Fraud is often defined as a wrongful deception that is intended to cause financial or personal gain, however fraud is notoriously difficult to prove. Thus, this begs the question what is the standard of proof required to establish fraud? Interestingly, Malaysia has had a colourful experience in the development of this area of law.
In one way or another, human beings, being one of the most social animals, are met with one type of decision which would determine their next course of action every single day — to believe or not to believe. Philosophers, young and old, have since the dawn of time debated on this particular issue: Is it in our nature to deceive others? As such, governments in every corner of the world have considered this debate in establishing their legal systems.
In this article, the author wishes to map out the development of Malaysian laws pertaining to one type of deceit: Fraud — specifically, matters relating to the standard of proof when it comes to civil fraud. This is not a relatively new area of discussion, but so long as fraud exists, as it is the case today, the author is of the opinion that it remains relevant and may benefit members of the legal world and laypersons alike.
II. ADDUCING EVIDENCE: ‘BURDEN OF PROOF’ VS ‘STANDARD OF PROOF’
To begin, one must first understand that the general rule in adducing evidence in civil cases is this: The plaintiff has a legal burden to prove his case on a balance of probabilities, while the defendant has the evidential burden to produce sufficient evidence to raise an issue on the matters to be considered. In doing so, two things ought to be kept in mind: the burden of proof and the standard of proof. Note that these terms cannot be used interchangeably; the Federal Court had, in Ang Hiok Seng v Yim Yut Kiu used the term ‘burden of proof’ when it meant the ‘standard of proof’ back in 1997.
A. Burden of Proof
In Malaysia, s.101 of the Evidence Act 1950 is a statutory declaration of the maxim ‘he who alleges must prove’. It stipulates the general rule for the legal burden of proof, which rests on the plaintiff in a civil case, and the prosecution in a criminal case. On the other hand, S.102 Evidence Act and S.103 Evidence Act provides for the evidential burden of proof, which shifts from one side to the other according to the scale of evidence.
Picture the scales Lady Justice hangs before her, with a force constantly pulling one side up — the legal burden. In order to discharge this burden of proof, the weight of evidence placed upon this scale must overpower such a force so as to push the scale down. Picture the scales again, and that same force pulling at one side, but this time, add another force that shifts from one side of the scales to another — the evidential burden. Whenever the force is transferred to one side of the scales, the weight of evidence placed upon that scale must overpower the force to push the scale down. Likewise, in order to win a case, the weight of evidence must be heavy enough to tilt the scales, in spite of the force. This is what it means by the ‘burden of proof’.
B. Standard of Proof
With regard to ‘standard of proof’, S.3 Evidence Act provides for the situation where a fact is proved, that is: (i) where the court believes the fact to exist after considering the matters before it; or (ii) where the court considers the existence of the fact so probable that a prudent man ought to act upon its existence under the circumstances of the case. However, there is no express provision in any Malaysian legislation on the standard of proof in civil and criminal proceedings, which refers to the degree of persuasion needed for a judge to rule on the nature of a fact in issue. The imposition of such a standard is based on common law principles.
There are several standards in a Malaysian court proceeding, depending on the type of cases and the stage of the trial, but for the purpose of this discussion, only two will be introduced: (i) beyond reasonable doubt; and (ii) on the balance of probabilities.
1. Beyond reasonable doubt
This standard is the highest level of persuasion and is required by the prosecution in most criminal cases within an adversarial system. It is important to note here that proof beyond reasonable doubt does not mean proof beyond the shadow of a doubt, a standard which does not exist in civil court proceedings.
2. On the balance of probabilities
This standard can be safely called the standard of proof by a preponderance of evidence, or proof by clear and convincing evidence. In Miller v Minister of Pensions, Lord Denning described it simply as ‘more probable than not’. It is the standard required of the parties to a civil case. It is also the standard of proof required of the accused in a criminal case should they raise a defence, that is to say, the accused’s goal in order to get acquitted is to cast reasonable doubt upon the prosecution’s case on a balance of probabilities.
