MISREPRESENTATION

Introduction
 Misrepresentation refers to:
◦ A statement
◦ Of fact (not opinion)
◦ That is untrue
 Such statement need not be a part of the
contract
◦ As long as it caused the contract to be
entered into
◦ It also does not have to be an oral statement

Misrepresentation 2
Chuah Tong Yeong v KLGCC [2003] 6 MLJ 577

… 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

Misrepresentation 3
(i) Representation
 Statement
 Under common law, it is a statement of
fact as opposed to “opinion”
 However, the said opinion could still be a
representation of fact under certain
circumstances
◦ Especially if that opinion caused one to enter
into a contract

Misrepresentation 4
Bisset v Wilkinson [1927] AC 177
R agreed to buy from A a piece of land in
Avondale, New Zealand for sheep farming. He
relied on A’s statement that he estimated the
land would carry 2,000 sheep. However, A had
not, and no person had, carried out sheep-
farming on the land in question. The land in
fact, could carry less than the said amount.

Held … statement was merely an honest

opinion and the sale could not be set aside for
misrepresentation
Misrepresentation 5
Note:
 Statement of “fact” is to be distinguished
from “mere puff”
 Advertisements are known to exaggerate
facts and this would not generally be
taken at face value
◦ “with a pinch of salt”

Misrepresentation 6
At times mere exaggeration cannot be held as
representation. A mere puffing and gloating of
one’s own goods and of its high esteem ought
to be taken with the proverbial ‘pinch of salt’.

However, where the puffing or exaggeration

has both the object and the result of inducing
the representee to enter into the contract,
the puffing or exaggeration must then form a
representation.

Low Kon Fatt v Port Klang Golf Resort (M) Sdn Bhd [1998] 6 MLJ 448 at 454

Misrepresentation 7
(ii) Induced
 Only false statements which had induced
the contract being entered into
 A person cannot be said to have been
induced into entering a contract if, for
example:
◦ It did not affect his judgement,
◦ He knew of its untruth

Misrepresentation 8
Wei Tah Construction (B) Co Sdn Bhd v Law Wun Ing
[1981] 2 MLJ 157
P bought a piece of land from D and alleged
that he was induced by D’s representation that
the land was ‘near Sibu airport’.
P had instructed his solicitor to investigate the
title and based on this, P was advised that it
was a good buy.

Held … P had trusted his own inquiries and

his judgment was based on the solicitor’s
advice rather than D’s representation.

Misrepresentation 9
TYPES
Abdul Razak bin Datuk Amu Samah v Shah Alam Properties Sdn Bhd
v Anor
[1999] 2 MLJ 500

Misrepresentation in turn are of three

types, depending upon the state of the mind
of the maker. The state of mind may be
fraudulent, negligent or innocent, in the
sense that it is truly free of any
blameworthiness or inadvertence.
Misrepresentation 11
 Thus, there are three types of
misrepresentation:

1. Fraudulent misrepresentation
2. Negligent misrepresentation
3. Innocent misrepresentation

Misrepresentation 12
 FRAUDULENT
MISREPRESENTATION
Introduction
 When you make a statement
◦ While knowing that it is not true
 In short, you LIED

 This is covered under s.17(a)

◦ the suggestion, as to a fact, of that which is
not true by one who does not believe it to be
true;

Misrepresentation 14
 Kheng Chwee Lian [1983]
On 12 May 1954, Respondent bought land
from Apellant (Contract 1). A biscuit factory
was built on it with A’s knowledge. On 23
October 1957, R signed another agreement to
“sell” back half of the share of the said land.

Held ... Fraudulent misrepresentation for 2nd

contract. The land which R was left with, was
far smaller than he expected and could not
even accommodate his factory.
Misrepresentation 15
Proving Fraud: Burden of proof
 The problem is having to prove that the
person did lie
 What sort of burden is placed for fraud?
◦ Beyond reasonable doubt, or
◦ Balance of probabilities

Misrepresentation 16
 Lau Hee Teah v Hargill Engineering [1980]
When fraud is alleged, the standard required
in civil cases is proof on the balance of
probabilities but the degree of probability
which must be established will vary from case
to case according to the gravity of the
allegation to be proved ...
It does not adopt so high a degree as a
criminal court but still it does require a
degree of probability which is commensurate
with the occasion. Therefore, the more
serious the allegation of fraud, the higher
would be the standard of proof required.
Misrepresentation 17
Ang Hiok Seng v Yim Yut Kin [1997] - FC
Where the allegation of fraud in civil proceedings
concerns criminal fraud such as conspiring to defraud,
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. An allegation of criminal
fraud in civil or criminal proceedings cannot be based
merely on suspicion or speculation.
However, where the allegation of fraud is entirely
founded on civil fraud and not on criminal conduct or
offence, a balance of probability is applicable. In this
case, since the allegation of fraud was purely civil in
nature and not based on or connected with a criminal
offence, the civil standard was applicable.

