System v Malini Nathan [1986] 1 MLJ 330 – notice of

exemption that was printed on the plane ticket was sufficient and valid,
as the plaintiffs ought to have known, and in any case were presumed to
have known such clauses as they were on the tickets (inconsistent with
Thornton & Chapelton v Barry UDC)

Construction of EC is based on contra preferentum rule

3. Words used must be clear, explicit and unambiguous. If there are any doubts
as to the meaning and scope of the EC, the ambiguity will be resolved against
the party who inserted it and is now relying on it – Rutler v Palmer.

q Thornton v Shoe Lane Parking – All Cars Parked At Owner’s Risk –

Defendant tried to argue that it exempted the defendant from liability for
personal injury – the CA held that the warning was too wide – if intended
to exclude liability for personal injury, it must explicitly state so.

q White v Jordan & Co Ltd – “ Nothing in this agreement shall render the
owners liable for any personal injury” – liability was 2 fold, contractual for
supplying a defective bike, tort of negligence. It was held that the wording
was ambiguous and only excluded liability in contract.

Halsbury’s Laws of England suggested that to protect a party from liability for
negligence, the words must be sufficiently clear, usually either by referring
expressly to negligence, or by using expression such as “however caused”

à On our facts, the clause read “no guarantee or warranty of any kind is
given in respect of the car”. It is arguable that it is not wide nor precise
enough to exclude liability for deliberate / intentional / fundamental
breach of contract / conditions.

Further,

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 July 2011

Where the breach is deliberate – the court may hold that the parties never
contemplated that such breach would be excused or limited by such clauses.

q Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] MLJ 200, PC

- A shipowner delivered goods without production of the bill of lading

– knowing that the recipient was not so entitled – did so at his own
peril.
- The contract is to deliver, on production of the bill of lading, to the
person entitled under the bill of lading
- If it had been suggested to the parties that the condition exempted the
shipping company in such a case, they would both have said, of course
not
- The exclusion clause must therefore be limited and modified to
the extent necessary to enable effect to be given to the main
object and intent of the contract – to the extent so as not to
permit the shipping company deliberately to disregard its
obligations as to delivery.
- No court can allow so fundamental a breach to pass unnoticed under
the cloak of a general exemption clause.

Also,

q FC case of CIMB Bank Bhd v Anthony Lawrence Bourke and Alison Deborah
Essex Bourke [2018] 1 LNS 1887

Clause 12 of the Loan Agreement -

“Notwithstanding anything to the contrary, in no event will the measure of

damages payable by the Bank to the Borrower for any loss or damage incurred
by the Borrower include, nor will the Bank be liable for, any amounts for loss of
income or profit or savings, or any indirect, incidental consequential exemplary
punitive or special damages of the Borrower, even if the Bank had been advised
of the possibility of such loss or damages in advance, and all such loss and
damages are expressly disclaimed.”

FC held:

o Clause 12 precludes the Plaintiffs from claiming any loss or damage

and the Defendant will not be liable for any amount for any loss of
income or profit or savings, or any indirect, incidental, consequential,
exemplary or special damages.

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o The Court agreed that the Court of Appeal was correct in relying on
the Supreme Court decision in New Zealand Insurance Co Ltd v Ong
Choon Lin (t/a Syarikat Federal Motor Trading) [1992] 1 CLJ Rep 230 to
conclude that Clause 12 was caught by section 29. Their Lordships
also agreed with the Court of Appeal’s opinion that a right
cannot be disassociated from its remedy. Balia FCJ added that if
Clause 12 is allowed, it would be an exercise in futility for the
Plaintiffs to file any suit against the Defendant as they are
precluded from claiming the remedies against the Defendant.
Clause 12 negates the rights of the Plaintiffs to a suit for damages,
and the kinds of damages spelt out in that clause encompasses
all forms of damages under a suit for breach of contract or
negligence.
o The learned judge added that based on the plain meaning of the words
used, Clause 12 is an absolute restriction in that whatever the
Plaintiffs are claiming has been negated and as such, section 29 of the
Act ought to be invoked.
o Separately, on the issue of public policy under s.24(e)-
o Clause 12, said the Judge, may typically be found in most banking
agreements. His Lordship added that in reality, the bargaining
powers of the parties to the Loan Agreement are different and
never equal. In the opinion of the Court, this is an instance which
merits the application of the principle of public policy. According to
Balia FCJ –

“There is patent unfairness and injustice to the Plaintiffs had

Clause 12 been allowed to deny their claims/rights against the
Defendant. It is unconscionable on the part of the bank to seek
refuge behind the clause and an abuse of the freedom of contract.”

