Situation:
You are just starting a cosmetic business where you are planning to sell cosmetic products originating and invented in South Korea. You have paid thousands to purchase the products in bulk. Unfortunately, when the products have arrived, you found that the products are not originally from Korea. In fact, it contains dangerous ingredients like mercury and it was made in Indonesia.
What are the legal actions that you can take in order to get compensation from the manufacturer?
What are you legally entitled to?
A fraudulent misrepresentation is an act that occurs when a person intentionally makes a false statement to deceive you to enter into a business agreement, and you suffered losses because you relied upon the false statement whilst entering into the agreement.
Section 17(a) of the Contracts Act 1965 explains that fraudulent misrepresentation includes the suggestion, as to a fact, of that which is not true by one who does not believe it to be true, with the intent to deceive another party or to induce him to enter into the contract.
How do you prove that there are any elements of fraudulent misrepresentation in an agreement?
1. When there is any misleading representation or information from the Defendant whether in words or conducts to the Plaintiff;
2. Defendant must know that the representation is false/ does not believe that it is true;
3. Defendant knows that the Plaintiff will rely upon the representation;
4. They acted upon the representation and;
5. The Plaintiff suffered losses.
Remedies of fradulent misrepresentation in contract:
You can actually rescind the contract. If you do:
1. Both parties is relieved of his obligations under the contract and each party can recover any benefit which the party may have conferred upon either party;
2. You can also claim compensation for the losses you suffered as a result of the fraudulent misrepresentation.
Seri Ram v Yuki [2021] 10 MLJ 376
In this case, the Defendan was the director and majority shareholder of Bersh Sdn Bhd. In May 2014, the Defendant showed the Plaintiff photocopies of titles with Bersh as the registered owner of two pieces of land which it was keen to sell.
Upon hearing this, the Plaintiff was keen to purchase the lands and paid RM200,000.00 as an earnest deposit to the solicitors appointed by Bersh who were also acting as the stakeholders. In September 2014, the Plaintiff conducted a search on the said lands and surprised to find that the said lands were registered in Malco Sdn Bhd instead of Bersh Sdn Bhd.
The Plaintiff thereupon filed legal suit claiming that the Defendant was liable for fraud and fraudulent misrepresentation in representing to the Plaintiff that Bersh was the lawful proprietor of the said lands at the material time when it was not. Because of such misrepresentation, The Defendant had wrongly induced the Plaintiff to agree to buy the said lands from Bersh, causing him to pay RM200,000.00 being the earnest deposit.
The Court held that there was an element of fraudulent misrepresentation in the sale and purchase agreement. The Court also allowed the Plaintiff’s claim and ordered the Defendant to refund the amount of RM200,000.00 to the Plaintiff.
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