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CIVIL

 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).  

So  much  for  definition.  


 
The  standard  of  proof  for  civil  fraud  

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  

Ang  Hiok  Seng  

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.    

A  sliding  scale,  if  you  will.    

 
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.  
 

The  Federal  Court  revisits  the  issue:  Sinnaiyah  

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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.  

Is  this  the  correct  decision?  

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,  

© 2016 Thomas Philip, Advocates & Solicitors

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
but  to  actually  be  seen.    

© 2016 Thomas Philip, Advocates & Solicitors

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