Fraud and misrepresentation, Lecture notes of Contract Law

Download Fraud and misrepresentation and more Lecture notes Contract Law in PDF only on Docsity! CHAPTER 3 FRAUD AND MISREPRESENTATION INTRODUCTION Following from the preceding chapter on voidable contracts which covered coercion and undue influence, this chapter will cover the vitiating factors of fraud and misrepresentation which are provided in ss 17 and 18 of the Contracts Act respectively. The first part of the chapter will cover fraud followed by the second part on misrepresentation. The third part will cover the effect of, and relief for contracts entered into due to fraud and misrepresentation. • Sections 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 (1889) LR 14 App Cas 337, HL 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.” • In this case, a company submitted its plans to run trains to the Board of Trade and applied for a special Act to permit it to run trains by steam power. The Act, which provided that the trains might be run with steam power subject to the consent of the Board of Trade, was passed. The directors of the company, believing that consent would be given as a matter of course, issued prospectus stating that the company had the right to use steam or other mechanical power. The respondent subscribed for shares in the company on the faith of this statement. Subsequently, the Board of Trade refused consent for the company to use steam power and the company was wound up. The respondent brought an action in deceit against the appellant directors and claimed for damages for fraudulent misrepresentation. The House of Lords held that the respondent's claim failed. This was because the directors honestly believed that consent was practically given with the passing of the Act. • Thus, a fraudulent misrepresentation occurs where there is an absence of honest belief in the truth of the statement made. This would include false statements made knowingly, or without belief in its truth, or recklessly, careless whether it is true or false. • The decision in Derry v Peek & Ors was referred to in Double Acres Sdn Bhd v Tiarasetia Sdn Bhd [2001]1 AMR 111 where Abdul Malik Ishak J stated: “… whenever a person causes another to act on a false representation which the maker himself does not believe to be true, the maker is said to have committed a fraud. It is a simple statement of the law. The case of Derry v Peek (1889) 14 App Cas 337 is a classic example of fraud under the common law where the House of Lords in classical style defined fraud as a false representation 'made (i) knowingly or (ii) without belief in its truth or (iii)fecklessly, careless whether it be true or false.” • However, on the facts, it was held that Tiarasetia Sdn Bhd had not produced any evidence to sustain its claim of fraudulent misrepresentation. • Fraud as defined in s 17 of the Contracts Act is wider than the common law on fraudulent misrepresentation as defined in Derry v Peek & Ors, by virtue of s 17(d) "any other act fitted to deceive" and s 17(e) "any such act omission as the law specially declares to be fraudulent". • A case of fraud by concealment of material facts which induced the other • party to enter into the contract is Tay Tho Bok & Anor v Segar Oil Palm Estate Sdn Bhd [1996]3MLJ 181. In this case, the plaintiffs entered into an agreement to purchase 11 pieces of land from the defendant. After paying a deposit and signing the agreement, the plaintiffs found that part of the land was being used by the Public Utilities Board for water pipelines and by Tenaga Nasional Bhd for transmission cables. The plaintiffs argued that the purchase price ought to be reduced to reflect the presence of these encumbrances. The defendant refused, and argued that they had no knowledge of any land acquisition by the Public Utilities Board, and that they did not make any representation that the transmission lines did not run across the land. It was the plaintiffs' case that the defendant had dishonestly concealed relevant material facts from them and had misled them into believing, that the transmission lines and pipelines were not within the land concerned. • 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 to the signing of the 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 reduced 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. No intention to perform promise: s 17(c) • Under s 17(c) of the Contracts Act, the following elements are necessary: • (i) a promise was made; and • (ii) there was no intention to perform the promise. • Section 17(c) was applied in Datuk Jagindar Singh & Ors v Tara Rajaratnam [1983] 2 MLJ 127 where the plaintiff had alleged that her land was transferred to the second defendant (and later to the third defendant) through, inter alia, fraud perpetuated by the first and second defendants