FRAUD -‐ A DRASTIC REVISION OF THE STANDARD OF PROOF REQUIRED
The
law
on
civil
fraud
and
the
standard
of
proof
required
has
seen
a
sea-‐change
in
recent
days.
The
Federal
Court
has
drastically
up-‐ended
the
law
via
the
decision
of
Sinnaiyah
&
Sons
v
Damai
Setia
[2015]
5
MLJ
1.
This
case
is
one
that
should
cause
every
civil
litigator
to
sit-‐up
and
take
notice.
In
this
short
article,
I
discuss
the
law
as
it
was
and
the
changes
brought
about
by
Sinnaiyah.
Definition
of
civil
fraud
Before
one
can
undertake
a
dissection
of
Sinnaiyah,
it
is
important
to
first
consider
what
constitutes
civil
fraud.
In
Barclays
Bank
v
Cole
[1966]
3
All
ER
948,
the
Court
of
Appeal
was
tasked
with
deciphering
the
term
“civil
fraud”.
On
the
facts,
the
defendant
was
an
employee
of
the
bank
who
had
pleaded
guilty
to
receiving
proceeds
from
a
bank
robbery.
The
bank
sued
him
(civil
suit)
and
alleged
that
he
had
robbed
their
agent.
The
defendant
denied
this
and
claimed
trial
by
jury
in
a
civil
case.
Essentially,
what
the
defendant
sought
to
do
was
to
challenge
the
guilty
finding
in
the
criminal
trial
via
the
civil
suit.
Diplock LJ provided a succinct definition of civil fraud, which bears repeating here:
For
at
least
one
hundred
years
(see
Bullen
&
Leake
(3rd
Edn))
“fraud”
in
civil
actions
at
common
law,
whether
as
a
cause
of
action
or
as
a
defence,
has
meant
an
intentional
misrepresentation
(or,
in
some
cases,
concealment)
of
fact
made
by
one
party
with
the
intention
of
inducing
another
party
to
act
on
it,
which
does
induce
the
other
party
to
act
on
it
to
his
detriment.
Barclays
Bank
was
considered
and
I
would
say
accepted,
by
Gross
J
in
Cavell
USA
v
Seaton
Insurance
[2008]
All
ER
(D)
138
(Dec).
In
the
UK,
the
standard
of
proof
for
civil
fraud
will
depend
very
much
on
the
nature
of
the
issue
before
the
Court.
An
increasingly
serious
charge
will
necessitate
a
higher
standard
of
proof.
This
was
outlined
by
the
Court
of
Appeal
in
Hornal
v
Neuberger
Products
[1957]
1
QB
247:
Nevertheless, the judge having set the problem to himself, he answered it, I think, correctly. He reviewed all
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the
cases
and
held
rightly
that
the
standard
of
proof
depends
on
the
nature
of
the
issue.
The
more
serious
the
allegation
the
higher
the
degree
of
probability
that
is
required:
but
it
need
not,
in
a
civil
case.
reach
the
very
high
standard
required
by
the
criminal
law.
Hornal
has
been
applied
by
the
Court
of
Appeal
in
R
v
Hampshire
County
Council,
ex
p
Ellerton
[1985]
1
All
ER
599
and
considered
by
Morgan
J
in
IT
Human
Resources
v
Land
[2014]
All
ER(D)
182
(Nov).
From
the
above,
it
may
be
seen
that
the
UK
has
a
protean
standard
of
proof.
The
more
serious
the
allegation
of
fraud,
the
higher
the
standard
of
proof
required.
The
Federal
Court
in
Sinnaiyah
has
stated
that
this
is
not
the
position
following
the
case
of
Re
B
(Children)
[2003]
1
AC153.
However,
I
would
argue
that
a
closer
look
at
the
position
today,
together
with
the
cases
that
have
recently
surfaced,
will
allow
one
to
appreciate
that
in
the
UK,
the
position
is
very
much
hybrid.
There
is
no
fixed
standard,
wherein
it
is
a
foregone
conclusion
that
the
balance
of
probabilities
will
be
applied.
The
Malaysian
position
The
Malaysian
position
has
seen
vacillation.
To
take
matters
chronologically,
one
must
first
consider
the
case
of
Ang
Hiok
Seng
v
Yim
Yut
Kiu
[1997]
2
MLJ
45.
Here,
the
Federal
Court
considered
the
standard
of
proof
for
civil
fraud
and
came
to
the
conclusion
that
it
would
also
be
a
protean
standard.
