Fraud

 


Hi and welcome back!

Today I'm going to share with you guys another important topic which I supposed everyone (doesn't matter what your age are) should have know. Why? Is that really important? Let me give you some scenarios. Have you ever got a phone call by an unknown id numbers and then they told you that they're from an insurance company/police officer/court, then they asked for your personal information. Well, that's a scammer. That's right! In contract, the term used is fraud.

Section 17 of Contracts Act 1950 defined fraud as certain acts which are committed with intent to induce another party to enter into a contract.

Five different acts which may constitute fraud (S.17 of CA 1950)

  1. The suggestion, as to a fact, of that which is not true by one who does not believe it to be true;
  2. The active concealment of a fact by one having knowledge of belief of the facts;
  3. A promise made without any intention of performing it;
  4. Any other act fitted to deceive; and
  5. Any such act or omission as the law especially declares to be fraudulent.
The explanation for each acts are as follows:-
  1. The suggestion, as to a fact, of that which is not true by one who does not believe it to be true

  • S.17(a) has similar requirements as S.18(a) in that there must be  a false representation of fact addressed to the party misled.
  • The difference is the state of mind of the maker of the statement.Under17(a) maker of statement does not believe it to be true.
  • See illustration (a)  to S.19 - 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.
  • Case: Kheng Chwee Lian v Wong Tak Thong - The respondent was induced into signing the second agreement by the misrepresentation regarding the area granted to him, which misrepresentation was fraudulent within the meaning of s. 17(a) & (d), Contracts Act, 1950.
       2. The active concealment of a fact by one having knowledge of belief of the facts
  • 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 .
  • See illustration (c ) and (d) to S.19 to show the 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 enable to buy the estate at an undervalue. The contract is voidable at the option of A.
  • (d) A is entitled to succeed an estate at the death of B. B dies; C having received intelligence of B’s death prevent the intelligence reaching A,thus induces A to sell him his interest in the estate.The sale is voidable  at the option of A.
  • Case: Horsfall v Thomas - The plf ordered a gun from the def. The def inserted a metal plug  to conceal the defect  in the weak spot in the gun .
  • Held: This act amount to active concealment with intention to deceive or to induce the other party to enter into the contract .
        3. A promise made without any intention of performing it
  • Where  a promise  is made without any intention of performing it , it is an act of fraud under S.17(c) .
  • Either the promisor knows that when he makes the promise he cannot perform it or he makes  a promise that he intends to break. 
  • Case: MUI Plaza Sdn Bhd v Hong Leong Bank Bhd (No 2) - The plaintiff has a cause of action to recover damages for fraudulent misrepresentation and for the tort of deceit.
        4. Any other act fitted to deceive
  • S. 17(d) is a catch-all clause to prevent any fraud escaping the net of the law
  • Case: Loi Hieng Chiong  v Kon Tek Shin - The court  found that  the appellant was not honest  as to the true  value of his land at Sibu  when he persuaded the Respondent  to exchange the lands and that it was not fair ,just and reasonable  having regard to the accepted value of the  Appellant’s land . The Appellant had perpetrated fraud in the exchange of the land title.
        5.  Any such act or omission as the law especially declares to be fraudulent.
  • Where  any law specially declares certain acts or omissions to be  fraudulent, such act  or omission  amounts to fraud under S.17 (e)

Does silence or non-disclosure constitute as fraud?

General rule: Mere silence or Non-disclosure would not constitute fraud. However,  there are certain circumstances whereby silence or non-disclosure may constitute fraud as provided under the Explanation to S.17:-

1. A duty  of the person keeping silence  to speak  
  • The law puts a duty upon a person in a position of trust and confidence a duty to speak  and disclose all relevant information to the person reposing trust and confidence in him in any transaction between them .
  • Eg. Contract of uberrimae fidei (utmost good faith) /Contract of Insurance  
2. In some  circumstances  the silence  the  silence is , in itself , equivalent to speech.
  • E.g  illustration (c ) to S.17
  • B ,says to A ,if you do not deny it , I shall assume  that the horse  is sound . A says nothing . Here, A’s silence is equivalent to speech .
What is the standard of proof for fraud?

In the case of Ang Hiok Seng v Yim Yut Kiu the court lays down:
  • All  cases on agreement and contracts are dealt with in civil courts.
  • An  allegation of fraud  in any civil proceedings  could be an allegation  based on a civil offence  or criminal offence.
  • If it is based on a criminal offence (i.e on offence of criminal breach of trust or misappropriation of money) the court must apply the  criminal burden of proof  of beyond reasonable doubt. 
  • If it is based on a civil offence , the civil burden of proof  on the balance of probabilities should apply.
  • Where it involves  fraud of purely civil in nature , the degree of probability required  will vary  from case to case  according to the gravity of allegation. It should be of higher degree of probability than in the allegation for tort of negligence.
What are the effect of an agreement entered by fraud?

By virtue of Section 19 of CA 1950, it is voidable at the option of the plaintiff. However, there is an exception to this. There  are  2 circumstances  under exception to S.19 where , although  there was misrepresentation or  fraud, the contract is not voidable.
  1. Where the misrepresentation  or fraud  did not affect the misled party’s consent  to enter into the contract; and 
  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.
How far is the application of the Exception to S.19?

The Exception applies to both  misrepresentation  under S.18 and the Explanation  to S.17 for fraud by silence. But not applicable to active fraud under s.17 (a) to (e) of the Act. Therefore a misled party under the case of active fraud  is not under a duty to exercise ordinary diligence.

Exception to S.19 can on be used as a defence only in cases of fraud by silence. The  illustration (b) and (c)  to S.17 are examples of fraud by silence  and that the party is under a duty to exercise ordinary diligence to discover the truth.

As all about fraud have been explained, it can be justified that Knowledge Can Protect You. However, if you're one of the victim of fraud, now you know your rights and may bring your case in court. 

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