who were her solicitors. • The High Court held that fraud has been proved as the defendants did not have the intention to perform the promises made to the plaintiff. The second defendant had fraudulently misrepresented to the plaintiff that although the transaction was in the form of a transfer, it was only as a security and that the land will be returned to her after one year. However, the evidence did not show that the defendants had any intention to fulfil their promise. The trial judge's decision was upheld by the Federal Court and the Privy Council. [1983] 2 MLJ 196, FC; [1986] 1 MLJ 105, PC (Appeal from Malaysia). • The High Court considered s 17(c) in relation to the issue of misrepresentation. In this respect, it is a basic proposition that a representation means a statement of fact, not a statement of intention - or of opinion or of law. A representation relates to an existing fact which is distinguishable from a statement of intention. However, it does not mean that a statement of intention can never be a representation of a fact. 15 In Datuk Jagindar Singh's case, Abdul Razak J stated: “A representation is a statement of present or past fact. Therefore a statement of intention is not a representation of fact because it relates to the future. But a statement of intention also involves a representation as the existence of the intention which is itself a present fact. • Subsequently, it was discovered that the car had never been registered with the Road Transport Department and that the registration card purportedly issued by the department in respect of the car was a forgery. The High Court held that the first defendant had used Milligol as a vehicle to enter into the agreement without any intention of performing it and had deceived the plaintiff into parting with the loan sum. His conduct and actions fell within the ambit of s 17 of the Contracts Act. Act fitted to deceive: s 17(d) • The provision in s 17(d) is very wide which makes fraud under s 17 of the Contracts Act broader than common law fraudulent misrepresentation as defined in Derry v Peek & Ors. It has been said that the said section was "inserted merely for the sake of abundant caution".' Section 17(d) has been applied in Kheng Chwee Lian v Wong Tak Thong together with s 17 (c). Act or omission declared to be fraudulent: s 17(e) •Section 17(e) applies where the law specifically declares an act or omission to be fraudulent. It also applies where the disclosure of certain kinds of fact is expressly required by law. Whether silence amounts to fraud •The Explanation to s 17 of the Contracts Act provides: •Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech. •As a general rule, fraud is not committed simply by keeping silent about a certain fact that could affect the decision or willingness of another to enter into the contract. In short, silence is not fraud. Illustration (d) explains this general rule. •A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B. •In the above illustration, A's silence, although he has information on the change of prices that is likely to affect B's willingness to enter into the contract, is not fraud. This is also an application of the rule of caveat emptor (let the buyer beware) that a seller does not have the duty to inform a buyer the condition of the goods he is selling. It is on the buyer to satisfy himself before making a purchase. •However, there are two exceptions to this general rule, that is, silence can amount to fraud if (i) there exists a duty for the person to speak; and (ii) the silence, in itself, -is equivalent to speech. There exists a duty for person to speak •The first exception is where the circumstances of the case are such that it is the duty of the person keeping silent to speak. This can occur in sale and purchase transactions where the relationship is more than the ordinary relationship of seller and buyer. This can be seen by contrasting Illustration (a) with Illustration (b). (a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in (b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse is unsound. •In Illustration (a), the ordinary relationship of seller and buyer does not require A to inform B about the unsoundness of the horse. A's silence is not fraud. However, in Illustration (b), as the buyer is A's daughter who has just reached the age of majority, A has a duty to inform B if the horse is unsound. Unlike Illustration (a) where there is no such duty to speak, the circumstances in Illustration (b) makes it a duty of A to speak. •In Lau Hee Teah v Hargill Engineering Sdn Bhd & A nor [1980] 1 MLJ 145, FC, the appellant had entered into an agreement to take a loader on hire-purchase as hirer, with the first respondent as dealer and the second respondent as owner. The first respondent (as seller) did not inform the hirer of the year