I. THE 40-YEAR-LONG CONFUSION LORD ATKIN HAD (UNINTENTIONALLY) LEFT IN HIS WAKE
(Un)surprisingly, the development of the law concerning fraud is not as simple as it may seem.
A. Red Lorry, Yellow Lorry: Differentiating Civil and Criminal Fraud
Fraud is the obtaining of a material advantage by way of unfair or wrongful means. The Court in PJTV Denson (M) Sdn Bhd & Ors v Roxy (M) Sdn Bhd described it as an ‘actual fraud, i.e. dishonesty of some sort’. It implies ‘some base conduct and moral turpitude’ and happens when a person acts with the intention that some person be deceived so as to accrue an advantage for the person or loss should befall another person. Somewhere down the road, the Malaysian courts have tried to categorise fraud into fraud of a civil nature and fraud of a criminal nature.
In 1997, the Court in Ang Hiok Seng considered the leading authorities of the subjects, the majority of which were dealing with criminal fraud in civil proceedings. It provided examples of fraud with criminal nature in civil claims — amongst which are conspiracy to defraud, misappropriation of money and criminal breach of trust, and fraud with civil nature in civil claims — those provided under S.17 and S.18 of the Contracts Act 1950.
However, the Federal Court in Eric Chan Thiam Soon v Sarawak Securities Sdn Bhd held that civil and criminal fraud are not distinguishable. Since ‘civil fraud’ encompasses cases of ‘criminal fraud’ under the Penal Code due to S.17(e) of the Contracts Act, the distinction is untenable. Ian Chin J opined that it is ‘an attempt at distinguishing the undistinguishable’. Citing authorities which provided descriptions of fraud, his lordship concluded that they befit a crime involving dishonesty or fraud as set out in offences in the Penal Code and that it would be difficult to find ‘purely civil fraud’ as fraud involves dishonesty (the basis of many criminal offences). The court criticised Ang Hiok Seng on the point that the conduct of misrepresenting the contents of a document — thus inducing the signing of it — is ‘cheating’ within the meaning of S.415 of the Penal Code. This, his lordship stated, would mean that such allegation only had to be established on a balance of probabilities unless the facts amount to a conspiracy to defraud, misappropriation of money, and criminal breach of trust.
B. Standard of Proof: its Ebb and Flow in Varying Degrees
1. The First Wave
In the beginning, the general rule was that where there is an allegation of a criminal act in a civil case, the standard of proof remained as one on a balance of probabilities, but the degree of that standard was to depend on the gravity of the allegation or issue raised. Bater v Bater was the leading case in stating that a higher degree of probability is naturally required in civil court when considering a charge of fraud. While the charge does not adopt so high a degree as the standard of beyond reasonable doubt (even when considering a charge of a criminal nature), a degree of probability proportionate with the occasion is required.
Raja Azlan Shah J (as he then was) had also in Lau Kee Ko & Anor v Paw Ngi Siu held that where a plaintiff alleges fraud, he is to establish the allegation by going further than probabilities. The degree of certainty applicable to a criminal case (beyond reasonable doubt) is not required, however there must be a very high degree of probability in the allegation.
2. The Second Wave
In 1981, came the Privy Council case of Saminathan v Pappa. The Court agreed with the Federal Court’s decision to depart from the general principle and instead referred to the 1941 case of Narayanan. In it, the standard of proof was taken to be one not on the balance of probabilities but beyond reasonable doubt
In the following year, however, the Federal Court in Lee You Sin v Chong Ngo Khoon by reasons unknown, disregarded the fundamental principle of stare decisis; it did not consider Saminathan v Pappa when pondering upon the reason why the learned trial judge required a higher burden of proof than the normal standard of ‘balance of probabilities’ in a civil action.The Federal Court applied the standard as enunciated in Bater v Bater in its stead.