à On our facts, the effect of the exclusionary clause is that the Clear Stock
would not be liable for the breach of any term at all, including deliberate
and fundamental breach; and it would be futile for Mr. Lim to claim for
anything. Following the CIMB case above, it is likely that such clause
would not be allowed to stand to exclude liability on the part of
Clear Stock.
à That being the case, breach of those terms would entitle Mr. Lim to claim
for damages for breach of contract

We have established that:

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- The pre-contractual statements are terms of the contract

- Such terms are not excluded by s.91 EA 1950
- The exclusionary “condition” in the booking form is not effective in
excluding the liability of Clear Stock Sdn Bhd
- Mr. Lim has a viable cause of action in breach of contract

Misrepresentation and/or Fraud

S 18 Contracts Act 1950 for misrepresentation – circumstances is not conclusive

To be read with s19 CA 1950

1. Sim Thong Realty Sdn Bhd v Teh Kim Dar @ Tee Kim [2003] 3 MLJ 460 – in
order for it to be an actionable misrepresentation

i. The representation must be one of fact – “ an unambiguous false

statement of fact” ( Sim Thong Realty Sdn Bhd)

- As opposed to a mere expression of an opinion

- Eg in Bisset v Wilkinson [1927] AC 177 : a statement by the seller to the
buyer that the land purchased could carry 2000 sheep was an honest
opinion, not a misrepresentation because the seller had not and no
person had done sheep farming on the land in question

ii. The representation must be addressed specifically to the party who acted
upon it

- Section 19 only allows the right to avoid a contract by a party whose

consent was so caused

iii. The representation must be false

- It does not matter if the maker believes it to be true – see s.18

iv. The representation must relate to a matter that is material to the contract

v. The representation must induce the other party to enter into contract

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- Explanation to section 19 – a fraud or misrepresentation which did not

cause the consent to a contract of the party to whom the fraud was
practiced..does not render a contract voidable
- Otherwise, it is just “mere representations”

2. Difference between misrepresentation and fraud:

i. Fraud – the person making the representation does not himself believe
in its truth
ii. Misrepresentation – the representor may believe in its truth

3. Innocent misrepresentation, fraudulent misrepresentation, negligent

misrepresentation – depends on the state of mind of the representor

§ While CA 1950 does not use these terms – ss.17 & 18 have been
interpreted by the courts to cover all 3 types of misrepresentation – eg,
in Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd
[1999]
§ Innocent misrepresentation is where the mind of the statement maker
is free of deceit and inadvertence – and the representor believes his
assertion to be true, and consequently has no intention of deceiving
the representee
- S18 CA 1950 includes this
- However – innocent misrepresentation does not attract
damages; only indemnity is awarded to the representee
(Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn
Bhd [1999]; Heilbut, Symons & Co v Buckleton)
- Admiral Cove Development Sdn Bhd v Balakrishnan a/l Deveraj &
Ors [2011] 2 AMCR 297: a representee of an innocent
misrepresentation may only rescind the contract if it is still
executory and if all parties can be restored to their original
position. If to rescind a contract on account of an innocent
misrepresentation is a drastic step, the right to rescind could
be lost.
- It has become a practice to plead in the alternative a breach of a
collateral warranty (ie treat the contract as valid) – the breach of
which entitles the representee to damages
- Innocent misrepresentation as per Dick Bentley Productions Ltd v
Harold Smith (Motors) Ltd [1965] 2 All ER 65 : if a representation is
made in the course of dealings for a contract for the very purpose
of inducting the other party to act on it, and it actually induces him

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to act on it by entering into the contract, that is enough to say that

the representation was intended as a warranty.

