Misled Into Entering A Business Agreement? What Can You Do?

You entered into a business agreement with a company.

All is well until you found out that you have been misled by the director of the company to enter into the agreement.

What can you do?

Can you sue the director personally?

Generally, no. The law usually accords the directors of the company a bubble of protection while they are managing the affairs of the company.  We call this a ‘corporate veil’ and the courts are usually very slow to lift the corporate veil.

This protection is accorded to ensure that the members of the company (especially its directors and shareholders) are able to make decisions for the company without being sued left right and center by members of the public. It also encourages the members of the company to take bold steps to advance the company for the benefit of the members of the company.

In this regard, the court noted that:

“Judges exercise caution in the knowledge that every business has some elements of risk. Where a director takes commercial or financial steps which are in essence recommended by professionals it would be going too far against that background to come to the view that he is dishonest…”

By now you will realize that this principle can be abused by members of the company. A clear example would be the question we posed above. 

If such a situation happened, the court noted that you can sue the director for fraudulent misrepresentation. 

How did the court circumvent the corporate veil?

This is what the court did (or say) to circumvent the corporate veil. In the case of Victor Cham & Anor v Loh Bee Tuan, the court noted that:

“Ordinarily an agent is subject to the control of another person, his principal. A company perforce is only able to act through its agents and servants. Consequently, while company directors are referred to as ‘agents’, the cold fact is that they control the company. As the directors pull the strings so the company must of necessity jump. Particularly is this true where, as here, the individual defendants were in ‘complete control of the company. This court in the exercise of its common-law jurisdiction in the field of tort considers the realities of the situations which come before it for decision, and the court is not restricted in so doing because individual carries out intentional tortuous acts through the medium of a puppet corporation whose every action they control. Individuals guilty of intentional tortuous acts do not escape personal liability by this device of clothing themselves in a corporate veil of their own spinning...So a director is not to be held liable merely because he is a director but may be liable when he participates in or orders a tortuous act and cannot escape personal liability by asserting that his act was merely the act of the corporation. In other words, the ‘corporate veil’ is not to be used as a shield to protect shareholders and directors when they have been guilty of wrongdoing…”

Simply put, a person is not strictly made liable because he is a director of a company. He is made liable because he, in his personal capacity, and not that of a director of a company, has made a fraudulent misrepresentation against you. 

Fraudulent misrepresentation 101

A fraudulent misrepresentation is an act that occurs when a person intentionally makes a false statement to deceive you. As a result of such deception, you suffered losses because (in this case) you relied upon the false statement whilst entering into the agreement with the company.

What do you need to prove?

You will need to prove all the elements below:

1. A representation (a false one) was made to you either by words/conduct;
2. The person making it must know that the representation is false/ does not believe that it is true;
3. The person making it knows that you will rely upon the representation;
4. They acted upon the representation; and
5. You suffered losses.

What is the end result? 

You can ask for the contract to be rescinded. If you do:

1. Both parties are relieved of their obligations under the contract and each party can recover any benefit that the party may have conferred upon either party;
2. You can also claim compensation/ damages for the losses you suffered as a result of the fraudulent misrepresentation.

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