Misrepresentation 18
Boonsom Bonyanit v Adonna Properties [1997]

The standard of proof to be applied in civil

forgery suits is the balance of probabilities.
The approach adopted by the trial judge in
the present case of applying a standard of
beyond reasonable doubt is against binding
precedent and thus wrong.

Misrepresentation 19
 The proof of forgery in civil proceedings,
unlike fraud, comes within the general
rule adhered to
◦ i.e. “balance of probabilities”

However

 There ARE cases that have applied

“beyond reasonable doubt”
◦ Though these were before Ang Hiok Seng’s
case

Misrepresentation 20
Datuk Jaginder Singh v Tara Rajaratnam
[1986] 1 MLJ 121
Privy Council … “Nevertheless he [the
learned trial judge] and also the Federal
Court, correctly directed themselves that
the standard of proof in civil proceedings
was the criminal standard of proof
beyond reasonable doubt.”

Misrepresentation 21
 NEGLIGENT
MISREPRESENTATION
Introduction
 A duty of care exists where there is a
‘special relationship’ between the person
making the statement and the person to
whom it is made
 Thus, when such a statement turns out to
be untrue, it is negligent misrepresentation

Misrepresentation 23
 Hedley Byrne v Heller [1964]
Upon the request of its customer, Hedley
Byrne, the National Provincial Bank contacted
Heller to check up on its customer
(Easipower) credit-worthiness. They were told
that Easipower was “considered good for its
ordinary business engagements”.

Hedley Byrne then entered into a contract

with Easipower, who went into liquidation.
Hedley Byrne sued Heller for negligent
misrepresentation.

Misrepresentation 24
The relationship between the parties was
“sufficiently proximate” as to create a duty of
care.

It was reasonable for them to have known that

the information that they had given would
likely have been relied upon for entering into a
contract of some sort.

This would give rise, to a “special relationship”,

in which the defendant would have to take
sufficient care in giving advice to avoid
negligence liability.

Misrepresentation 25
“ I consider that it follows and that it should
now be regarded as settled that if someone
possessing special skill undertakes, quite
irrespective of contract, to apply that skill
for the assistance of another person who
relies upon such skill, a duty of care will
arise.”

Misrepresentation 26
Furthermore, if in a sphere in which a person
is so placed that others could reasonably rely
upon his judgment or his skill or upon his
ability to make careful inquiry, a person takes it
upon himself to give information or advice to,
or allows his information or advice to be
passed on to, another person who, as he
knows or should know, will place reliance
upon it, then a duty of care will arise.”
Misrepresentation 27
 INNOCENT
MISREPRESENTATION
 s.18
“Misrepresentation” includes –
a) the positive assertion, in a manner not
warranted by the information of the person
making it, of that which is not true, though
he believes it to be true;
b) …; and
c) causing, however innocently, a party to an
agreement to make a mistake as to the
substance of the thing which is the subject
of the agreement.

Misrepresentation 29
 There is no element of fraud, or negligence
present

 A person who had

◦ honestly, and
◦ without being negligent,
 made a statement
◦ that turned out to be wrong

Misrepresentation 30
EFFECT
&
RELIEF
 By s.19(1), a contract caused by fraud or
misrepresentation is voidable
◦ Rescind, or
◦ Affirm
 However, two things should be noted
when dealing with fraud
◦ When rescinding, the relief is different
◦ When affirming, s.19(2) allows an additional
aspect

Misrepresentation 32
RESCISSION
1. Fraud/Fraudulent Misrepresentation
 In addition to the ordinary equitable
remedy of restitution and of
compensation of liabilities arising under
the contract, there is an additional
remedy :
◦ Damages
 This is because an action for fraudulent
misrepresentation is grounded upon the
tort of deceit

Misrepresentation 34
 Abdul Razak bin Datuk Abu Samah v Shah
Alam Properties Sdn Bhd
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.

Misrepresentation 35
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.

Misrepresentation 36
Where damages are awarded for
fraudulent misrepresentation the
assessment of damages must take into
account any sum recovered under
restitution under the claim for rescission
so as to prevent double recovery…

The rules as to remoteness of damage

contained in s.74 of the Contracts Act
1950 has no application whatsoever to an
action for damages in the tort of deceit.