of manufacture of the machine and the fact that it had previously been involved in an accident. The Federal Court held that this did not amount to misrepresentation as there was no active duty on the part of the seller to inform the hirer of these matters. • In Haji Ahmad Yarkhan v Abdul Gani Khan & Anor, AIR 1937 Nagpur 270. a marriage was arranged between two persons. The father of the groom conducted the negotiations on behalf of his son and a third person acted on behalf of the bride. The father later discovered that the prospective bride suffered from epileptic fits. The issue was whether the third party was under a duty to disclose this fact. The Court first stated that there was no fiduciary relationship between the parties: “In the present case it is impossible to say that there is any fiduciary relationship between the plaintiff and defendant 1. A man and his wife of course stand in such a relationship to one another and it is possible a man would be regarded in that light with respect to his fiancé but two independent persons who negotiate a marriage on behalf of their respective protégés certainly do not by reason of that fact alone become locked in a position of active confidence.” However, the Court found there was a duty to disclose as this type of contract was a contract uberrimae fidei and stated: “.. the most common examples [of contracts uberrimafides] are contracts of insurance, sale, suretyship, releases and compromises. But contracts to marry also come under this category though the case law on the subject is meagre and conflicting.” Silence is, in itself, equivalent to speech •The second exception is when silence is, in itself, equivalent to speech as can be seen in 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. •In this situation, the content of the speech from B to A require a response from A. If A does not deny it, B is entitled to assume that the horse is sound (as already held out by B). •It should be noted that being silent is not the same as the active concealment of a fact under s 17(b). The former involves merely keeping quiet (not considered fraudulent unless for the two abovementioned circumstances) whereas the latter refers to positive action of concealing certain facts. Examples of concealment can be seen in Illustrations (c) and (d) to s 19 of the Contracts Act as set out above earlier. Burden and standard of proof for fraud •The burden of establishing fraud lies upon the party asserting it. In •Datin Zainun binti Ismail v Tuan Minah binti Syed Abdul Rahman & Anor [1980] 1 MLJ 100. Mohamed Zahir J stated: – “The burden of proof on fraud is on the defence. It is a general rule that fraud cannot be presumed from mere circumstances or suspicion and the burden of proving the charge of fraud, collusion, misrepresentation and undue influence lies upon the person who seeks to impeach the validity of any transaction on these grounds.” Ibid. at 101 •The cases on fraud show that the courts have imposed differing thresholds for the proof for fraud. All the cases agree that in view of the allegation of fraud, the onus on the plaintiff who advances a claim of fraud is a very high one. In Gopal a/l Krishnan v Syed Azman bin Syed Mohd & Anor [1991] 2 CLJ (Rep) 658, it was stated that: “It is trite law that where fraud and fraudulent misrepresentation are alleged, a high standard of proof is required. This had been decidedly declared by Federal Court in Tan Chye Chew & Anor v Eastern Mining and Metlas Co Ltd [1965] 1 MLJ 201, [1991] 2 CLJ (Rep) 658 at 662. • Another Privy Council decision that held that the proof of fraud in civil proceedings is proof beyond reasonable doubt is Saminathan v Pappa [1981] 1 MLJ 121, PC (Appeal from Malaysia) which was followed in a number of cases. A similar approach was taken in Chu Choon Moi v Ngan Siew Tin [1986] 1 MLJ 34, FC, where the Federal Court held that: “We agree that fraud whether made in civil or criminal proceedings must be proved beyond reasonable doubt and cannot be based on suspicion and conjecture ... Proof beyond reasonable doubt does not mean proof beyond the shadow of doubt. The degree of proof need not reach certainty but it must carry a high degree of probability. What it means is that the evidence adduced is such that the Court believes its existence or a prudent man considers its existence probable in the circumstances of the particular case. If such proof extends only to a possibility but not in the least a probability, then it falls short of proving beyond reasonable doubt.” • It must be noted, however, that Saminathan v Pappa and some of the cases that followed it involved fraud in land cases under s 340 of the National Land Code 1965 which deals with indefeasibility of title of the land. In such cases, a higher degree of proof would be expected. However, the same reasoning may not apply