§ Negligent misrepresentation is one made carelessly or without

reasonable grounds for believing it to be true.
- Thre must exist a special relationship for the representor to owe a
duty to be careful
- Plaintiff is entitled to pursue an action in tort in breach of duty and
in contract for breach of contractual warranty

§ Fraudulent misrepresentation making a statement knowingly, or

knowing that it is false or not believing it to be true or reckless as to
its truth (Derry v Peek). It also comes under the tort of deceit
- Both s17 and s18 are generally relied upon to establish fraudulent
misrepresentation – Kheng Chwee Lian v Wong Tak Thong

S.17 CA 1950 – intention to deceive / to induce the other party to enter into a
contract
1) Acts / omission in (a) – (e)

2) Common law position is as per the case of Derry v Peek [1889] UKHL 1, where
fraud is defined as a false representation made:

(i) Knowingly or

(ii) Without belief in its truth or

(iii) Recklessly, careless whether it be true of false

q Kheng Chwee Lian v Wong Tak Thong [1983] 2 MLJ 320 : the different acts
spelt out in S17 to constitute fraud would cover fraudulent
misrepresentation under the common law

3) Fraud in S17 is wider than the common law meaning of fraud as per Derry v
Peek especially s.17(d) and (e)

à On our facts, it is likely that Mr. Shifty, being a senior salesman of Clear
Stock, knew that the car would not come with the features as he had
promised. It is likely that Mr. Lim has an alternative cause of action in fraud
/ fraudulent misrepresentation.

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(b) Remedies available to Mr. Lim

Contractual remedies

Per the discussion above, Mr. Lim can claim for damages for breach of contract

(i) There must be a valid contract

(ii) There must be a breach of contract
(iii) The party claiming should have performed / ready to perform
(iv) The breach must have caused the loss

Damages must not be too remote.

§ S74(1) CA 1950, which has its origins in Hadley v Baxendale, stipulate that
damages would not be too remote if either it is:
- damages arising naturally, or
- damages as may reasonably be supposed to have been in the
contemplation of both parties

§ Items of damages:
i. Depreciation of car value
ii. Cost of installing the additional features
iii. Cost of repainting the car (however the representation of colour
may not be part of the contract)
iv. All expense paid trip to London

à Items i,ii & iii would fall within first limb of s.74(1); whereas item iv would
fall within second limb of s.74(1) CA 1950

Mr. Lim must also have tried to mitigate his losses under explanation to s.74

_____________________________________________________________________

Remedies for misrepresentation

a) Fraudulent misrepresentation – rescission + damages actually and

directly flowing from the fraudulent inducement

- damages for fraud goes beyond what may reasonably be supposed

to have been in contemplation of the parties. The defendant /
fraudulent party is bound to make reparation for all the actual
damage directly flowing from the fraudulent inducement

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q Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, Lord Denning -- –

applied by the Malaysian Court of Appeal in Sim Thong Realty Sdn
Bhd v Teh Kim Ser [2003] 3 MLJ 460, CA

- Damages in contract are limited to what may reasonably be

supposed to have been in contemplation of the parties.
- In fraud, they are not so limited. The defendant is bound to
make reparation for all the actual damage directly flowing
from the fraudulent inducement – it does not lie in the
mouth of the fraudulent person to say that they could not
reasonably have been foreseen.
- Damages is based on tort of deceit : to put the innocent party in
the position he would have been if the representation had not been
made
- There is nothing to be taken off in mitigation

b) Negligent misrepresentation – damages in tort of negligence, or

contractual damages for breach of warranty, no right for rescission

c) Innocent misrepresentation – rescission, but no damages. However

cases have awarded indemnity to representee (ie for any loss or
damage suffered in fulfilling his contractual obligations)

§ Difference between damages and indemnity – as illustrated by Sim

Thong Realty Sdn Bhd v Teh Kim Dar @ Tee Kim [2003] 3 MLJ 460
o Damages is to put the victim of the misrepresentation in
exactly the same position as if the representation was never
made
o Indemnity is to compensate the victim for all expenses
incurred or loss suffered in having carried out the rights and
obligations which has been created by the contract

q Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd [1999]
2 MLJ 500 – where damages are awarded for fraudulent misrepresentation
(as well as negligent misrepresentation), the assessment of damages must
take into account any sum recovered as restitution under the claim for
rescission so as to prevent double recovery.
q Whittington v Seale-Hayne (1899-1900) 82 LT 49 illustrate the distinction
between indemnity and damages

