LIABILITY FOR FRAUDULENT

Liability For Fraudulent



Liability For Fraudulent

Introduction

From an economic perspective, a contract is viewed as a device for resource allocation. Compared to some collective ways of allocating resources, such as government action or taxation, contracts have their own merits. At least in theory, contracts can achieve allocative efficiency to move the goods to their highest value user, as well as ensuring that each step in the allocation process is a Pareto improvement, so that nobody is being made worse off by contracting. However, the success in achieving allocative efficiency by contracting depends on the prerequisite that each contracting party should always behave rationally. Based upon this assumption it is reasonable to believe that a rational contractor has a strong incentive to behave opportunistically by pursuing a large share of the gain derived from the contract. One of these opportunistic behaviours in a pre-contractual context is fraudulent misrepresentation. For instance, the seller intentionally exaggerates the quality or the functional features of the goods in order to charge the buyer a higher contract price. Fraudulent misrepresentation is socially undesirable because it causes the misallocation of resources and thus generates social welfare loss.

English Law and New York Law: Comparison

Under New York conflict of laws rules, the parties' choice of law will be given effect to generally, subject to the fundamental public policies of the forum. There are a number of important qualifications to this principle under New York law. The courts apply the Restatement (Second) of Conflict of Laws, under which the law chosen will not be given effect if the state which law has been chosen has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice.10 Thus, there is a specific requirement of connection between the parties or their transaction and the chosen law; otherwise, the choice may fail.11

Specific New York legislation addresses the situation before a New York court where contracting parties have chosen New York as the exclusive forum for litigation and New York law to govern their transaction, and the value of the transaction is at least US$250,000.12 Major commercial transactions would thus be covered by this legislation. In such a case, it is provided that contracting parties may choose New York law whether or not their contract bears any reasonable relationship with the state of New York. However, it would appear that, in spite of the statute law of New York, the court will still consider whether the transaction bears a reasonable relationship to the State of New York before upholding the parties' choice of New York law, because the requirement of a connection with New York state is dictated by the Constitution.13

The Singapore court will apply the common law. Under the common law, the choice of the parties will be given effect to, unless the choice is not bona fide or legal or if the choice is against public policy.14 The application of the chosen law is, consistent with prevalent principles of conflict of ...