Authored By: Prisheela Thavanthran
National University of Malaysia (UKM)
CASE NAME: SINNAIYAH & SONS SDN. BHD. V DAMAI SETIA SDN. BHD. [2015] 5 MLJ
- COURT NAME: Federal Court of Malaysia (Putrajaya)
- JUDGES: Richard Malanjum CJ, Abdull Hamid Embong, Hasan Lah, Abu Samah and Ramly Ali FCJ
III. DATE OF JUDGEMENT: 10th August 2015
PARTIES INVOLVED
Sinnaiyah & Sons Sdn Bhd is the appellant in this case, and Damai Setia Sdn Bhd is the respondent. The appellant, Sinnaiyah & Sons Sdn Bhd, was appointed project manager by the respondent, Damai Setia Sdn Bhd, the major contractor awarded the project by the Public Works Department. While the appellant initiated the appeal, the respondent was the person fighting against the accusations and counterclaims over alleged unpaid management fees and alleged financial mismanagement.
FACTS OF THE CASE
The appellant had been appointed by the respondent to manage a construction project, which included overseeing the project account and making payments to the subcontractor, VN Sunrise. To facilitate this, the respondent opened a bank account with Bank Bumiputera Commerce in Johor Bahru and authorised the appellant to sign all cheques and make payments on its behalf.
Under their agreement, the appellant was entitled to management fees for work done between 1 February 2005 and 15 October 2005. The appellant later claimed it had not been paid management fees amounting to RM301,767.40, and further alleged that it had made financial advances to the respondent. The respondent disputed this, counterclaiming RM535,836.01 on the grounds that the appellant had fraudulently paid itself funds that should have been paid to the subcontractor.
In answer to the counterclaim, the appellant argued that the disputed payments were not fraudulent but were instead used to set off or contra payments for goods and materials supplied to the subcontractor to complete the project.
The High Court rejected both the claim and the counterclaim. It held that the appellant had already been properly paid its management fees, and that the alleged financial advances were in fact related to illegal money-lending activities. It also found that the respondent’s counterclaim was not proven.
The appellant then appealed, but the Court of Appeal dismissed the appeal. It went further by upholding the counterclaim, finding that the appellant had failed to prove the alleged financial advances and that the claim for management fees was essentially a claim for interest. The Court of Appeal also held that the appellant had no authority to pay itself from the project account whereby its authority extended only to paying the subcontractor and that the supposed set-offs or contra payments were unsupported by evidence.
The appellant has now appealed to the Federal Court, raising questions about the correct standard of proof for fraud in civil cases, especially where allegations involve serious or potentially criminal conduct. The appellant also seeks clarification on whether the legal principles applied in earlier cases remain good law.
ISSUES BEFORE THE COURT
- Whether the standard of proof for civil fraud should be on the balance of probabilities or beyond reasonable doubt?
- Whether the application of a higher standard of proof based on the seriousness of the allegation is appropriate?
- Whether previous Malaysian decisions that applied different standards remain valid or need reconsideration?
- Whether the law in Malaysia should align with other common law jurisdictions, which predominantly adopt the balance of probabilities standard for civil fraud? E. Whether the distinction between civil and criminal fraud should influence the standard of proof in civil proceedings.
VII. ARGUMENTS BY THE PARTIES
Appellant
(i) Standard of Proof for Civil Cases Involving Fraud
The appellant argued that the correct legal standard in civil claims, including those alleging fraud, is on the balance of probabilities, aligning with the principle laid down in Re B (Children).1 They emphasized that there is no third standard of proof, and the allegation of fraud, when in a civil case, does not warrant a higher standard, regardless of the seriousness of the allegation.2
(ii) Rejection of the Criminal Standard
They contended that the Malaysian courts previously applied a criminal standard (beyond reasonable doubt) for allegations of fraud, citing Yong Tim v Hoo Kok Cheong [2005] 3 CLJ 229 which was inconsistent with Malaysian law.
They argued that such practice was a misinterpretation, especially stemming from the case Narayanan Chettyar v Official Assignee of Rangoon, and that the legal position should be realigned with other common law jurisdictions like England, Canada, and Australia.3
(iii) Legal Principle
The appellant supported the view that the law should be consistent with English law as clarified in Re B, and similar jurisdictions, and that earlier Malaysian decisions applying a beyond reasonable doubt standard were wrongly decided.
In conclusion, the appellant contended the right standard for civil claims is balance of probabilities. With that view, they heavily criticised the failure of the trail and appellate court to apply the right standard and the findings on fraud must be overturned.
