January 6, 2021>Malaysia> Business and Commerce
Azmi & Associados |View company profile
Today, companies are thriving in line with the globalization of commerce. However, let's be honest. The advancement and expansion of business opportunities has created greater competition and forced industry players to be more innovative to survive and remain competent players in the industry. Business relationships and corporate transactions are often carried out with the aim of generating revenue and profits. However, reality may not be what you would like.
Imagine you enter into a contract to make a profit, only to discover that the contract is not as promising as it seems, or worse, you discover that you have been tricked into submitting false information. What resources would you have in such a situation? In this article, we give you an insight into the nature of fraudulent claims by companies and the damages that can be claimed if found.
Determination of Fraudulent Misrepresentation
Fraudulent misrepresentation is based on the tort of deceit and invokes contractual damages. A fraudulent misrepresentation occurs when a misrepresentation is made by a person (i.e., the accused) who knows it is not true, or who does not believe it to be true, or who is reckless as to its truthfulness.  It is a product of a mixture of "fraud" and "misrepresentation" in which the court would determine the existence of such a misrepresentation by looking at the surrounding circumstances to determine the intent and/or state of mind of the person who made such a display.
When filing a claim for fraudulent misrepresentation, it is important to state with certainty that it is "fraudulent misrepresentation". This is because courts refuse to hear a matter that has not been expressly stated. This is evidenced by the case of the Court of AppealsrewardDynamics Sdn Bhd (formerly known asMedia Development Sdn Bhd) v ChowTat Ming & 175 Ors, although the defendants have not indicated with certainty whether the allegation of fraudulent misrepresentation was negligent or fraudulent.
In this case, the court ruled that the defendants were not permitted to rely on arguments concerning fraudulent misrepresentation because they had not alleged fraudulent misrepresentation. In addition to the above, the alleged fraudulent misrepresentation must also be stated in the written submissions, otherwise the court would find the claims unfounded and thus dismiss the case.
Case law has determined that there are five (5) elements that must be invoked and proven to establish fraudulent claims, namely:
I. a statement of fact through words or behavior;
ii. the representation must be made in the knowledge that it is false (it must be intentionally false, or at least made in the absence of any genuine belief that it is true or reckless);
iii. the representation must be made with the intention that the claimant, or a group of persons who induce him to do so, will act in a way that results in the claimant's prejudice;
4. it must be proven that the author acted on the basis of false information; AND
v. it must be proved that the author suffered harm as a result.
The Federal Court of Malaysia ruled in the case ofALW Auto Repair SdnBhd V AXA Affin General Insurancebhd accepted the fraudulent misrepresentation test as pronounced by thePrivy Council in case ofBaron Akerheilm vs Rolf De Marc as follows:
“The question was not whether the defendant in a particular case honestly believed that the account was true or false in the sense given to him by the court, but whether he honestly believed that the account was true in the sense in which he believed it to be understood. , albeit erroneously, when it was done".
burden of proof and standard of proof
According to settled case law, the burden of proof throughout the process rests with those who have the burden of proof.
The burden of proving that fraudulent misrepresentation actually existed rests with the person claiming the existence of such facts. The burden of proving the existence of fraudulent statements would therefore initially fall on the plaintiff/applicant. If a party bearing the burden of proof has fulfilled it, the burden of proof is transferred to the other party. The parties may discharge the burden through oral, documentary and/or other relevant evidence, interviewing witnesses for the other party's cross-examination, or a combination of the various methods.
There has been some debate as to the correct standard or evidence to use in a case involving fraudulent claims. A review of case law would show that various attempts have been made to persuade the courts to apply the "beyond a reasonable doubt" standard of proof or the "balance of probabilities" standard of proof in relation to fraudulent misrepresentation, and the courts have views divergent on occasions decided in favor of both sides of the arguments.
But in 2017, the Federal Court of Justice in the case ofLing Peek Hoe & Anor vDing Siew Ching and another appeal solved the problem. In that case, the Federal Supreme Court granted the claimants, among other things, an appeal on the question whether the Court of Justice had adopted the standard of proof “beyond reasonable doubt” in the present case of fraudulent statements. The Federal Court of Justice ruled that claimants should prove their case only after a balance of probabilities. Thus, the plaintiff/plaintiff would have to prove their claim of fraudulent misrepresentation on a balance of probabilities.
The right to damages in a fraudulent misrepresentation action is to put the plaintiff in the position he would have been in had he not been asked. If a case of fraudulent misrepresentation is established, the party persuaded to enter into the misrepresented transaction may apply to the court for an answer and also for damages. The plaintiff's option to terminate the contract is a remedy made available under Section 19 of the Contracts Act 1950. Compensation for damages is possible in addition to withdrawal as a fraudulent misrepresentation lawsuit is based on misrepresentation.
However, due attention should be paid to the explanation in this section as it sets out the requirement that the misrepresentation must have led to the formation of the contract and as such is to some extent linked to the burden of proof. It is up to the plaintiff to prove that the false statement actually led him to enter into the contract. If the defendant made a material misrepresentation intended to induce the plaintiff to act as he did and if the harm is consistent with the plaintiff acting on the alleged misrepresentation, the burden of proof is shifted to the defendant that the plaintiff did not rely on false statements at all. Note should also be noted of the exception provided for in Section 19 of the Contracts Act, whereby the Act provides that the possibility of rescission of the contract would not be available if the party whose consent was caused had the means to tell the truth by ordinary means discovering the care.
Lord Denning has in the case ofDoyle contra Olby identified four main pointsrelevant to the amount of damage tofraudulent misrepresentation, as follows:
I. the degree of damage if aContract was made byfraudulent misrepresentation is reparationfor any actual damages directly arising out of (i.e. caused by) the completion of the Transaction;
ii. in assessing such damages, it is not an insurmountable rule that the plaintiff must consider the value of the good acquired at the time of the transaction;
iii. Compensation for damages due to fraudulent intent is not limited to reasonably foreseeable damages; AND
4. Recoverable damages may include consequential damages incurred as a result of acquiring the asset.
Lord Denning further asserted in his judgment that the purpose of damages is to recover, as far as possible, the plaintiff for all the losses he has hitherto suffered. His Lordship stated that, in case of fraud, the accused is obliged to repair the actual damages directly resulting from the fraudulent seduction.
The above items were cited with consent in the Malaysian Court of Appeal caseKee Wah Soong x YapBlessings to Hwa and Anor and in the case of the Court of AppealYes Thong Real EstateSdn Bhd vs Teh Kim Dar @ Tee Kim. Based on the above, the victim of fraudulent misrepresentation is entitled to compensation for all actual losses, including consequential damages, arising directly from the transaction caused by the fraud, subject to proof by the victim.
With the ability to retract and seek damages in the event of a fraudulent misrepresentation, it is up to the injured party to make a business decision to pursue such cause of action, given the available evidence and the amount of damages to be claimed. in count. We believe that in this article we have provided some information about the nature of the fraudulent claim.
1 (1995) Clerk and Lindsell on Torts (17th ed.) at paragraphs 14-01.
2  1 MLJ 507
3 Yeohata Machineries Sdn Bhd & Anor gegen Coil Master Sdn Bhd & Ors  6 MLJ 810
4  4 MLJ 561
5  AC 789
6 Tan Geok Khoon & Gerard Francis Robless gegen Paya Terubong Estate Sdn Bhd  2 MLJ 672;
7  5 MLJ 385
8  2 All ER 119
9  MLJU 1289
10  3 MLJ 460