to other type of cases on fraud. This has eventually led to the view that the standard of proof should depend on the type of fraud: whether it is criminal fraud or civil fraud. If it is criminal fraud, then the standard of proof is beyond reasonable doubt whereas if it is civil fraud, then the standard of proof is on a balance of probabilities. • This was established by the Federal Court in Ang Hiok Seng @ Ang Yeok Seng v Yim Yut Kiu (Personal representative of the estate of Chan Weng Sun, deceased [1997] 2 MU 45, FC. “…where the allegation of fraud in civil proceedings concerns criminal fraud such as conspiracy to defraud or misappropriation of money or criminal breach of trust, it is settled law that the burden of proof is the criminal standard of proof beyond reasonable doubt, and not on the balance of probabilities. It is now well established that an allegation of criminal fraud in civil or criminal proceedings cannot merely be based on suspicion or speculation ... But where the allegation of fraud (as in the present case) is entirely founded on a civil fraud - and not based on a criminal conduct or offence - the civil burden is applicable…where the fraud alleged in civil proceedings is based on a criminal offence, the criminal burden of proof beyond reasonable doubt must be applied. But where the fraud alleged is purely civil in nature, there is no reason why the civil burden should not apply. “ • Ang Hiok Seng's case has been followed in number of decisions.45 However, it has also been criticised in Eric Chan Thiain Soon v Sarawak Securities Sdn Bhd [2000] 4 MLJ 399, where Ian Chin J stated: “…acts which are fraudulent and which induced the entering of or which deceived someone into entering an agreement attracts the burden of proof on balance of probabilities. These acts would, under s 17(e) of the [Contracts] Act, include those declared 'fraudulent' by the Penal Code since they would fall within the following definition of s 17(e) -'any such act or omissions as the law specially declares to be fraudulent.’ Since 'civil fraud' comprised cases of 'criminal fraud' under the Penal Code (by virtue of s 17(e) of the Contracts Act), this distinction of 'civil fraud' and 'criminal fraud' cannot hold and it is ... an attempt at distinguishing the undistinguishable since 'fraud' by its incorporation of the offences under the Penal Code where fraud is an element has the same meaning whether in criminal or civil cases and they are 'criminal fraud' ... It is difficult to find purely 'civil fraud' since fraud involves dishonesty which forms the basis of many criminal offences. Misrepresentation under common law •Under the common law, there is a general duty not to make statements which are untrue with the intent that the other person to whom the statement is made will act on it. There are three types of misrepresentation: fraudulent, innocent and negligent misrepresentations. Which category a misrepresented statement belongs to depends on the state of mind of the maker in relation to the untrue statement. A fraudulent misrepresentation is made with the intent to deceive, while the maker of an innocent misrepresentation honestly believes that the statement is true although it is untrue. •After the classical case of Derry & Ors v Peek (1889) LR 14 App Cas 337, HL., on fraudulent misrepresentation, all other misrepresentations were considered innocent misrepresentations and it was thought that no action could lie for cases of negligent misstatements. •In Nocton v Ashburton [1914-1915] All ER Rep 45. by way of an equitable exception in applying constructive fraud, an action for negligent misrepresentation was allowed if parties were in a fiduciary relationship. In 1983, the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, HL held that in some circumstances, an action would lie in tort for negligent misstatements. • These included cases where a person sought information or advice from another in the ordinary course of business or professional affairs in circumstances in which a reasonable man so asked would know that he was being trusted, or that his skill or judgment was being relied on. In such situations, the person asked chose to give the information or advice without clearly qualifying his answer so as to show that he did not accept responsibility. Thus, a "special relationship" is said to exist between the parties. The House of Lords in this case did not limit the principle to statements of fact; the wording of their opinion was wide enough to extend to advice given negligently, such as opinions on the law. • After the decision in Hedley Byrne, there were views to the effect that if an action would lie in tort for negligent misstatements, such misstatements should not be capable of giving rise to concurrent contractual claims. This view was overruled in Midland Bank Trust