Respondent
(i) Existing Law
The respondent maintained that Malaysian law historically adopted a stringent standard akin to criminal beyond reasonable doubt in civil cases involving allegations of fraud, citing Yong Tim, and the earlier conflicting principles such as Re Saminathan, which supported a higher degree of proof given the serious nature of fraud.4
(ii) Seriousness of Fraud
Referencing the Hornal v Neuberger case, which highlights the requirement for a higher degree of probability when criminal conduct is involved, they contended that the more serious the charge, the higher the bar of proof should be.5
(iii) Legal Principle
The respondent pointed out that Yong Tim (which adopted the criminal standard) and other decisions in Malaysia held that the standard of proof in civil proceedings for fraud was beyond reasonable doubt. They argued these decisions reflected established doctrine in Malaysia and that the Courts below correctly followed this law, and any deviation was incorrect.
In conclusion, the respondent contended that the existing law is still a good law and the appellant’s reliance on In Re B was misplaced because the case did not change the Malaysian jurisprudence that favoured a higher standard for serious allegations.
VIII. JUDGEMENT
The Court granted the respondent’s counterclaim, rejected the appeal, and maintained the Court of Appeal’s ruling. The court determined that the appellant’s claim for management fees was really a demand for interest and that the appellant had not proven its claim for financial assistance. Additionally, the Court determined that the appellant’s claims of set-offs and contra payments were baseless and that the appellant was only permitted to pay the subcontractor.
It was made clear to the Court that this ruling only relates to this case and cases in the future; it will not be utilised to review earlier rulings pertaining to fraud accusations. Putting aside the inconsistent applications in Malaysian jurisprudence, the Court upheld that the standard of proof for fraud in civil claims is on the balance of probabilities in accordance with the principles of Re B (Children).
LEGAL REASONING/RATIO DECIDENDI
The standard of proof for fraud in civil cases is on the balance of probabilities. The seriousness of the fraud is not relevant. The court reaffirmed that the balance of probabilities remains consistent across cases and that previous decisions applying a higher standard is no longer a good law. This principle applies prospectively and cannot be utilised to overturn or review past decisions.
OBSERVATION
This case is a significant milestone in clarifying the standard of proof applicable to allegations of fraud in civil proceedings. The Federal Court’s decision finally resolved longstanding uncertainty by affirming that the standard of proof remains the balance of probabilities, even where the allegations involve serious criminal conduct such as fraud.
However, it is worth noting that some later Malaysian decisions appeared to drift from this principle by suggesting that a higher standard akin to proof beyond reasonable doubt which might apply in particular circumstances. Cases such as Tan Sui Lin v Andrew Lim, Teoh Cy Kuan (L) v Lee Lai San (P), and Chrisie Yong Vui Loong v Tracy Liew Tze Ting, all involving civil claims of adultery, attempted to introduce this elevated standard. These decisions, however, this should not be aligned with the principle laid down in Sinnaiyah, which remains authoritative.6
The Federal Court in Sinnaiyah made it clear that the applicable standard of proof does not change. What changes is the degree of persuasion required, depending on the seriousness of the allegation. Serious allegations such as fraud demand stronger evidence to satisfy the balance of probabilities but this does not convert the standard into one of beyond reasonable doubt. This distinction has been consistently recognised in cases such as Teoh Meng Kee v Public Prosecutor and the well-known decision in Re H, both of which emphasise that seriousness affects the weight and quality of evidence, not the standard itself.7
The Federal Court was also correct in applying its ruling prospectively, ensuring clarity for future cases while avoiding undue disruption to past decisions made under earlier interpretations.
In summary, this case firmly establishes that the balance of probabilities is the one and only standard of proof in civil fraud cases. While courts must take the seriousness of the allegation into account when assessing the evidence, this goes only to the weight of the evidence required to tip the balance, not to the standard itself. Moving forward, all civil courts should apply this principle consistently to avoid further confusion and to maintain coherence within Malaysian civil jurisprudence.
Reference(S):
1[2008] UKHL 35 (SC).
2 Tang Yoke Kheng v Lek Benedict [2005] 3 SLR (R) 26 (CA).
3 A.I.R. 1941 P.C. 93 (PC).
4[1981] 1 MLJ 121 (PC).
5[1957] 1 QB 247 (CA).
6[2018] 1 LNS 857(HC); [2020] 10 MLJ 42(HC); [2022] MLJU 3020(HC).
7[2014] 7 CLJ 1034(CA); [1996] AC 563(HoL)