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- The Ps took a lease of certain premises on the strength of the

defendant’s innocent misrepresentation that they were in a
sanitary condition and they erected certain poultry sheds thereon.
As a result of the insanitary state of the premises, that is, the water
supply was poisoned, the manager of the P’s poultry farm became
ill. The poultry also died. The local council declared the premises
were unfit for habitation and ordered the Ps to remove the drains.
The Ps were also asked to remove their sheds.
- In an action for rescission and for an indemnity against the
consequences of having entered into the contract, the Ps claimed
the following losses:
o Value of stock lost £750
o Loss of profit on sales £100
o Loss of breeding season £500
o Rent and removal of stores £75
o Medical expenses £100
- The court held that the Ps were entitled to an indemnity against
the obligations to pay rates and to effect the necessary repairs
because these were necessarily assumed under the contract. But
the Ps were not entitled to recover in respect of the medical
expenses or loss of poultry or the removal of the sheds because they
were in the nature of damages

q Sim Thong Realty Sdn Bhd v Teh Kim Dar @ Tee Kim [2003] 3 MLJ 460

There is a world of difference between the two remedies, namely, an

indemnity, or more appropriately, restitution (see, Goff & Jones, The Law
of Restitution, 5th edn, p. 287, fn. 48) and an award of damages for
misrepresentation. That difference is dealt with in the 6th edn of Cheshire
and Fifoot on the Law of Contract (p. 240) from which we quote:

The overriding rule that damages are irrecoverable for an innocent

misrepresentation forming no part of the contract has led,
however, to a somewhat subtle distinction between indemnity and
damages. There is no right in the plaintiff to have the status quo
restored in toto; no right to an indemnity against every obligation
that he may have incurred as a result of the contract. Otherwise
there would be no difference between indemnity and damages. In
the words of Bowen, LJ (in Newbigging v. Adam [1886] 34 Ch D
582, 594):

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I should not like to lay down the proposition that a person

is to be restored to the position which he held before the
misrepresentation was made, nor that the person injured
must be indemnified against loss which arises out of the
contract, unless you place on the words "out of the contract"
the limited and special meaning which I have endeavoured
to shadow forth. Loss arising out of the contract is a term
which would be too wide. It would embrace damages at
common law, because damages at common law are only
given upon the supposition that they are damages which
would naturally and reasonably follow from the injury done.

To what obligations, then, does the indemnity relate? The answer

is that the plaintiff must be indemnified, not against all obligations
even though they may be correctly described as having arisen
under, or out of or as a result of the contract, but only against those
necessarily created by the contract. (Authors' emphasis). The
burden must be one that has passed to the representee as a
necessary and inevitable result of the position which he assumed
upon completion of the contract.

If, for example, A. procures the dissolution of his partnership with

B. and C. on the ground of innocent misrepresentation, he
nevertheless remains personally liable for partnership debts
contracted while he was a member of the firm. His position as
partner was created by the contract and it is the inevitable and
automatic result of having occupied this position that he is now
burdened with liability for debts. Hence they are a proper subject
for an indemnity.

It follows that the victim of an innocent misrepresentation, is not to be

put in exactly the same position as if the representation had never been
made. For, that would result in an award of damages. All that is required
is that the representee be returned to his position only so far as regards
the rights and obligations which have been created by the contract into
which he was induced to enter. The interface of the remedies of rescission
and restitution produces this result.

We now return to the present appeal to determine the remedies that the
defendant is entitled to have.

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It is clear that the defendant's pleaded case alleges neither fraud nor
negligence. All that the defendant has pleaded is the misrepresentation
about the access to the land. Absent a specific and particularised plea of
fraud or negligence, the defendant must be taken as asserting a case of
innocent misrepresentation in the sense already discussed.

In its pleaded case, the defendant has sought,inter alia, the following
relief, namely, (i) rescission (ii) return of the deposit of RM254,204 (iii)
interest on the sum of RM254,204 and (iv) damages.

