The familiar saying, “turning a blind eye,” takes on new significance when it comes to the legal concept of willful blindness. Contrary to the notion that ignorance is bliss, the law holds that being unaware or uninvolved is not a defence when it comes to willful blindness – a term often associated with criminal and fraud cases.
Willful blindness occurs when there is a suspicion that certain wrongful facts exist, and a conscious decision is made to avoid confirming their existence. In simpler terms, if circumstances raise suspicion, there is a duty to ask questions. Failing to do so can lead to legal consequences.
Courts have ruled that those practicing willful blindness are deemed to have knowledge of fraud, making them equally liable as co-conspirators. This is because, to be party to a fraud, one does not need to know every detail.
However, not every suspicion warrants investigation, and a failure to do so doesn’t automatically result in liability. Courts have emphasized that the suspicion must be based on known specific facts, and it is the deliberate decision to avoid confirming those facts that constitutes willful blindness.
To illustrate this legal principle, reference can be made to the recent High Court decision in Toyota Tshuho (Malaysia) Sdn Bhd v Foo Tseh Wan & Ors [2023] MLJU 289. While the full judgment involved complex facts and legal issues, our summary is limited to the relevant portions that discuss the concept of willful blindness.
Facts
- Toyota Tshuho (Malaysia) Sdn Bhd (“TT”) is an international trading house and its business involves buying and selling automotive products.
- TT sued Foo and 19 other defendants for their involvement in a fraud related to trading fake plastic products.
- The fraudulent scheme included faking documents, manipulating warehouse inventory, conspiring with suppliers, and conducting fake sales, leading to TT paying over RM179 million for non-existent products.
- The 19 defendants as Foo’s co-conspirators comprised of the conspiring suppliers and other employees of TT, including Foo’s colleagues and subordinates.
- Foo’s subordinates claimed that they were merely employees who were following instructions given to them by their superior.
- The Court rejected this defence, finding that they were aware of the fraud and had deliberately shut their eyes to the obvious. These employees were actively involved in creating fake documents, facilitating the scheme and were fully aware of the deceitful practices orchestrated by Foo.
“Together with Foo, the Employees were all involved in and created fake documents which they referred to as inter alia “fake report”, “fake invoice”, “fake PO”, “fake DO”, “buy back PO”, “dummy document’, “dummy invoice”, “trading PO” and “imitation document’. They were all involved in and carried out fraudulent acts which they referred to as inter alia “change label’, “clear stock’, “mark up” “fake sales”, “cancel invoice” and “fake mass transfer’’. They knew that they would get in “trouble when audit’ and they also made use of credit limits of customers to effect fake sales. The Employees created fake sales by issuing and cancelling invoices through TT’s system. They were all involved in discussions and the giving of instructions to the staff of the warehouse to generate fake reports, to change the label of goods, to paste and remove the labels on goods, and to effect “fake mass transfer” and requests to give the false impression that goods were being moved in and out of the warehouses. They were also aware that Foo had created fake customer stamps and fake warehouse stamps, and they used these fake stamps on fake documents and they carried out and procured the merry-go-round arrangement.”
- The Court also considered that the employees received bonus payments or benefits arranged by Foo.
Willful blindness is a legal principle that reminds us of the responsibility to question and seek the truth when circumstances hint at wrongdoing. The recent legal developments, as seen in cases like Toyota Tshuho (Malaysia) Sdn Bhd v Foo Tseh Wan & Ors above, emphasize that being willfully blind can result in legal consequences.
Employees (even those in subordinate roles) should act with diligence and integrity, and should not turn a blind eye when faced with suspicions of fraud or wrongdoing. In the eyes of the law, willful blindness is not a shield but a spotlight on accountability.
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This article was written by Yan Nie Th’ng (Partner) from Donovan & Ho’s dispute resolution practice.
Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.