Then, the Federal Court had the opportunity to reconsider its position in the subsequent cases of Tai Lee Finance Co Sdn Bhd v Official Assignee & Ors and Datuk Jagindar Singh & Ors v Tara Rajaratnam. In the former case, the courts referred to the previously missed Saminathan v Pappa and agreed that the burden of proving actual fraud rests on the accusing party and the standard is not on a balance of probabilities but beyond reasonable doubt. In the latter case, the trial judge applied the findings of the court in Saminathan v Pappa, and decided that the standard of proof for civil fraud is the criminal standard of proof beyond reasonable doubt. This was upheld in the PC.
Similarly, the Supreme Court in Chu Choon Moi v Ngan Siew Tin followed Saminathan v Pappa. Fraud cannot be based on mere suspicion and conjecture. In that case, the Court held that the facts and circumstances relating to the part played by the respondent signify the probability that any prudent man would under the circumstances accept it to be fraudulent.
3. The Third Wave
Ang Hiok Seng attempted to reconcile the conflicting decisions by forming a principle apart from the two usual standards of proof. It is important to be reminded that in this case, the courts had coined the term ‘burden of proof’ to mean ‘standard of proof’. On the question of standard of proof for fraud in civil proceedings, the Federal Court had reflected how the trial judge had found fraud on the basis of the standard of proof as laid down by the same court in Lau Kee Ko which stated that it was indeed on the balance of probabilities, but the party who alleges has to meet a very high degree of probability.
The Federal Court also considered the standards of proof applied by the leading authorities and came to the conclusion that where the allegation of fraud in civil proceedings concerns criminal fraud, it is settled law that the burden of proof is the criminal standard of proof beyond reasonable doubt, instead of the civil standard of balance of probabilities.
Immediately after, in Koh Thong Chuan v Koh Liang Hee the High Court took note of the new test propounded in Ang Hiok Seng pertaining to the standard of proof for fraud in civil proceedings. The Court observed that the allegation of fraudulent conveyance. In this case, stems from the law of bankruptcy. Hence, it is a civil matter, which requires the civil standard of proof.
There was yet another break in the trend when the Federal Court in Eric Chan Thiam Soon reasoned that since civil and criminal fraud cannot be distinguished, there should only be one standard of proof, which is on the balance of probabilities in civil proceedings. Ian Chin J went as far as to say that the legislature should end the triad of confusing decisions stemming from the apex court trying to extricate itself from the insoluble problem by enacting a legislation to say that the burden proof for all civil claims is that of on a balance of probabilities. His lordship also criticised Ang Hiok Seng for not stating its reasons for departing from the English position (standard of proof for civil claims is on the balance of probabilities) and why the test should be precarious as such.
Then came the Federal Court case of Yong Tim v Hoo Kok Cheong. Due to the array of confusing judgments, it was an issue in this case as to whether the civil standard of proof for forgery cases should be applied in cases of fraud. There was a grave mistake in how the Court referred to a case which concerned forgery in deciding to apply the criminal standard in fraud. It observed that the Malaysian courts have consistently applied what is known as the ‘Atkin test’ established in Narayanan Chettyar where fraud had been raised. This means that in civil proceedings, the standard of proof for fraud is beyond reasonable doubt. With such a vast sea of civil cases regarding fraud allegation, there seems to be no need for the Federal Court to look at a judgment decided per incuriam. Two years later, the Federal Court in Asean Securities Paper Mills Sdn Bhd v CGU Insurance Bhd agreed on the same.
4. The Final Wave
Finally, the long battle between civil and criminal standards of proof in fraud cases in civil proceedings came to an end in 2015 when the Federal Court in Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd. took an absolutist view by stating that the standard of proof in civil cases is on the balance of probabilities, even when serious allegations like fraud and/or dishonesty are made.. Here are the facts of the case: the appellant was the project manager of a construction project which the respondent had acquired. The appellant sued the respondent for unpaid management fees and financial advances, while the respondent disputed the claim and counterclaimed for an amount it alleged the appellant to have fraudulently paid itself instead of the construction company. The High Court dismissed the appellant’s claim as well as the respondent’s counterclaim, holding that the appellant had been duly paid for the management fees and that the financial advances would be on illegal money lending, and that the respondent had failed to prove its counterclaim of fraud.
