NG CHIN HAN
Imagine the following scenario: after years of dedication and hard work, you have finally saved enough money to buy your dream home, a quiet home overlooking the white sandy beach and surrounded by trees and flowers. Or at least that was the promise made to you before you made the most expensive purchase of your life. Instead of what was promised, your “dream home” turned out to be adjacent to high-rise hotels which will also obstruct the view of the white sandy beach. And as a result, both your dream and the value of the home collapse.
Facing such circumstances, you may want to seek for legal recourse with regard to the false promises made to you which eventually lead you to purchasing your “dream home”.
The Elements of Misrepresentation
Now, in order for you to have a cause of action to sue for the false promises made to you, the false promises must be an actionable misrepresentation. In Malaysia, Section 18 of the Contract Act 1950 provides for the situation in which a misrepresentation could have occurred. However, it must be highlighted that misrepresentation under Section 18 of the Contract Act 1950 is not exclusive nor exhaustive. This would mean that it is for the Malaysia Court to determine whether a misrepresentation has occurred based on the circumstances of each case.
It is pertinent to note that the Court in determining whether there is an actionable misrepresentation will look at the facts of each case i.e. if the false representation falls under the definition of misrepresentation. And misrepresentation is defined as a false pre-contractual statement and/or false pre-contractual conduct made which induced one party into a contract.
Based on the legal definition of misrepresentation, there are three key elements which must be fulfilled before you would have an actionable misrepresentation whereby the elements are as follows: –
- There must be a false pre-contractual representation of fact [either in statement of words or conduct];
- The false pre-contractual representation must be addressed to you; and
- The false pre-contractual representation must induce you into a contract
Based on the above, if the three elements are present, then you will have an actionable cause of action for misrepresentation provided that the exception stated under Section 19 of the Contract Act 1950 does not apply.
Essentially, Section 19 of the Contract Act 1950 provides that you may have the option to rescind the contract if the said contract was induced by false representation. However, you will not be able to rely on the false misrepresentation if you have the means of discovering the truth with ordinary means or if the false misrepresentation did not induce you to enter into the contract.
If it is found that the false representation had induced you into a Contract then you may have the options of either rescind the contract or to affirm with the contract but seek for compensation.
Rescission of the Contract
In the event, you elected to rescind the contract, the effect of rescission is to put the parties in the original position i.e. before the contract was entered into. Therefore, you will be relieved of your obligations under the contract and you will be able to recover any benefits you may have given to the other party. Applying it to the current circumstance, in simple terms, you will be able to recover the purchase sum or money paid by you in exchange for the return of the “dream home” to the owner.
Affirm with the Contract
As stated above, the other option that you may have if you have an actionable misrepresentation is to affirm the contract but seek for compensation. This would mean that you will proceed on with the contract but claim for compensation to put you in a position you would have been if the representation made is true.
The State of Mind of the Maker & Damages
Based on what we have discussed above, you would have realised that the state of mind of the maker of the representation is irrelevant in proving an actionable misrepresentation. However, the state of mind of the maker would be very relevant and important in determining the remedies.
Generally, the Law in Malaysia recognises three different states of mind misrepresentation as follows:
- Fraudulent misrepresentation – When the maker makes an untrue representation or when he has no belief in its truth or reckless as to its truth with the intention that other party act in reliance on such representation.
- Negligence misrepresentation – When there exists a special relationship or fiduciary relationship.
- Innocent misrepresentation – When there is reasonable ground for the maker to believe the representation to be true or when an honest mistake is made.
It must be pointed out that you will only be able to claim for damages if you could prove that the maker had made the representation fraudulently or negligently. In the absence of the element of fraud or negligent i.e. in case of innocent misrepresentation, the only remedy you will be able to resort to will be rescission and restitution but not damages.
Based on the above, you may have a cause of action if you have been induced into buying your “dream home” based on a misrepresentation provided that the necessary elements are fulfilled and the exception does not apply. However, your remedies will solely depend on the state of mind of the maker of the misrepresentation.