FRAUD

 INTRO

It can be mentioned as a general rule that if a person causes someone to act on a false representation that is not believed to be valid by the maker himself, he is said to have committed fraud.

DEFINITION

According to the section 17 of the Contracts Act 1950, "Fraud" includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract.

Thus, fraud is defined as including certain actions committed with the intention of inducing another party to conclude a contract.

5 DIFFERENT ACTS WHICH MAY CONSTITUTE FRAUD

1. The suggestion, as to a fact, of that which is not true by one who does not believe it to be true

Section 17(a) has similar requirements to Section 18(a) in that a misrepresentation of the truth presented to the party must be falsely addressed. The only difference is the state of mind of the maker of the statement.Under17(a) maker of statement may not consider it to be true.

Where one party induces the other party to contract on the faith of representations made to him, all of which is untrue, the whole contract is regarded as fraudulently acquired:

Kheng Chwee Lian v Wong Tak Thong [1983] 2 MLJ 322 pg 259 Alsagoff

2. The active concealment of a fact by one having knowledge or belief of the facts

The explanation can be seen in illustration (c ) and (d) to S.19 to show the operation of S. 17(b)

Where a party to a contract actively conceals or prevents certain material information from reaching the other  party to the contract,  this active concealment amount to fraud:

Horsfall v Thomas (1862) 1 H & C 90

The situation under S. 17(b)  + Illust. (c) & (d) must not be confused with the general rule of caveat emptor that silence does not amount to misrepresentation or fraud

Passive concealment can be referred to the explanation & illustration (a) & (d) to S.17 where passive concealment is not considered as fraud:

Keates v The Earl of Cadogan (1851) 10 CB 591

3. A  promise made without any intention of performing it

It is an act of fraud under S.17(c) when a promise is made without any intention of fulfilling it. Either the promisor realises that he will not fulfil it when he makes the promise or he makes a promise that he intends to break:

MUI Plaza Sdn Bhd v Hong Leong Bank Bhd (No 2) [1998] 7 MLJ 122

4. Any other act fitted to deceive

S. 17(d) is a catch-all clause to avoid any fraud that escapes the law's net:

Loi Hieng Chiong v Kon Tek Shin [1983] 1 MLJ 31

5. Act or omission as the law specially declares as fraud

If any law states explicitly that such actions or omissions are fraudulent, that act or omission amounts to fraud under S.17 (e)

SILENCE OR NON-DISCLOSURE

The general rule is that mere silence or non-disclosure is not constituting fraud. There are, however, certain situations where silence or non-disclosure may constitute fraud, as provided for in the S.17 explanation. 

1. A duty  of the person keeping silence  to speak 

The law places a duty on a person in a position of confidence and trust to speak and reveal all relevant information to the individual who places trust and confidence in him in every transaction between them. See illustration (b).

2. In some circumstances the silence is, in itself, equivalent to speech.

See illustration (c) to S. 17

STANDARD OF PROOF FOR FRAUD 

If it involves fraud of a strictly civil nature, due to the seriousness of the claim, the degree of probability required will differ from case to case. It should be of greater probability than in the claim of neglect on grounds of tort.

The civil burden of proof on the balance of probability should apply if it is based on a civil offence:

Ang Hiok Seng v Yim Yut Kiu [1997] 2 MLJ 45

EFFECT

The contract that is made to be fraud will be void as mentioned in S.19 of the Contracts Act 1950. However, there are certain exceptions provided in S.19 of the Contracts Act 1950.

Exception

1. Where the misrepresentation  or fraud  did not affect the misled party’s consent  to enter into the contract

2. Where the misrepresentation or fraud by silence could have been discovered by the misled party had he exercised ordinary diligence before entering into the contract.