In the Court of Appeal, the respondent’s appeal was allowed as the appellant was not authorised to pay itself, even if it was a set-off and contra payment. If the appellant had paid Sunrise in advance, how could it be that the respondents were still indebted to the construction company?
In the Federal Court, the judges analysed the past cases and noted that there are no specific provisions in the Evidence Act, or any other legislation for that matter, which stipulated the relevant standard of proof required in criminal and civil proceedings. The Federal Court judges observed that there are at least three principles for the standard of proof required in the latter proceedings where fraud is the subject matter, which are: a) beyond reasonable doubt, b) a very high degree on the balance of probabilities, and c) a standard which is dependent upon the nature of the fraud alleged. All the cases discussed by the judges have been incorporated into the discussion in this part.
The Federal Court then referred to several positions beyond Malaysia, namely the English position, where Bater v Bater and Hornal v Neuberger Products Ltd were the leading authorities for the general principle which was followed in the earlier years. New York v Heirs of Phillips as well as Narayanan was also criticised as they failed to consider Doe d. Devine v Wilson in its decision that conflicting evidence should be weighed in a civil case and that the judges should consider all probabilities, including the ordinary presumption of innocence. The question must be determined according to the balance of these probabilities. This has resulted in the English courts adopting the criminal standard as stipulated in such cases while other courts departed from the decision. Lord Hoffman in In re B(Children) also states that there is only one civil standard of proof, which is that the fact in issue ‘more probably occurred than not.’ In his lordship’s eyes, there is no longer a ‘heightened civil standard’. He was polite in imploring that if the courts had simply expressed that while the case was civil in nature, it was more suitable to apply the criminal standard in dealing with that particular issue in the case. In the same case, Baroness Hale (as she then was) was stern in saying that judges should never sit on the fence, and while the burden of proof is there to guide them, their judgments should be based on the standard of probabilities. Nothing more and nothing less. The Canadian courts agree with the English position.
In Australia, the court in Rejfek & Anor v McElroy & Anor reminded that the standard of proof to be applied in a case and the degree of persuasion needed to reach that standard are not to be confused. The court emphasised that the difference between the criminal standard of proof and the civil standard of proof is crucial as even if the fact found in a civil case is grave, the mind is only to be reasonably satisfied instead of being free of any reasonable doubt. Whereas in Singapore, the standard is that on a balance of probabilities but adopts the view that ‘the more serious the allegation, the more the party, on whose shoulders the burden of proof falls, may have to do if he hopes to establish his case.’
It was concluded in Sinnaiyah that there are only two standards of proof for fraud alleged in civil proceedings, which are the civil and criminal standards. The Federal Court rejected the Ang Hiok Seng notion that there is a third standard. The judges rightly decided that the seriousness of the allegation or consequences should not make a distinction to the standard of proof to be applied in determining the facts. The ball is in the court of the judges after hearing and considering the evidence adduced, as how it would be in any other civil claims, to find whether the standard has been met. The Federal Court placed a disclaimer in saying that its decision is meant only for future cases and not to be used to set aside or review past decisions involving fraud in civil claims.
II. A LITTLE PROBLEM CAUSED BY THE FEDERAL COURT’S CAVEAT IN SINNAIYAH: PROSPECTIVE OVERRULING
Earlier in 2019, the Federal Court is once again met with another small issue in Veheng Global Traders Sdn Bhd v AmGeneral Insurance Bhd & Anor and Another Appeal stemming from the disclaimer placed by the Federal Court in Sinnaiyah. This case is a case of fraudulent insurance claims. The timing of both decisions is such that the judgment of Sinnaiyah was delivered on 10 August 2015 while the trial judge hearing the Veheng case delivered his decision on 29 January 2016 dismissing the claim of fraud due to the standard of proof pre-Sinnaiyah: beyond reasonable doubt. On appeal, the counsel for the insured argued that if the principle in Sinnaiyah were to be extended to appeal cases, there would be a retrospective effect within the prospective overruling, which is not advisable in substantive law and would cause injustice.