Co Ltd & Anor V Heft, Stubbs & Kemp [1979] Ch 384. It was held in that case that if a plaintiff can show all the ingredients of a tortuous claim, he is not disallowed from pursuing a claim in contract merely because the same facts also give him a claim in tort. In that case, a father agreed to give his son an option to buy his farm. • The defendants were solicitors who acted for both father and son. They drew up a formal option agreement, which was executed, and kept it in custody for the son. However, they omitted to register it as an estate contract under the Land Charges Act 1925. Subsequently, when the son attempted to exercise the option, he found that the land had been sold. He sued the solicitors, contending that they were liable in tort and contract. • Oliver J gave judgment in favour of the plaintiffs, holding that although the solicitors had a contractual duty to the plaintiffs, they were still liable to the plaintiffs in tort. The Court held that under the general law, the relationship of solicitor and client gave rise to a duty on a solicitor to exercise that care and skill on which he knew that his client would rely, and to a duty not to injure his client by failing to do that which he had undertaken to do and which, at the solicitor's invitation, the client had relied on him to do. Furthermore, there was no rule of law which confined a solicitor's duty to his client under his retainer to a contractual duty alone; nor was there any rule of law which precluded a claim in tort for breach of a duty to use reasonable care and skill if there was a parallel contractual duty of care. • Section 18 of the Indian Contract Act (in pari materia with s 18 of the Contracts Act) is one of the sections taken wholly or in part from the Draft Civil Code of New York 55 which the earlier editors of Pollock & Mulla have "taken exception to the language of the clause". In relation to s 18(a), it has been pointed out that in ordinary English language usage, the assertion of that which is not true, whether innocent or negligent, cannot be "warranted" in any manner. Further, the use of the word "warranted" is unsuitable in view of the use of the concepts manner not warranted" have been said to probably refer to representations made with reasonable and probable cause for believing it to be true. •Three types of misrepresentation have been recognised by the courts. In Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd & Anor Appeal [1999] 2 MLJ 500, CA. Gopal Sri Ram JCA stated: – “Misrepresentations in turn are of three types, depending upon the state of mind of the maker. That state of mind may be fraudulent, negligent or innocent, in the sense that it is truly free of any blameworthiness or inadvertence. The existence of a particular state of mind on the part of the representor determines, in the absence of acquiescence, the range of remedies available to the representee.” – Similarly, in Sim Thong Realty Sdn Bhd v Teh Kim Dar @ Tee Kim [2003] 3 MLJ 460, CA. Gopal Sri Ram JCA stated: “the expression 'misrepresentation' is merely descriptive of a false pre- contractual statement that induces a contract or other transaction. But it does not reflect the state of mind of the representor at the relevant time. The state of mind of the representor at the time he made the representation to the representee varies according to the circumstaces of each case. It may be fraudulent. It may be negligent. Or it may be entirely innocent, that is to say, the product of a mind that is free of deceit and inadvertence” ¢ The meaning of and requirements to prove misrepresentation were considered in several cases. In Chuah Tong Yeong v Kuala Lumpur Golf & Misrepresentation 279 Country Club [2003] 6 MLJ 577; [2003] 7 CLJ 180. Abdul Wahab J set out the elements of misrepresentation as follows: “.. for such action in misrepresentation to succeed it must be shown there was: (i) a representation; (ii) the plaintiff was induced by it; (iii) the representation is untrue; and (iv) it is a suitable case for rescission. To recover damages, loss must be proven: Letchemy Aruinugan v N Annarnalay [1982] 2 MLJ 198. If the representation was merely innocent, the affected party is entitled only to a rescission: Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd [1999] 2 MLJ 500 at p 508 (CA) ... Mere exaggeration is not representation, but if it has the object and result of inducing an affected party, it is a representation: Low Kon Fatt v Port Kiting Golf Resort (M) Sdn Bhd [1998] 6 MLJ 448. • In the present case, the inner page to the brochure described the resort as "the first seaside golf resort with seasports facilities in Malaysia" and promised various facilities. The High Court held that the object of these statements was to attract buyers and the plaintiff was a victim of this attraction when these facilities