Fraud Law

12.2 FRAUD

This first part of the chapter will examine (i) fraud under 17 of the Contracts Act; (ii) whether silence amounts to fraud; and (iii) the burden and standard of proof for fraud.

Fraud is defined in section 17 of the Contracts Act as follows:

‘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:

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 fact;
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 specially declares to be fraudulent.

An important element of section 17 is that the act committed as amounting to fraud is made with the intent to deceive another party to enter into the contract. The intent to deceive provided in section 17 on fraud which includes fraudulent misrepresentation distinguishes section 17 from section 18 which cover innocent and negligent misrepresentations. In BP (Sabah) Sdn Bhd v Syarikat Jubrin Enterprise (a partnership firm) & Anor, Ian Chin J described fraud as follows:

...fraud implies some base conduct and moral turpitude and a person is taken to have acted fraudulent or with intent to defraud if he acts with the intention that some person be deceived and by means of such deception that either an advantages should accrue to him or injury, loss or detriment should befall some other person. That is what is known as “fraud” or “fraudulent”.

Section 17 (a), (b) and (c) of the Contracts Act would cover the common law of fraudulent misrepresentation as defined by the House of Lords in Derry & Ors v Peek in the judgment of Lord Hershell as follows:

        First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false has obviously no such belief.

12.2.1 FRAUD UNDER SECTION 17 CONTRACTS ACT

Section 17 of the Contracts Act lays down five acts which may constitute fraud. The act must be made with intent to deceive another party or to induce him to enter into the contract. As provided in the explanation to section 19, the fraud must cause the consent to the contract to render the contract voidable.

12.2.1.1 Suggestion of untrue fact: s 17 (a)

Under section 17(a) of the Contracts Act, the following elements are necessary:

1. a suggestion as to a fact;

(ii)  the fact suggested is not true; and

(iii) the suggestion was made by a person who does not believe it to be true.

Illustration (a) in section 19 provides a good example of fraud under section 17(a). Section 17(a) was applied by the Federal Court in Kheng Chwee Lian v Wong Tak Thong. In this case, the respondent bought a half share in a piece of land from the appellant and paid the purchase price. Subsequently, the respondent was induced to sign another agreement under which he has allocated a smaller portion of land than in the earlier agreement. The trial judge found that the respondent had been misled into signing the second agreement and was not aware that pursuant to it, he was giving up his bigger share of the land in return for a smaller area. The Federal Court agreed with the trial judge’s finding that the respondent was induced by misrepresentation into signing the second agreement and held that the misrepresentation was fraudulent within the meaning of ss 17(a) and (d) of the Contracts Act. By virtue of s 19 of the Contracts Act, the second agreement was voidable at the option of the respondent.

12.2.1.2 Active concealment of fact: s 17(b)

Under s 17(b) of the Contracts Act, there must be the following elements:

1. an active concealment of a fact, and

(ii) the concealment was made by a person who has knowledge of it.

The High Court held that the acts of the defendant amounted to fraud within the meaning of s 17 of the Contracts Act. It was found as a fact that the defendant knew the existence of the transmission lines and pipelines on the said land prior to the signing of the sale and purchase agreement. The Court then went on to determine whether there was active concealment of the existence of the transmission lines and pipelines on the land by the defendant prior of the signing agreement. It was found that there was such concealment as the defendant’s agents had informed the plaintiffs, when they went to view the land, that the boundary of the land was up to the transmission lines and pipelines and those structures were not within the land. The High Court’s finding on fraudulent misrepresentation was upheld by the Court of Appeal. The plaintiffs had applied to the Court of Appeal for rectification of the agreement to reflect the reuced purchase price in view that part of the land was taken up by water pipes and high tension cables. The Court of Appeal did not allow the plaintiff’s application for rectification but held that the agreement was terminated by the defendant’s fraudulent misrepresentation.