The Federal Court agreed with the counsel for the insurer that the ruling in Ling Peek Hoe & Anor v Ding Siew Ching & Another Appeal and Letchumanan Chettiar Alagappan & Anor v Secure Plantation Sdn Bhd should be followed. The ruling is that the effect of ‘prospective overruling’ by the highest court of the land applies to all cases not finally determined as well as cases pending appeal within the court system. Therefore, it is settled that the standard of proof for fraud in civil proceedings is definitely on the balance of probabilities.
The reason the standard of proof for fraud in civil proceedings could not be settled seemed to be due to not only the facts of the case but also because of judgments decided per incuriam; there had been an egregious misdirection of the Federal Court for many years. Besides that, even if the court in question, following the basic doctrine of stare decisis, decided not to follow its previous decisions, the author believes that there should at least be an acknowledgment towards the existence of these cases to form more wholesome reasoning.
On the point of the standard of proof, as it stands today, the author is of the humble opinion that the Federal Court in Sinnaiyah was right in realigning the confusion left by judgments before it. One must remember that where a claim is brought before a civil court, the party claiming is not looking to penalise their opponents, but to recover what they deem to be rightly theirs. On the other hand, the party responding to such claim is usually only looking to defend themselves against the claim. As such, the standard of proof is now set, as it should be: Civil standard for civil cases, criminal standard for criminal cases.
Written by Corina Robert, a fourth year law student of the Faculty of Law, University of Malaya.
Edited by Nur Azureen binti Ibrahim
Disclaimer: The opinions expressed in this article are those of the author and do not necessarily reflect the views of the University of Malaya Law Review, and the institution it is affiliated with.
 Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd,  5 MLJ 1(FC), .
Ang Hiok Seng v Yim Yut Kiu, 2 MLJ 45 (FC).
 Evidence Act 1950 (Act 56).
 According to s.102 of the EA, where no evidence at all was given on the side on which the burden lies the party would fail, while s.103 prescribes that there is an evidential burden upon the person who wishes the court to believe in the existence of the fact unless the law provides that such burden lies on a particular party. The defendant assumes the evidential burden to raise sufficient evidence once the plaintiff has successfully discharged its burden.
 Section 3 of Evidence Act states that a fact is proved when the court, after considering all the evidence adduced, either believes it to exist or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists.
 See footnote 1 above.
 In re (Children) (Care Proceedings: Standard of Proof) (CAFCASS intervening),  UKHL 35; cited by
Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd,  5 MLJ 1(FC).
 Bater v Bater,  P 35 (CoA).
 Chu Choon Moi v Ngan Sew Tin,  1 MLJ 34 (SC).
Habibah, O., Marimuthu, S. B., & Mazlina, M. (2018). Law of Evidence in Malaysia. Selangor: Sweet & Maxwell, at p 307; Where the plaintiff has successfully proven more credible and convincing evidence in his
favour as compared to the defendant—even by a small degree—the probabilities should be in the plaintiff’s favour.
 Miller v Minister of Pensions,  2 All ER 372 (KB).
 Saminathan v Public Prosecutor  21 MLJ 121(CoA.)
 Osborn, P. G. & Bone, Sheila. & Rutherford, L. A. (1993). Osborn’s Concise Law Dictionary. London: Sweet & Maxwell, at p 152.
 PJTV Denson (M) Sdn Bhd & Ors v Roxy (M) Sdn Bhd,  2 MLJ 136 (FC).
 Hock Hua Bank (Sabah) Bhd v Lam tat Ming & Ors,  4 MLJ 328 (HC) at 353.
 See footnote 17 above.
 See footnote 2 above.
 ALN Narayanan Chettyar & Anor v Official Assignee High Court Rangoon, AIR 1941 PC 93; Hansraj Gupta & Ors v Dehra Dun Mussoorie Electric Tramway Co Ltd, AIR 1940 PC 98; M Ratnavale v S Lourdenadin 2 MLJ 371 (SC).
 Hansraj Gupta & Ors v Dehra Dun Mussoorie Electric Tramway Co Ltd AIR 1940 PC 98.