were not provided. Therefore, this was a case of misrepresentation under ss 18(a) and (b) of the Contracts Act. • In relation to ss 17 and 18 of the Contracts Act, the main difference between s 17 on fraud, and s 18 on misrepresentation is the absence of the intent to deceive in s 18. Thus, fraudulent misrepresentation is covered in • s 17 particularly s 17(a), the suggestion of an untrue fact by one who does not believe it to be true. In contra.st,..s. 18(a) covers statements which are not true by one who believes it to be true. In s 18(c), the misrepresentation is caused innocently. Despite the unsatisfactory wordings in ss 18(a) and (c), both sections cover innocent misrepresentation, while fraudulent misrepresentation is covered in s 17 under fraud. • The distinction between fraud and misrepresentation was made in Double Acres Sdn Bhd v Tiarasetia Sdn Bhd [2001] 1 AMR 111. • In this case, the High Court also addressed the issue whether silence can amount to misrepresentation. Abdul Malik Ishak J stated: • “There is a distinct difference between fraud and misrepresentation. It is this. In fraud, the person making the representation does not himself believe in its truth. Whereas in the case of a misrepresentation, the person making the representation may believe the representation to be true. Just like fraud, silence too in certain situations especially where there is a duty to disclose may amount to misrepresentation under s 18(b) of the Contracts Act 1950.” Ibid. at 149-150. • The distinction between fraudulent misrepresentation provided under fraud in s 17 of the Contracts Act and misrepresentation as provided in s 18 of the Contracts Act was also applied in Gemakota Enterprise Sdn Bhd v Public Bank Berhad [1999]1 AMR 235. In this case, the plaintiff made a successful bid at an auction to purchase the defendant's property. Subsequently, the plaintiff brought an action for rescission of the contract, a refund of the deposit and for damages on the ground that the defendant had misrepresented their property in their proclamation of sale. Kamalanathan Ratnam J stated: Whilst I am not prepared to subscribe to the view that the defendant would have fraudulently misrepresented the facts to the plaintiff thus falling within s 17 of the [Contracts] Act, 1 cannot but hold that there has been an innocent misrepresentation of facts falling within s 18(b) of the [Contracts] Act. • As soon as the misrepresentation [i.e. misdescription of the property to be auctioned] had been discovered the defendant stated the true description in the second proclamation of sale. This I find is an admission by the defendant that there was misrepresentation in so far as the first proclamation of sale was concerned .71 71 Ibid. at 242. • In relation to s 18(b), this section covers negligent misrepresentation for statements made in breach of duty, although the reference to "gives an advantage to the person committing it" had been thought to refer to equitable cases of constructive fraud.72 It should be noted here that silence by itself generally cannot give rise to an action for misrepresentation, since no statement would have been made. However, where such silence amounts to a breach of duty within the meaning of s 18(b), it may amount to a misrepresentation. • A case that involved negligent misrepresentation is Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance Bhd & Anor [1999] 1 MLJ 193, FC. In this case, the first respondent's southern regional manager, Pang, had represented to the first appellant's director, Chew, that the first respondent would furnish the first appellant with a bridging loan and end- finance. However, the first respondent failed to provide the end-finance. The Federal Court held that a case of negligent misrepresentation had been made out, applying the Hedley Byrne principle. Pang had been negligent in making the statement regarding the provision of end-finance upon which the first appellant had acted upon. As the statement concerned a business transaction, Pang as the first respondent's manager was aware that he was being entrusted to give all necessary information on which the firstappellant would act upon; and, in this case, it was not unreasonable for the first appellant to act on this information resulting in its detriment. • In the case of rescission for fraud, Haji Ahrnad Yarkhan v Abdul Gaul Khan and another AIR 1937 Nagpur held that damages for rescission under s 75 of the Indian Contract Act (s 76 of the Contracts Act) will not be available as the section allows compensation for damage "sustained through the non-fulfilment of the contract", and not for cases of rescission ab initio. Vivian Bose J stated: “When any contract is avoided for breach, it remains operative as to the past and so claims for restitution in respect of acts of performance prior to the