As
was
put
by
His
Lordship
Mohd
Azmi:
in
civil
proceedings
concern[ing]
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.
In
allowing
the
appeal
in
Lau
Kee
Ko
&
Anor
v
Paw
Ngi
Siu,
the
Federal
Court
reversed
the
judgment
of
the
High
Court
on
the
finding
of
a
civil
fraud
in
a
non-‐disclosure
dispute
wherein
the
plaintiff
was
led
to
think
that
he
was
contracting
with
the
owner
when
in
point
of
fact
he
was
contracting
with
an
agent.
The
fraud
alleged
was
purely
civil
in
nature
and
based
on
whether
there
was
any
personal
consideration
when
the
plaintiff
entered
into
the
contract,
and
on
that
basis
the
burden
of
proof
was
the
civil
burden.
We
agree
with
both
counsel
that
to
the
extent
that
the
general
statement
of
the
law
in
Lau
Kee
Ko
is
understood
to
mean
a
total
rejection
of
the
criminal
burden
in
all
cases
of
fraud,
it
is
no
longer
good
law.
But
where
the
allegation
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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.
From
Ang
Hiok
Seng,
it
may
be
distilled
that
where
the
allegation
of
civil
fraud
is
quasi-‐criminal
(i.e.,
where
a
finding
of
civil
fraud
by
the
trial
judge
may
lead
to
a
criminal
charge
being
brought
against
the
defendant),
then
the
higher
standard
of
beyond
reasonable
doubt
would
apply.
However,
where
there
is
a
lowered
“risk”,
so
to
speak,
of
a
criminal
charge,
then
the
standard
of
proof
required
would
also
be
reduced.
It
would
vacillate
between
the
standard
of
on
a
balance
of
probabilities
right
up
till
beyond
reasonable
doubt.
The
waters
are
muddied
In
Yong
Tim
v
Hoo
Kok
Chong
[2005]
3
CLJ
229,
the
Federal
Court
switched
gears
and
held
that
where
civil
fraud
was
alleged,
the
standard
of
proof
would
be
beyond
reasonable
doubt.
Referring
to
the
Privy
Council
decision
of
Saminathan
v
Pappa
[1981]
1
MLJ
121,
the
Federal
Court
held
that
the
standard
of
proof
for
fraud
in
civil
proceedings
would
be
beyond
reasonable
doubt.
This
was
a
substantial
misdirection.
It
is
pertinent
to
note
that
the
Federal
Court
in
Yong
Tim
did
not
consider
Ang
Hiok
Seng.
Turbid
lavings
After
Yong
Tim,
there
was
considerable
confusion;
was
the
standard
of
proof
for
civil
fraud
on
a
balance
of
probabilities,
beyond
reasonable
doubt
or
somewhere
in
between?
The
Federal
Court
in
Asean
Securities
Paper
Mills
v
CGU
Insurance
[2007]
2
MLJ
301
had
the
opportunity
to
correct
this.
However,
this
was
not
to
be.
The
Federal
Court
applied
and
affirmed
the
decision
of
Yong
Tim
and
for
all
intents
and
purposes,
the
standard
of
proof
for
civil
fraud
was
set
impossibly
high:
beyond
reasonable
doubt.
Backlash
One
would
expect
that
a
pronouncement
of
the
Federal
Court
would
effectively
bind
all
lower
courts.
However,
this
was
not
so.
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In
Modern
Universal
v
MSIG
Insurance
[2014]
11
MLJ
186,
Prasad
Abraham
J
(as
His
Lordship
was
then
known)
considered
Ang
Hiok
Seng,
Asean
Securities
and
Yong
Tim.
His
Lordship
noted
that
the
Federal
Court
in
Asean
Securities
and
did
not
refer
to
Ang
Hiok
Seng.
His
Lordship
also
noted
that
the
standard
of
beyond
reasonable
doubt
departs
from
an
established
line
of
cases.
I
can
do
no
better
than
to
reproduce
His
Lordship's
excellently-‐analysed
judgment:
[19]
This
suggest
a
very
high
standard
proof
and
all
a
plaintiff
has
to
show
that
if
at
all
there
is
any
other
explanation
as
to
how
the
fire
could
have
been
caused
other
than
by
the
plaintiff,
the
respondent
would
fail
in
its
defence.
