In the theater of commercial negotiations, a single false step—or a single false word—can dismantle the most meticulously drafted agreement. The law of misrepresentation serves as the judicial safeguard for the sanctity of “free consent,” ensuring that a party is not snared into a bargain by untruths. As a practitioner, I often observe that while the Contracts Act 1950 (CA 1950) provides the skeleton, the “flesh” of this doctrine is found in a robust body of case law that distinguishes between the innocent slip and the calculated deceit.
I. The Three-Fold Test of Actionability
To establish an actionable claim, one must look beyond mere dissatisfaction. The Court of Appeal in Sim Thong Realty Sdn Bhd v. Teh Kim Dar @ Tee Kim [2003] 1 MLRA 272 CA established the definitive three-pillar test for misrepresentation:
“A misrepresentation may be defined as an unambiguous, false statement of fact which is addressed to the party misled and which materially induces the contract. This definition may be broken down into three distinct elements. The first is that the representation must be an unambiguous false statement of fact, the second is that it must be addressed to the party misled and the third is that it must be a material inducement to entry into the contract”.
Under section 18 of the CA 1950, misrepresentation includes positive assertions of untruths, any breach of duty that gives an advantage without intent to deceive, and causing a party to make a mistake as to the substance of the subject matter.
II. The Spectrum of Culpability
The remedy available to a misled party is dictated by the representor’s state of mind at the time the statement was made.
- Fraudulent Misrepresentation: Occurs when a statement is made knowingly, without belief in its truth, or recklessly. Under Doyle v. Olby (Ironmongers) Ltd [1969] 2 All ER 119, the defendant is liable for “all the actual damage directly flowing from the fraudulent inducement,” regardless of foreseeability.
- Negligent Misrepresentation: Arises from a breach of a duty of care in making statements, particularly where a “special relationship” exists, as established in Hedley Byrne & Co Ltd v. Heller & Partners [1964] AC 465.
- Innocent Misrepresentation: Where the representor honestly believes their assertion. As per Admiral Cove Development Sdn Bhd v. Balakrishnan a/l Devaraj & Anor [2011] 5 MLJ 309 FC, the representee may sue for rescission and restitution, but notably, “such remedy is not available so far as dealings in land are concerned where the conveyance has been properly executed”.
III. The Doctrine of Continuing Representations
A common pitfall in corporate due diligence is assuming a statement’s truth is frozen in time. In Cramaso LLP v. Ogilvie-Grant and others [2014] 1 All ER (Comm) 830, the UK Supreme Court (applied in Malaysia) held:
“Where the representation has a continuing effect, the representor has a continuing responsibility in respect of its accuracy… a person who subsequently discovers the falsity of facts which he has innocently misrepresented may be liable in damages if he fails to disclose the inaccuracy”.
This aligns with Davies v. London & Provincial Marine Insurance Co [1878] 8 Ch D 469, where the court ruled that if a statement becomes untrue during negotiations due to a change in circumstances, the person who knows of the change is “under an obligation to disclose to the other the change of circumstances”.
IV. The “Half-Truth” Trap
The law does not merely penalize outright lies; it punishes the “economical” use of the truth. The Federal Court in Seema Elizabeth Isoy v. Tan Sri David Chiu Tat-Cheong [2024] 5 MLRA 68 FC, adopting Sutherland And Others v. Stopes [1925] AC 47, emphasized:
“Truth must not be stated without being fully stated; that is to say, without that context… which would put a different complexion upon matter… Half-truths can be just as damaging as outright falsehoods”.
In the Seema Elizabeth Isoy case, stating a party was “charged” without mentioning their “acquittal” was held to be a defamatory half-truth.
V. The Barrier of “Ordinary Diligence”
A representee cannot “slumber on their rights” if the truth was staring them in the face. The Exception to section 19 of the CA 1950 provides that a contract is not voidable if the party whose consent was so caused had the “means of discovering the truth with ordinary diligence”.
This was rigorously applied in QVC Rock Products Sdn Bhd v. Pohmix Kuari Sdn Bhd [2024] 3 MLRA 657 CA, where a purchaser’s failure to conduct a physical survey of a quarry site was fatal to their claim. Similarly, in Cryogenic Tank Services (M) Sdn Bhd v. Nozomi Marketing (M) Sdn Bhd [2015] 1 LNS 273 HC, the court noted that an educated businessman must exercise “ordinary diligence” during inspection.
VI. Correcting the Remedy: Rescission vs. Termination
Finally, the Federal Court in Lim Swee Choo & Anor v. Ong Koh Hou @ Won Kok Fong [2026] 1 MLRA 1 FC has recently untangled a decade of confusion regarding remedies. The Court clarified that rescission ab initio (setting aside a contract due to an inherent cause of invalidity like misrepresentation) is distinct from termination for breach.
“Rescission ab initio… denotes the process by which a contract, containing an inherent cause of invalidity, is set aside in such a way that not only does the contract cease to exist but it is deemed never to have existed”.
Conversely, as clarified in Aster Bina Sdn Bhd & Ors v. Lebar Daun Development Sdn Bhd [2024] 4 MLRH 654 CA, if a representation is subsequently incorporated into the contract as a formal term, the remedy shifts from rescission under section 19 to an action for breach of contract.
Conclusion
As the court noted in Nexgram Land Sdn Bhd v. Spacious Glory Sdn Bhd & Anor [2022] 1 LNS 1417 CA, when a director conceals pending claims during due diligence despite signing a confirmation that the data is “true, not false, and complete,” they “taint” the consent of the other party. In the eyes of the law, honesty is not merely a policy—it is a mandatory condition of a valid contract.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified lawyer for your specific legal needs.