rescission are precluded. But when it is rescinded for fraud, the act has retrospective effect and the contract is rescinded ab initio just as if it had never been in force and so also in a case of innocent misrepresentation. Consequently restitution is all that can be claimed. The parties on both sides are entitled to be restored to the status quo as far as possible . .” However, the Court also noted the additional remedy at law for deceit for fraud and continued as follows: “But in a case of fraud, in addition to the ordinary equitable remedy of restitution and of compensation of liabilities arising under the contract, there is an additional remedy at law for deceit.” • In Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd & Anor Appeal [1999]2 MLJ 500, CA, the Court of Appeal found that there had been fraudulent misrepresentation on the part of the defendant which had induced the plaintiff to enter into a sale and purchase agreement for an apartment. The Court granted rescission of the contract. The question before the Court was the measure of damages recoverable by the plaintiff. The Court of Appeal held that the damages recoverable should not be assessed on the same footing as the assessment of damages for breach of contract so as to place the innocent party in the same position as if the contract had been performed. This is because the contract had been set aside in this case. The Court went on to hold that damages should be assessed on the footing that the contract had been rescinded so as to place the innocent party in the same position which it would have been in had it not relied on the fraudulent inducement. This would include all expenditure reasonably and properly incurred in consequence of and flowing directly from the fraudulent misrepresentation, whether before or after the date of rescission. • The relevant portions from the judgment of Gopal Sri Ram JCA on the remedies for misrepresentations are set out below: Fraudulent or negligent misrepresentation renders a contract voidable at the instance of the representee. See the Contracts Act 1950, s19(1). The representee is therefore entitled to apply to a court for a decree of rescission from a court and also to an award of damages. See Archer v Brown [1985] 1 QB 401. Damages are available in addition to rescission because an action for fraudulent misrepresentation is grounded upon the tort of deceit, and in the case of negligent misrepresentation upon the tort of negligence. An innocent misrepresentation (one that is neither fraudulent nor negligent) entitles the representee to merely rescission, although in certain cases ... he may also obtain an indemnity. He may not however have damages. It is also important to recognise that relief by way of an indemnity is not made on the same footing as damages. Ibid, at 508. Where damages are awarded for fraudulent misrepresentation (and we consider the principle to be the same to a case of 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. Damages for fraud are awarded on the basis that the innocent representee is put, so far as money can do, in the position which he would have occupied had there been no reliance on the fraudulent inducement .... • 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. • The Court had also referred to Hedley Byrne's case and the remedy for negligent misrepresentation as follows: “If the misrepresentation was made negligently, the remedy of the representee lies in damages in the tort of negligence under the assumption of responsibility and reliance doctrine laid down in Hedley Byrne & Co Ltd v Heller & Partners 119641 AC 465. In such a case, the representee must plead and prove a special relationship giving rise to a duty of care as well as the other elements that go to constitute the tort of negligence.” • In Lee Cheong Fah v Soo Man Yoke [1996]2MLJ 627 the High Court made references to both innocent and fraudulent misrepresentation and the remedies available to each. • Abdul Malik Ishak J stated: “Under the Contracts Act 1950 ... the innocent party can treat the contract as void or he can insist that the contract be performed. Section 18 of the Contracts Act defines the elements of misrepresentation, while s 19 provides for the remedies available to the innocent party. The second thing to observe is that there are two types of misrepresentation, namely: (a) innocent misrepresentation; and (b) fraudulent misrepresentation. An innocent misrepresentation is said to occur where the representation is false but made by the representor with reasonable grounds for believing it to be true at the time when it was made and at the time when the contract was entered into. The usual remedy for an innocent misrepresentation would be rescission of the contract. On the other hand, fraudulent misrepresentation is said to be a false representation