This
case
on
the
face
of
it
departs
from
a
long
line
of
authorities
both
in
this
country
and
the
Commonwealth
that
maintain
in
essence,
as
long
as
it
was
highly
probable
the
fire
was
caused
by
arson
it
would
suffice.
I
need
only
refer
to
Brighton
Industries
(M)
Sdn
Bhd
v
Supreme-‐QBE
Insurance
Bhd
[1992]
3
CLJ
1424
where
His
Lordship
LC
Vohrah
J
(as
he
then
was)
held:
[1]
Where
serious
allegations
are
made
that
is
with
regards
to
the
wilful
misconduct
on
the
part
of
the
plaintiff,
a
very
high
degree
of
probability
within
the
general
standard
has
to
be
applied.
[2]
The
defendant
had
to
conform
to
this
strict
test
in
order
to
establish
that
the
fire
was
caused
by
the
plaintiffs
wilful
act
or
with
its
connivance.
[3]
Based
on
the
facts,
the
defendant
had
established
a
high
degree
of
probability
that
the
fire
at
the
factory
was
set
wilfully
or
with
the
connivance
of
the
plaintiff.
(Emphasis
added.)
[20]
When
an
insurer
pleads
that
an
insured
has
committed
an
act
of
arson,
by
deliberately
setting
fire
to
the
said
property
the
standard
of
proof
on
the
defendant
whilst
higher
than
a
civil
standard
of
proof,
it
did
not
however
require
proof
beyond
reasonable
doubt.
In
Watkins
and
Davis
Ltd
v
Legal
and
General
Assurance
[1981]
1
Llyods
Rep
674
Neill
J
held
the
evidential
burden
in
the
case
of
arson
was
to
show
on
a
high
degree
of
probability
that
the
fire
was
caused
by
the
insured
and
not
beyond
reasonable
doubt.
From
the
above,
it
is
clear
that
His
Lordship
preferred
the
sliding
scale;
the
more
serious
the
allegation
of
civil
fraud,
the
higher
the
standard
of
proof.
Proof
beyond
reasonable
doubt
was
a
step
too
far,
but
if
one
were
to
allege
civil
fraud,
then
a
high
degree
of
probability
would
need
to
be
shown.
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In
Sinnaiyah,
the
Federal
Court
revisited
the
issue
of
the
standard
of
proof
in
cases
involving
civil
fraud.
Indeed,
leave
to
appeal
was
granted
based
on
this
sole
question
of
law.
The Federal Court considered Saminathan , Ang Hiok Seng, Yong Tim and Asean Securities.
The
Federal
Court
also
considered
the
position
in
the
UK,
Canada,
Australia
and
Singapore
and
concluded
as
follows:
[49]
With
respect,
we
are
inclined
to
agree
with
learned
counsel
for
the
plaintiff
that
the
correct
principle
to
apply
is
as
explained
in
In
re
B
(Children).
It
is
this:
that
at
law
there
are
only
two
standards
of
proof,
namely,
beyond
reasonable
doubt
for
criminal
cases
while
it
is
on
the
balance
of
probabilities
for
civil
cases.
As
such
even
if
fraud
is
the
subject
in
a
civil
claim
the
standard
of
proof
is
on
the
balance
of
probabilities.
There
is
no
third
standard.
And
‘(N)either
the
seriousness
of
the
allegation
nor
the
seriousness
of
the
consequences
should
make
any
difference
to
the
standard
of
proof
to
be
applied
in
determining
the
facts’.
…
[52]
We
therefore
reiterate
that
we
agree
and
accept
the
rationale
in
In
re
B
(Children)
that
in
a
civil
claim
even
when
fraud
is
alleged
the
civil
standard
of
proof,
that
is,
on
the
balance
of
probabilities,
should
apply.
...
[53]
Accordingly,
despite
the
reaffirmation
of
the
law
on
the
issue
in
Yong
Tim
v
Hoo
Kok
Cheong
we
hold
that
it
is
no
longer
the
law
in
this
country.
Similarly,
the
principles
as
pronounced
in
Ang
Hiok
Seng
and
Lee
You
Sin
v
Chong
Ngo
Khoon
despite
applying
the
civil
standard
to
a
certain
extent
are
also
no
longer
the
law.
Hence,
the
disapproval
of
Lau
Kee
Ko
in
Ang
Hiok
Seng
is
no
longer
relevant.
The
Federal
Court
emphatically
overturned
Yong
Tim
(beyond
reasonable
doubt)
and
Ang
Hiok
Seng
(hybrid).