 Datuk Jagindar Singh & Ors v Tara Rajaratnam,  1 MLJ 105 (PC).
 Eric Chan Thiam Soon v Sarawak Securities Sdn Bhd,  4 MLJ 399 (FC).
 See footnote 23 above .
 See footnote 23 above.
 Eastern Enterprises v Ong Choo Kim,  1 MLJ 236 (OCJ).
 See footnote 8 above; Rose CJ in Nederlandsche Handel-Maatschappij NV v Koh Kim Guan  MJ 173 (OCJ) applied standard of proof in said case.
Lau Kee Ko & Anor v Paw Ngi Siu,  1 MLJ 21 (FC).
 Followed by Ratna Ammal v Tan Chow Soo,  1 MLJ 296 (FC); Mohamed Isa v Haji Ibrahim,  1MLJ 186 (FC); Lau Hee Teah v Hargill Engineering Sdn Bhd & Anor,  1 MLJ 145 (FC).
 Saminathan v Pappa,  1 MLJ 121(PC); The allegation of fraud in the case was that Pappa had misrepresented that Saminathan wished to transfer the title of the disputed land to her.
See footnote 20 above.
 Lee You Sin v Chong Ngo Khoon,  2 MLJ 15(FC).
 Tai Lee Finance Co Sdn Bhd v Official Assignee & Ors, 1 MLJ 81(FC).
See footnote 22 above.; The appellants were held to be guilty of fraud as they had falsely represented to the respondent the nature of the land transaction being one of security. This was so that they could subdivide it and sell it to the public. It is a classic case of fraud based on criminal breach of trust and undue influence.
 See footnote 34 above at 85.
 See footnote 22 above at 140.
 See footnote 9 above.
 See footnote 20 above.
 See footnote 8 at 38 above.
 See footnote 2 above; In this case, pursuant to the main agreement, the appellant had drawn up an option agreement to sell the respondent’s land at RM80k, which is lower than its actual value.
 See footnote 20 above.
Koh Thong Chuan v Koh Liang Hee,  5 MLJ 136 (HC); See also Ong Ban Chai v Seah Siang Mong, 3 MLJ 346 (CoA) which followed the standard of proof applied in Ang Hiok Seng.
 See footnote 23 above.
 See footnote 23above.
See footnote 7 above.
 Yong Tim v Hoo Kok Cheong,  3 CLJ 229 (FC).
 See footnote 20above.
Asean Securities Paper Mills Sdn Bhd v CGU Insurance Bhd,  2 MLJ 301, (FC).
 See footnote 1 above; The issue was whether the FC should rely on the ratio decidendi set in Ang Hiok Seng when determining the burden of proof in civil fraud. The FC first observed the wording of the leave applied to the court, which referred to the standard of proof as “burden” of proof.
 See footnote 8 above.
Hornal v Neuberger Products Ltd, 1 QB 247.
New York v Heirs of Phillips,  3 All ER 952 (PC).
Doe d. Devine v Wilson, (1855) 10 Moo PC 502; a case on forgery where it was held that “there is a great distinction between a civil and criminal case, when a question of forgery arises…”
 See footnote 7 above.
Rejfek & Anor v McElroy & Anor,  39 ALJR 177,(HC).
Tang Yoke Kheng v Lek Benedict,  3 SLR(R) 263; Yogamikai Nagarajah v Indian Overseas Bank,  1 SLR 258,(CoA).
Veheng Global Traders Sdn Bhd v AmGeneral Insurance Bhd & Anor and Another Appeal,  7 CLJ 715 (FC).
 See footnote 1 above.
 Ling Peek Hoe & Anor v Ding Siew Ching & Another Appeal,  7 CLJ 641 (FC).
Letchumanan Chettiar Alagappan & Anor v Secure Plantation Sdn Bhd,  5 CLJ 418 (FC).
 Adopted and followed by Dato’ Prem Krishna Sahgal v Muniandy Nadasan & Ors,  10 CLJ 385 (FC).