Appeals No. 2 and No. 3 in AmGeneral Insurance Bhd v Sa’Amran a/l Atan & Ors

There is a move in motor-insurance litigation that succeeds only if the injured stranger never finds out. The insurer slips into the High Court, obtains a declaration that its policy is void, and breathes not a word to the victim. By the time he discovers it, the cover has quietly evaporated and his judgment is worth no more than the paper it is printed on.

Two insurers tried that move in Sa’Amran.¹AmGeneral Insurance Bhd v Sa’Amran a/l Atan & Ors and other appeals [2022] 5 MLJ 825; [2022] 8 CLJ 175 (FC), per Abdul Rahman Sebli FCJ (with Hasnah Hashim and Rhodzariah Bujang FCJJ), 5 August 2022. Both lost, and for the same unglamorous reason. Each had skipped a small notice the statute does not permit them to skip.

I.  THE PROVISO, AND WHAT IT ASKS

A.  An Escape Hatch, but a Conditional One

Section 96(3) of the Road Transport Act 1987 is the insurer’s escape hatch. It allows an insurer to avoid a third party’s judgment by obtaining a declaration that the policy is void or unenforceable. But the hatch comes with a catch — a proviso — and the catch is notice.

The Federal Court explained the point through the old learning on the English equivalent. Lord Greene MR had said that an insurer is confined, as against the third party, to the particulars set out in its notice; were it otherwise — were the insurer free to spring fresh grounds later — the protection the proviso gives “could be rendered completely abortive”.²Lord Greene MR in Zurich General Accident & Liability Insurance Co Ltd v Morrison [1942] 2 KB 53, cited in Sa’Amran at [104].

B.  “The Protection Afforded Is Little Enough”

Goddard LJ, in the same case, fixed on timing. The purpose of the notice, he said, was that an injured party should learn the grounds of repudiation before he went to the expense of pursuing his claim — to spare him useless cost. And then the line that does the work of the whole appeal: “the protection afforded is little enough”.³Goddard LJ in Zurich v Morrison [1942] 2 KB 53, cited in Sa’Amran at [105].

That is the hinge. The protection is modest — a notice, served in time. An insurer that cannot be troubled to give even so slight a thing can hardly complain when the law gives it nothing in return.

II.  RAFIQ: THE RULE STATED

A.  A Policy Plainly in Force

Mohamad Rafiq Muiz was injured in a road accident in January 2014. The motorcycle that struck him was insured by Pacific & Orient under a policy that ran comfortably across the date of the crash.⁴Sa’Amran at [71]. He did the ordinary thing and sued the rider and the registered owner.⁵Sa’Amran at [72].

The insurer did something else. Its adjusters had found that the registered owner sold the motorcycle in 2011 — without ever registering the transfer — and knew nothing of the accident.⁶Sa’Amran at [73]. On that footing the insurer obtained a section 96(3) declaration voiding the policy.⁷Sa’Amran at [74]–[75].

B.  The Name That Was Missing

One name was absent from the application: Rafiq’s. The victim was neither made a party nor served with the papers.⁸Sa’Amran at [74]. The declaration was obtained over his head.

The Federal Court held the obvious. Neither the notice nor the cause papers having been served on him, the proviso was breached, and the repudiation built on the declaration was unsustainable.⁹Sa’Amran at [106]. Hence the rule that gives this essay its subject: an insurer is bound to serve the section 96(3) cause papers on the third-party claimant before that claimant obtains judgment against the insured.¹⁰Sa’Amran at [107]. His interest crystallises with judgment; he must be told in time to defend it.

C.  The Other Three Questions, in Their Place

Appeal No. 2 raised three further questions, and it would be tedious — and duplicative — to re-argue them here, for each belongs to ground the series has already worked.

The recovery-action point — that a victim need not sue twice, because “the judgment debt of the insured becomes the judgment debt of the insurer” — is the holding of Appeal No. 6 (Yeap Tick In), examined elsewhere in this series; the Court simply restated it.¹¹Sa’Amran at [102]–[103], citing Pacific & Orient Insurance Co Bhd v Kamacheh a/p Karuppen [2015] 4 CLJ 54 and Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [2011] 1 CLJ 947. Letchumanan a/l Gopal v Pacific Orient & Co Sdn Bhd [2011] 6 MLJ 788 was held “of no assistance” — not overruled — at [89]–[90]. Whether section 109’s deeming reaches civil claims at all — the “proceedings, not prosecution” question — is taken up separately, the Court holding the section to apply “to civil and criminal proceedings alike”.¹²Sa’Amran at [38], [40]–[41].

