Nimalan Devaraja reviews the landmark case on the standard of proof in civil fraud claims.

In Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd [2015] 7 CLJ 584, the Malaysian Federal Court took a bold step to restate the law on an issue of significant importance to the legal community, that is, the standard of proof to be applied to prove fraud in a civil claim.  
 
THE ISSUE
 
Only one leave question was posed to the Federal Court in this appeal, namely:
 
“Whether the Federal Court should rely on the ratio set in Ang Hiok Seng @ Ang Yeok Seng v Yim Yut Kiu (Personal representative of the estate of Chan Weng Sun, deceased) [1997] 2 MLJ 45 in determining the burden of proof in civil fraud.”
 
From the onset, the Federal Court clarified that the issue for determination relates to the “standard of proof”, i.e. the degree of persuasion, and not “burden of proof”, i.e. the responsibility of proving, required in civil claims where fraud is alleged.
 
While the facts that brought this important question to the forefront of legal development in the year 2015 is admittedly important to the parties involved, the facts had no real bearing on the answer to the leave question and thus will not be dealt with in this article.
 
LAYING DOWN THEIR MARKERS
 
Both parties were in agreement that the present standard of proof for fraud in civil claims, i.e. that of beyond reasonable doubt, was not in tandem with the standard applied in other common law jurisdictions.
 
While both parties felt that the correct standard of proof should be on the balance of probabilities, the Respondent sought to refine the standard by adding a further requirement that where the allegation of fraud is serious, as for instance criminal in nature, a higher quality of evidence should be required while maintaining the standard of proof to be on the balance of probabilities.
 
THE THREE HEADS OF ARGUMENT
 
In considering the leave question, the Federal Court noted that there is no specific provision in any legislation in Malaysia that stipulates the relevant standard of proof required in both criminal and civil proceedings. Therefore, the standard of proof is a common law principle.
 
Based on the reported judgments by the Malaysian Courts, it was apparent that the Malaysian Courts had applied three different principles in addressing the standard of proof to be applied in civil claims where fraud is alleged.
 
(1)  Beyond Reasonable Doubt
 
The first principle, and the prevailing principle, prior to this appeal, is premised on the standard of beyond reasonable doubt, as has been applied in criminal cases. This principle has its roots in the Privy Council case of Saminathan v Pappa [1981] 1 MLJ 121 which adopted the principle enunciated in the Privy Council case of Narayanan Chettyer v Official Assignee of the High Court, Rangoon (28) AIR 1941 where Lord Atkin held that “Fraud of this nature, like any other charge of a criminal offence, whether made in civil or criminal proceedings, must be established beyond reasonable doubt.”
 
Subsequent to Saminathan, the Malaysian Courts have applied the “beyond reasonable doubt” standard to civil claims founded on fraud in most decisions (e.g. Chu Choon Moi v Ngan Siew Tin [1986] 1 MLJ 34 and Datuk Jaginder Singh v Tara Rajaratnam [1986] 1 MLJ 105).
 
(2)  High Degree of Probability
 
Prior to Saminathan, the Malaysian Courts had applied a different standard of proof in civil claims when fraud was alleged, that is one of “a very high degree” of the balance of probability. In the Federal Court case of Lau Kee Ko & Anor v Paw Ngi Siu [1974] 1 MLJ 21, Raja Azlan Shah J (as he then was) stated that “It is a wholesome rule of our law that where a plaintiff alleges fraud, he must do more than establish the allegation on the basis of probabilities. While the degree of certainty applicable to a criminal case is not required, there must, in order to succeed, be a very high degree of probability in the allegation.”
 
Even after Saminathan, this principle still gained traction where the Federal Court in Lee You Sin v Chong Ngo Khoon [1982] 2 MLJ 15 qualified the balance of probabilities standard by requiring a higher degree of probability where the allegation of fraud was more serious. Lee You Sin was in line with the Singapore case of Eastern Enterprises v Ong Choo Kim [1969] 1 MLJ 236, where it was held that the more serious the allegation of fraud such that it was tilting towards criminal liability, the higher degree of probability is required before it can be said that the standard of proof on the balance of probabilities has been satisfied.  
 
(3)  The Middle Ground
 
A third principle was put forward by the Federal Court in Ang Hiok Seng v Yim Yut Kiu [1997] 2 MLJ 45 in what seems to be a well-meaning but impractical attempt at finding a middle ground. Mohd Azmi FCJ explained this principle in the following terms:
 
“… where the allegation of fraud in civil proceedings concerns 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 … But where the allegation of fraud … is entirely founded on a civil fraud – and not based on a criminal conduct or offence – the civil burden is applicable.”
 
In other words, the standard of proof to be applied is dependent on the nature of the fraud alleged.
 
The Court in Ang Hiok Sing went further to declare that Lau Kee Ko should no longer be considered good law insofar as it rejected the criminal burden in all cases of fraud.
 
To add to the confusion, the Federal Court in Yong Tim v Hoo Kok Cheong [2005] 3 CLJ 229 reversed the trend and re-adopted the first principle, namely the “beyond reasonable doubt” standard in cases of civil fraud.
 