Applying the principles discussed earlier to the facts of the present

instance, it is our judgment that the defendant is entitled only to
rescission and to the return of the deposit of RM254,204. These are the
two items that would replace the defendant in its position - to borrow the
words of Bowen LJ - "so far as regards the rights and obligations which
have been created by the contract into which (it) has been induced to
enter". The defendant is not entitled to interest on the sum of RM254,204.
To award interest would amount to compensating the defendant for the
loss of the use of his money while it was in the plaintiff's hands. This, in
our view, would amount to an award of damages. We would add ex
abundanti cautela that none of the discretionary bars to rescission were
raised by the plaintiff. In any event, they do not apply to the facts of the
present instance. Neither is there any need for any equitable adjustment
under s. 37 of the Specific Relief Act 1950 as the defendant did not, on the
facts, obtain any advantage or benefit under the voidable transaction.

Is rescission still possible for Mr. Lim?

There are a few bars to rescission, namely:

i. Affirmation of the contract

ii. Lapse of time
iii. Executed contracts
iv. Where third party rights have been affected

à On our facts, Mr. Lim has delivered the car, as well as installed additional
accessories, and the bank has disbursed the loan to Clear Stock. Is it possible

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for parties to be restored back to their original position? As a contract may

only be rescinded if restitution is possible --

i. If restitutio in integrum is not possible

- Upon rescission, the representee is entitled to recover anything he

has paid
- The representor must give back what he has received
- Ie putting the parties back in their original position
- Question is whether restitution is substantially possible, just
and fair

- Common law insists that rescission must be total and there

must be precise restoration – Clarke v Dickson (1858) EG & E
148

“The true doctrine is, that a party can never repudiate a

contract after, by his own act, it has become out of his
power to restore the parties to their original condition”

- The strict common law approach can be contrasted with the

flexibility of equity – O’Sullivan & Anor v Management Agency
and Music Ltd & Ors [1985] QB 428, CA, where the Court of
Appeal quoted the House of Lords in Erlanger & Ors v New
Sombrero Phosphate Co & Ors where Lord Blackburn had stated
that:

“..the practice has always been for a Court of Equity to give this
relief [i.e. rescission] whenever, by the exercise of its powers, it
can do what is practically just, though it cannot restore the
parties precisely to the state they were in before the
contract”

à Considering the involvement of a third party (the bank / financier) which has
acquired certain benefits under the contract, and the condition of the car has
been changed -- it is unlikely that restitution would be possible
à Mr. Lim would not be able to rescind the contract

Nevertheless he is entitled to damages on affirming the contract – s.19(2)

1. Generally under the common law, where the innocent party elects to affirm
a contract into which he was induced to enter by fraud or misrepresentation,

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the measure of damages to which an innocent party is entitled will be

damages assessed in accordance with the law of tort for deceit (for fraudulent
misrepresentation) and not based on the measure of damages for a breach of
contract.

2. The object of damages for tort of deceit, as for other torts, is to put the injured
party into as good a position financially as he would have been if the tort had
not been committed – Datuk Jagindar Singh v Tara Rajaratnam [1986] 1 MLJ
105. The purpose of damages for deceit is to put the plaintiff in the position
he would have been in had the fraud not been committed; it is not to put him
in the position he would have been in had the contract been performed
(which is the measure of damages for breach of contract).

3. In contract, on the other hand, the object of damages is to put the plaintiff in
as good a position, as far as money can do it, as if the promise had been
performed.

1. However, consider the effect of s19(2) – ‘that he shall be put in the position
in which he would have been if the representation made had been true’

- Pollock & Mulla – the Law Commission of India recommended that the
power of restitution must be limited to the extend considered reasonable

§ A, insurer sells a policy to B and A represented that the policy will yield
a return of RM1mill, which turn out to be untrue
§ A cannot claim the represented benefit of RM1mill – because the court
should be concerned with what would the position of B be if there had
been a correct representation, and not based on the incorrect
misrepresentation

q RC Thakkar v Gujarat Housing Board AIR 1973 Guj 34 – the Court held that
the only requirement of section 19 of CA 1950 was to consider what would
have been the position of the defrauded party had there been a correct
representation.

4. Sinnadurai: in light of the express wording of s.19(2), it appears that the

common law approach to employ a non-contractual measure (eg. Tort of
deceit) to assess damages recoverable by an innocent party who opts to affirm
the contract may be not correct. It would appear that the test envisaged
by the CA 1950 for the assessment of such damages is founded in
contract and not in tort.