By
extension,
one
would
certainly
argue
that
Asean
Securities
has
also
been
overturned.
The
standard
of
proof
for
all
civil
matters
today
in
Malaysia,
whether
they
involve
elements
of
fraud
or
otherwise,
must
now
be
interpreted
as
being
on
a
balance
of
probabilities.
By
virtue
of
Sinnaiyah,
the
Federal
Court
has
conclusively
determined
that
the
standard
of
proof
for
all
civil
claims
will
be
determined
on
a
balance
of
probabilities.
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This
will
cause
numerous
problems.
In
hotly-‐disputed
insurance
suits,
there
will
always
be
an
allegation
that
the
insured
has
fraudulently
magnified
his
claim.
The
pronouncement
in
Sinnaiyah
will
cause
considerable
difficulties
to
an
honest
insured.
If
the
allegation
of
fraudulent
enlargement
is
proved
on
a
balance
of
probabilities,
then
it
will
be
incredibly
difficult
for
the
insured
to
receive
any
separate
policy
from
a
different
insurer.
One
finding
by
a
trial
judge
(on
a
simple
balance
of
probabilities)
that
there
has
been
fraudulent
misrepresentation
may
spell
the
death
knell
for
small
and
medium-‐sized
companies.
One
must
remember
that
even
innocently
misrepresenting
the
number
of
items
damaged
for
an
insurance
claim
may
be
grounds
for
dismissing
the
same
(see
Stone
v
Reliance
Mutual
Insurance
Society
[1972]
1
Lloyds
Rep
469
for
a
general
discussion).
Further,
a
restating
of
the
law
as
in
Sinnaiyah
will
grant
almost
carte
blanche
to
insurers;
pick
at
every
little
discrepancy
that
one
is
able
to
dig
up
and
hope
that
it
will
suffice.
In
all
probability,
it
will,
given
the
lowered
threshold
that
the
insurer
will
need
to
meet.
In
addition,
it
must
be
kept
in
mind
that
many
issues
pertaining
to
civil
fraud
will
have
criminal
implications.
A
simple
example
would
be
arson.
If
an
insurer
alleges
that
the
insured
has
set
fire
to
its
own
building
and/or
stock-‐in-‐trade,
it
is
an
inherently
dangerous
exercise
for
a
trial
judge
to
only
consider
this
allegation
on
a
balance
of
probabilities.
If
proven,
an
insured
(its
agents)
will
be
at
serious
risk
of
a
criminal
prosecution.
Having
reviewed
the
merits
of
decision
if
Sinnaiyah,
it
is
difficult
to
see
how
this
restatement
of
the
law
will
bring
about
any
cheer.
On
the
one
hand,
it
conclusively
sets
out
the
law.
Turning
to
the
other,
it
has
usurped
the
functions
of
a
trial
judge
to
decide
a
matter
and
the
standard
of
proof
required
based
on
the
evidence
that
has
been
put
before
him.
I
would
argue
that
the
position
outlined
by
Prasad
Abraham
J
in
Modern
Universal
is
a
measured,
moderate
approach.
A
trial
judge,
being
the
arbiter
of
fact,
will
be
able
to
determine
what
the
appropriate
standard
of
proof
is.
This
will
be
based
on
the
evidence
advanced,
the
seriousness
of
the
civil
fraud
alleged
and
the
veracity
of
the
witnesses
called.
It
is
truly
regrettable
that
His
Lordship's
decision
was
not
canvassed
before
the
Federal
Court.
As
persuasive
precedent,
I
believe
that
it
would
have
been
instructive.
Sinnaiyah
seeks
to
standardise
the
law
but
its
rigidity
and
blind
application
will
lead
to
a
substantial
miscarriage
of
justice.
The
position
of
law
in
Ang
Hiok
Seng
and
as
encapsulated
in
Modern
Universal
is,
for
all
intents
and
purposes,
a
flexible,
protean
method
that
would
allow
for
justice
to
not
only
be
talked
about,
5-1, Jalan 22A / 70A, Wisma CKL, Desa Sri Hartamas, 50480 Kuala Lumpur
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but
to
actually
be
seen.
5-1, Jalan 22A / 70A, Wisma CKL, Desa Sri Hartamas, 50480 Kuala Lumpur
T: +60362015678 / F: +60362035678 / E: tp@thomasphilip.com.my /
W: wwwthomasphilip.com.my