That leaves registration. Because the point recurs below, a word of bridge is owed, though its full treatment belongs to Appeal No. 1. The Court held that “transfer of interest is not transfer of ownership”: a vehicle changes hands at law only by strict compliance with the registration procedure, not by a private sale, so a policy valid at the date of the accident does not lapse merely because the insured had sold the machine.¹³Sa’Amran at [25] and [49]; the leave question was answered affirmatively at [69]. The registration limb is treated fully in the Appeal No. 1 essay. Registration, in short, fixes liability — and the insurer’s silence could not undo it.

III.  JESUDAS: THE RULE ENFORCED

A.  A Declaration, and an Abandonment

If Rafiq supplies the rule, Jesudas supplies the cautionary tale. The insurer there obtained, by originating summons, a declaration that its policy was null and void and that it owed no coverage for the accident.¹⁴Sa’Amran at [110].

Then came the unedifying part. The solicitors the insurer had appointed to defend the owner and rider in the tort action obtained leave to withdraw — leaving the insured pair, in the Court’s phrase, “in the lurch so to speak and told to fend for themselves”, and this despite a policy valid on its face.¹⁵Sa’Amran at [111]. The tort action ground on without them; liability was fixed at 100 per cent and damages of some RM75,000 awarded.¹⁶Sa’Amran at [112].

B.  The Runaround, Refused

The victim’s judgment could not be enforced against the insurer, so he sought relief in the High Court — which told him to go away and file recovery proceedings, so that the insurer might re-ventilate its allegation of fraud.¹⁷Sa’Amran at [113]. It was the very detour the Court would dismantle. The Court of Appeal dismissed his appeal without reasons.¹⁸Sa’Amran at [114]–[115].

The Federal Court allowed but a single question, and answered it in a breath. The answer was obvious from Rafiq: an insurer that fails to comply with the proviso cannot derive the benefit of its declaration as against the third party.¹⁹Sa’Amran at [108]–[109]. The breach was, the Court said, fatal — so fatal that it declined even to examine the insurer’s pleas of fraud and want of good faith, which in any event fell outside the leave question.²⁰Sa’Amran at [116]–[117]; the discretion to permit argument beyond a leave question is to be used sparingly: Melawangi Sdn Bhd v Tiow Weng Theong [2020] 4 CLJ 1 (FC).

A point of precision, since loose language tends to creep in here. The Court did not pronounce the declaration “void” at large. The order might still bind the insured. What it could not do was bind the stranger who was never served — and so the benefit the insurer sought from it, as against the victim, was forfeit.

IV.  THE MEASURE OF THE RULE

Set the failing against the consequence, and the proportion is striking. In each appeal the insurer lost not because its underlying case was hopeless, but because it omitted a step Goddard LJ had called slight. The protection is “little enough”; an insurer that withholds even that little forfeits everything that might have flowed from it.

The deeper sense of the proviso is plainer still. Its function is to keep the protected person in the room. Both strategies in these appeals depended on his absence — on a declaration obtained while he was elsewhere, uninformed, and then presented to him as a fait accompli. The notice rule simply insists that he be there, in time, to be heard. It is a small courtesy. The Federal Court treated it as a condition of the whole bargain.

∞§∞

This article is written for a general readership and does not constitute technical or legal advice. Readers with legal questions are encouraged to seek independent legal advice.

The author thanks KN Geetha, TP Vaani, JN Lheela, and Lydia Jaynthi at GK Legal. Our gratitude to Vlad Deep of Unsplash for the image.

Claude, Anthropic’s AI, smoothed the drafting; Perplexity Pro checked the facts. The argument, the views, and the errors remain the author’s.

@Copyright reserved.

All content on this site, including but not limited to text, compilation, graphics, documents, and layouts, is the intellectual property of GK Ganesan Kasinathan and is protected by local and international copyright laws. Any use shall be invalid unless written permission is obtained by writing to gk@gkganesan.com.