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Consider that:

(a) The measure of damages in contract is to place the innocent party

in the position he would have been in ‘if the representation had
been true’; whereas
(b) Under tort of deceit it is ‘to put the innocent party in the position
he would have been in ‘if the representation had not been made’

à The tortious measure may be appropriate, where damages are awarded in

addition to rescission, because an action for fraudulent misrepresentation
is grounded upon tort of deceit, and in the case of negligent
misrepresentation upon the tort of negligence; but where the contract
is affirmed, the measure should be the contractual one.

§ Mr. Lim is entitled to claim damages under s.19(2) – likely on a

contractual basis [which is the same as his entitlement under s.74
CA 1950]

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Claim against Mr. Shifty in his personal capacity?

Contract is between him and Clear Stock – Mr. Shifty is not a contracting
party

Misrepresentation?

Misrepresentation – negligent

§ Negligent misrepresentation is one made carelessly or without

reasonable grounds for believing it to be true.
- There must exist a special relationship for the representor to
owe a duty to be careful
- Plaintiff is entitled to pursue an action in tort in breach of duty and
in contract for breach of contractual warranty
- If successful, Mr. Lim can claim damages for breach of contractual
warranty or tortious breach of duty
- It is unlikely that Mr. Lim will be able to sue Mr. Shifty in his
personal capacity

Further, pursuant to s.183 CA 1950 – an agent is not ordinarily bound by contracts

entered into on behalf of principal.

In conclusion, it is unlikely.

19
 July 2011

IN THE KUALA LUMPUR SESSIONS COURT

Suit No. 123 of 2020

Between
Mr. Lim
(NRIC No. xxx) … Plaintiff
And
Clear Stock Sdn. Bhd.
(Co. No. xxx) … Defendant

STATEMENT OF CLAIM

1. Plaintiff is an individual residing in xxx.

2. Defendant is a company incorporated under Malaysian Laws and is in the

business of selling cars. The Defendant owns, among others, a showroom
located in Jalan Ipoh, Kuala Lumpur (Defendant’s showroom).

3. On 1.7.2011, the Plaintiff and the Defendant entered into an agreement for the
sale and purchase of a vehicle (the vehicle) at the Defendant’s showroom.

4. The Defendant led the Plaintiff to agree to the purchase by representing that
the purchase of the vehicle would contain / be accompanied by the following
features:

a) Xx
b) Xx
c) Xx

5. Pursuant to the agreement, Plaintiff paid the required deposit sum of

RM20,000.

6. Upon taking delivery of the vehicle, Plaintiff discovered the following non-
compliance to the agreement:

a) Xx
b) Xx

7. As a result of the above non-compliance, Plaintiff suffers loss and damage.

Particulars

Depreciation of car value RM aa

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 July 2011

Cost of repainting the vehicle RM bb

Cost of installation of sensor touch radio, TV Screen and GPS RM cc
Cost of trip to London RM dd
TOTAL RMabcd

8. The Plaintiff claims for loss and damage suffered as a result of the breach of
the agreement.

Fraud / Fraudulent Misrepresentation

9. The Defendant, via its agent and senior salesman, Shifty, represented to the
Plaintiff that the vehicle would contain / be accompanied by the features as
per Para 4 above (“the representations”).

10. The representations were made in order to induce the Plaintiff to purchase
the vehicle immediately via a deposit payment of RM20,000, which the
Plaintiff made.

11. The representations were made by Shifty knowing that they were not true
and did not in fact come with the vehicle; and/or were made without any
intention of the Defendant to ensure the vehicle would contain the
representations.

12. The Plaintiff suffers loss and damage as per the particulars in Para 7 above,
and claims for all loss as a result of the fraud / fraudulent misrepresentation
of the Defendant.

AND the Plaintiff claims:

A. The Defendant to pay the sum of RMabcd to the Plaintiff;

B. Damages; [this would include damages for breach of contract and damages for
fraud / misrepresentation under s.19(2) – it is not necessary to set out “damages
for breach of contract” and “damages for misrepresentation” separately]

C. Cost;

D. Interest;

E. Such further and other relief as this Honourable Court deems just.

21
 July 2011

Dated 28 March 2021

Sgn
……………………..
Messrs. ABC & Co
Solicitors for the Plaintiff

This STATEMENT OF CLAIM is filed by Messrs. ABC & Co, solicitors for the
Plaintiff with an address of service at No. 1, Jalan 2, Kuala Lumpur

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