made knowingly or without believing its truth, or recklessly, carelessly whether it is true or false. The fraud element that creeps ii is certainly actionable in tort for deceit, whilst the contract element allows for repudiation (where the contract is executory) or for damages (where the contract is said to be executed). • A remedy for specific performance will not be obtainable where there is evidence of the exercise of fraud, misrepresentation or undue influence. Section 27(a) and (b) of the Specific Relief Act provides as follows: Specific performance of a contract cannot be enforced against a party thereto in any of the following cases: (a)if the consideration to be received by him is so grossly inadequate, with reference to the state of things existing at the date of the contract, as to be either by itself or coupled with other circumstances evidence of fraud or of undue influence taken by the plaintiff; (b) if his assent was obtained by the misrepresentation (whether wilful or innocent), concealment, circumvention, or unfair practices, of any party to whom performance would become due under the contract, or by any promise of the party which has not been substantially fulfilled; [Emphasis added]. • Before the agreement was entered the appellant stated that he had counted the trees on the estate and handed to the respondent a piece of paper on which the number of trees was stated. The respondent completed the purchase of the land and subsequently discovered that there were fewer trees on the estate than the number stated by the appellant. The Court found as a fact that the appellant's statement of the number of trees had caused the respondent to enter into contract. In an action by the respondent for damages for fraudulent misrepresentation, the appellant attempted to rely on the Exception in s 19 of the Contract Enactment 1899. • Belfield ACJC held that the appellant's statement that he had counted the trees on the estate and his action of writing the number of trees on a paper which he handed to the respondent amounted to fraud within the meaning of s 17 of the Contract Enactment. The Court also held that the Exception in s 19 did not apply to cases where the misrepresentation is by a false and fraudulent assertion as was established in the instant case. • In Tan Cliye Chew & Anor v Eastern Mining and Metals Co Ltd [1965} 1 MLJ 201, FC Singapore the Exception was applied to a case of misrepresentation under s 18 of the Contracts Act. In this case, the respondent entered into a contract with the appellants for the assignment of the first appellant's rights and interests to prospect and mine certain land including an approved application for a prospecting permit covering that land. In the course of negotiations, the second appellant had shown to a geologist employed by the respondent some land which was later discovered not to be included in the approved application. The respondent brought proceedings claiming damages from both appellants, including an allegation that the second appellant had knowingly and fraudulently shown the respondent's geologist the wrong piece of land • The Federal Court held that there was insufficient evidence to support a finding of fraud against either appellant, considering the high standard of proof required-. The case then proceeded on misrepresentation wherein the Court held that the respondent had the means of discovering the truth with ordinary diligence. In this case, the respondent had the facilities to ascertain the position of the land and they had four days to do so before signing the contract, but did not do so. Therefore, the contract was not voidable for misrepresentation. • Wylie CJ (Borneo) stated that: ‘The company made no further effort to visit the area and it is obvious from the evidence that, from then on, they had decided to conclude this agreement without any further check, although a mining company of this size has the facilities for making proper checks of an area and its boundaries, including surveying facilities ... It is plain that the company The buyers could not be expected to know that the developers had no licence at the time. It would be expecting too much of the buyers to say that they "had the means of discovering the truth with ordinary diligence" to quote the words of section 19 of the Contracts Act, 1950.” • In Gemakota Enterprise Sdn Bhd v Public Bank Berhad [1999] 3 MLJ 181, although the plaintiff had the means of discovering the truth, the High Court held that employing a surveyor to survey the property before bidding and thus expending money even before he became a successful bidder was requiring the plaintiff to exercise extraordinary diligence. The plaintiff through its two directors was held to have exercised ordinary diligence when they inspected the site of the property prior to the sale.