False Misrepresentation in Business in Malaysia

Recently, the most common complaints Eberhard Advisory has received from our Malaysian customers have been related to the purchase and sale of personal protective equipment ("PPE"). We are seeing a number of companies fraudulently claiming to have ready stocks of gloves or various types of other personal protective equipment. After payment, the Buyer (who is our customer) often found out that the Seller had no intention of fulfilling the order on time, and their promises of ready stock were often simply false.

Imagine a situation where you entered into a business agreement with a contractor with the intention of making a profit, only to then realize that you were deceived during the transaction because the other party gave you false information.

In the following publication, we will focus on one of several legal options you can take against company directors for fraudulent and misleading commercial information.

Lifting the "corporate veil"

The Seller's company is in most cases a private limited liability company, and thus a separate legal entity. In Malaysia, it is a well-known fact that a Company or Sdn Bhd, under standard circumstances, is solely responsible for all business operations performed as well as debts incurred. However, the law firm Eberhard Advisory would like to point out at this point that you can only hold these Directors personally liable for your losses and damages if you can prove fraud through fraudulent statements on their part.

We have come to call it the lifting of the "corporate veil" of the company. In this way, we lead the process to hold Directors personally accountable for their fraudulent acts, whether the transaction is between 2 or more companies. We personally believe that no one should be able to rely on the protection of a corporate veil (i.e. Sdn Bhd.) as a safeguard or a facade to cover up their own wrongdoings.

What is "Fraudulent Misrepresentation"?

To put it simply, fraudulent misrepresentation is a situation where your counterparty knowingly makes a false statement on which you rely and which is the reason on which you decide to enter into a transaction. You suffer losses and damages as a result of relying on this statement.

Is there a test for fraudulent misrepresentation?

Now suppose you want to sue an individual or company for unfair market practices that constitute fraudulent misrepresentation. In the first step, you should understand the elements that you need to prove effectively in Court. This is essential so that you are then fully aware of the evidence you need to prepare in advance to present at trial.

If you want to effectively show in court that you relied on a false statement made by another person or company in the course of business negotiations - a very important step in making a fraudulent misrepresentation claim - you generally need to prove the following:

• The other party transparently and objectively misled you as to the facts by words or conduct, mere silence by the other party is not enough;

• A statement made to you by the other party in the course of a business transaction must be made knowingly that it is false under the circumstances of the facts, i.e. it must be false intentionally or at least made in the absence of a true and complete belief that it is true or reckless (i.e. without caring enough whether the other party's statement is true or false);

• The other party's statement must be made with the intention that you would rely on it and direct your behavior in a way that led to your harm;

• You must prove in court that you acted on the basis of false statements that did not actually reflect the capabilities of your contractor;

• You must prove that you have suffered loss and damage due to the false statements of the other party to the transaction.

How not to become a victim of deceptive market practices

There are some practical behaviors and best practice habits to counteract misrepresentation situations that all companies should be aware of.

(a) A Sale and Purchase Agreement (SPA) is strongly recommended. SPA, in each transaction should act as a transparent checklist, providing a predetermined transaction path.

(b) Always conduct due diligence on potential suppliers or vendors.

(c) Always ensure that you have a complete record of correspondence (primarily email) with your contractor.

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(d) Do not waste time and seek legal advice immediately if you believe you may have suffered a loss as a result of a false statement by the other party to a transaction in which you were involved.

(e) Please note that a misrepresentation, which, in principle, does not have a significant impact on the contract, does not constitute grounds for taking legal action in the area of legal regulations regarding a false declaration by the contractor.

(f) Finally, it is worth keeping in mind the age-old saying that "if something seems too good to be true, it probably is".

Whether you have been sued in Malaysia for fraudulent misrepresentation or you believe you entered into a contract based on a false statement by the other party, the case can be relatively high for your company and your interests. Eberhard Advisory experts have the necessary knowledge and experience in representing clients in cases related to a fraudulent statement in Malaysia. Please feel free to contact us in this regard.

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