With the lower courts being bound by the principle of stare decisis, the principle set forth in Yong Tim prevailed until Sinnaiyah came before the Federal Court.
 
THE COMMONWEALTH POSITION
 
With both parties to the appeal urging the Federal Court to resolve the confusing state of the law on the issue and to adopt a position which is in tandem with the generally accepted standard in other common law jurisdictions, the Federal Court undertook a detailed analysis on the standard of proof applied in civil fraud cases in several Commonwealth countries.
 
England
 
The English position on this question of law was settled once and for all in the House of Lords case of In re B (Children) (Care Proceedings: Standard of Proof) (CAFCASS intervening) [2008] UKHL 35 where Lord Hoffmann held that “I think that the time has come to say once and for all, that there is only one civil standard of proof and that is proof that the fact in issue more probably occurred than not.”
 
Lord Hoffmann was forcefully supported by Baroness Hale of Richmond who emphatically stated that “Neither 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. The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies.”
 
The English Supreme Court reiterated the above position In re S-B Children [2009] UKSC 17 where it affirmed that “there is only one civil standard of proof and that is proof that the fact in issue more probably occurred than not.” The Supreme Court also rejected the nostrum, “the more serious the allegation the more cogent the evidence needed to prove it.” This rejection goes to show that even for hybrid cases, i.e. civil cases which contain material allegations of criminal conduct, the same civil standard of proof - that is one of balance of probabilities - applies.
 
Canada
 
The Canadian Courts have taken the same position as the English Courts. In F.H. v McDougall [2008] SCC 53 the Canadian Supreme Court held that “in civil cases there is only one standard of proof and that is proof on a balance of probabilities. In all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred.”
 
In wholeheartedly rejecting the suggestion that there should be different levels of scrutiny of evidence depending on the seriousness of the allegation, Rothstein J observed:
 
“To suggest that depending upon the seriousness, the evidence in the civil case must be scrutinized with greater care implies that in less serious cases the evidence need not be scrutinized with such care. I think it is inappropriate to say that there are legally recognized different levels of scrutiny of the evidence depending upon the seriousness of the case. There is only one legal rule and that is that in all cases, evidence must be scrutinized with care by the trial judge.”
 
Australia
 
The approach of the Australian Courts is neatly summarised in the High Court case of Rejfek & Anor v McElroy & Anor [1965] 39 ALJR 177 where it was held that:
 
“But the standard of proof to be applied in a case and the relationship between the degree of persuasion of the mind according to the balance of probabilities and the gravity or otherwise of the fact of whose existence the mind is to be persuaded are not to be confused. The difference between the criminal standard of proof and the civil standard of proof is no mere matter of words: it is a matter of critical substance. No matter how grave the fact which is to be found in a civil case, the mind has only to be reasonably satisfied and has not with respect to any  matter in issue in such a proceeding to attain that degree of certainty which is indispensable to the support of a conviction upon a criminal charge.”
 
An observation which is of particular interest in the Malaysian context is that Rejfek followed an earlier decision of Helton v Allen [1940] 63 CLR 691 where the Australian High Court had dismissed the pronouncements of Lord Atkin in Narayanan as mere dicta.
 
Singapore
 
The Courts in Singapore have applied the balance of probabilities principle as the standard of proof for fraud in civil claims. While the notion of a third standard of proof where fraud is the subject of civil claim has been rejected, the courts there nevertheless added a caution 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” (see the Singapore Court of Appeal case of Tang Yoke Kheng v Lek Benedict [2005] 3 SLR(R) 263).
 
It would appear from Tang Yoke Kheng that the standard of proof for fraud in civil claims falls within the head of principle put forth in Lee You Sin and is not consistent with the current position in England, Australia and Canada.
 
THE DECISION
 
Having considered the legal position in the various common law jurisdictions, the Federal Court agreed with both parties in Sinnaiyah that the standard of proof for fraud in civil claims in Malaysia should be reviewed.
 
In making a bold decision to decisively realign the position of law in the country and departing from all three previous principles applied by the apex court before them, the Federal Court in Sinnaiyah adopted the principle applied by the House of Lords in In re B (Children) and rejected the Respondent’s argument to adopt the principle in Lee You Sin.
 
The Federal Court then answered the leave question in the negative and held that at law there are only two standards of proof, namely, beyond reasonable doubt for criminal cases and 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.
 
However, while the Federal Court agreed that neither the seriousness of the allegation nor the seriousness of the consequences should make any difference to the standard of proof to be applied, it is still something to be taken into account, where relevant, in deciding where the truth lies.
 
The Federal Court did however issue a caveat that the principle laid down in Sinnaiyah was to apply only to that case and to future cases and should not be utilised to set aside or review past decisions that involve fraud in civil claims.
 
With this decision, Yong Tim, Ang Hiok Seng, Low Kee Ko, Lee You Sin and Saminathan have ceased to be good law and Malaysia has now brought itself in line with the legal position in England, Australia and Canada in relation to the standard of proof to be applied to prove fraud in a civil claim.