Misrepresentation 37
2. Negligent Misrepresentation
 It is the same as fraudulent
misrepresentation
 That is, can obtain the additional remedy
of damages
◦ because an action for negligent
misrepresentation is grounded upon the tort
of negligence

Misrepresentation 38
3. Innocent Misrepresentation
 An innocent misrepresentation entitles
the representee to merely rescission,
although in certain cases … he may also
obtain an indemnity.
 Relief by way of indemnity is not made on
the same footing as damages

 Abdul Razak Case:

◦ He may not … have damages.
Misrepresentation 39
Sim Thong Realty Sdn Bhd v Teh Kim Dar
[2003] 3 MLJ 460
A representee who has been induced by an
innocent representation may sue for
rescission and consequent restitution, but
he may not recover damages …

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

Misrepresentation 40
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.

Misrepresentation 41
 AFFIRM
CONTRACT
 s.19(2)
A party to a contract, whose consent was
caused by fraud or misrepresentation, may,
if he thinks fit, insist that the contract shall
be performed, and that he shall be put in
the position in which he would have been if
the representation had been true.

Misrepresentation 43
 S.19
EXCEPTION
Introduction
 This is a situation when a contract is not
voidable
◦ Ie it is VALID
 Even though certain situations of
misrepresentation, or fraud, happens
 Certain conditions need to exist

Misrepresentation 45
If such consent was caused by
misrepresentation or by silence, fraudulent
within the meaning of section 17, the
contract, nevertheless, is not voidable, if the
party whose consent was so caused had
the means of discovering the truth with
ordinary diligence.

Misrepresentation 46
 If such consent was caused by
misrepresentation or by silence, fraudulent
within the meaning of section 17,

 Thus, it only applies to

1. Misrepresentation that are:
◦ Innocent, and
◦ Negligent Fraudulent
2. Fraudulent silence

Misrepresentation 47
 the contract, nevertheless, is not voidable, if
the party whose consent was so caused
had the means of discovering the truth
with ordinary diligence.

 Thus, the contract is valid

 If the truth could have been discovered
with ordinary diligence

Misrepresentation 48
What is ‘ordinary diligence’?
 Depends on the facts of the case, and on
a case-by-case basis
 Essentially, however, it would generally
refer to something that could have been
discovered, if he/she had only made some
effort to do so
 Taking into account the capabilities of the
person in question

Misrepresentation 49
 Tan Chye Chew v Eastern Mining
The contract was for the rights to prospect
certain mining land (which had the necessary
approved application for mining). However,
Respondent’s geologist was shown land which
was not included in the approved application.
There was misrepresentation and thus, the
contract is voidable. However …
After the agreement was concluded, a
surveyor was sent out to look for a bench
mark and the error was immediately
discovered.
Misrepresentation 50
 This shows beyond reasonable doubt that this
substantial company had the facilities for checking the
position at any time. Furthermore, it was shown that its
executive officers realised the risk was involved in
taking the unusual course of entering into the contract
without a further check.
It is plain that the company “had the means of
discovering the truth with ordinary diligence” … it is
equally plain that the circumstances, involving these
large payments, called for the exercise of more than
ordinary caution.

The truth of the matter is that the respondent

company officers, fully appreciative of the danger,
decided not to make use of the facilities available, but
to take the risk.
Thus, contract is valid.
Misrepresentation 51
 Gemkota Enterprise Sdn Bhd v PB Berhad
[1999] 1 AMR 235
The truth could have been discovered if a
surveyor had been employed. However, to
require a person to spend money and employ
a surveyor to survey the property before
bidding, is requiring the person to exercise
extraordinary diligence.

The Plaintiff had, through its two directors,

exercised ordinary diligence when they
inspected the site of the property prior to the
sale.

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SUMMARY
Misrepresentation occurs when there has been
 A statement (of fact) made
 That is untrue
 Which caused the person to enter into a contract

Types

1. Fradulent – you know it is untrue:

◦ Damages: tort of deceit
2. Negligent – you should have known it is untrue
(duty of care exist)
◦ Damages: tort of negligence
3. Innocent – you did not know it is untrue
◦ restitution

Misrepresentation 54
 Fraudulent silence: when it is wrong to
keep quiet:
◦ Duty to speak
◦ Silence amounts to speech

S.19 exception: contract VALID

 Applies to innocent & negligent misrep, and
fraudulent silence
 Truth could have been discovered through
ordinary diligence

Misrepresentation 55
END