[This article was written to be published in a legal journal]

[I].  INTRODUCTION AND SUMMARY

[A].  The case
The Court of Appeal’s decision in AmGeneral Insurance Bhd v Iskandar bin Mohd Nuli [2016] 1 MLJ 818 (‘Iskandar Nuli’) represents a profound departure from established principles of insurance law, statutory interpretation, and equitable doctrine. There, the court examined the relationship between insurers and insureds when defending third-party claims.

[B]. History of litigation

Shahrul lent his Malaysian-insured car to his friend Iskandar Nuli, who drove to Singapore with his wife Zuraini as passenger.

When an accident injured Zuraini, she successfully sued both her husband and a Singaporean crane driver.

The central drama emerged when Zuraini sought compensation from Shahrul’s Malaysian insurer—a claim that exposed fundamental differences between Malaysian and Singaporean insurance law.

Malaysian law exempts insurers from passenger liability unless expressly agreed, whilst Singapore mandates such coverage. The Malaysian insurer initially defended the claim but later sought a declaration of non-liability.

Though the High Court refused this declaration, the Court of Appeal reversed, introducing the controversial ‘commonality principle’—reasoning that insurers and insureds share common interests when defending claims, preventing estoppel from arising.

The Federal Court affirmed the insurer’s victory, but note this: it pointedly ignored the Court of Appeal’s ‘commonality doctrine’. It based its decision solely because there was an exclusion clause in the insurance policy that allowed the insurer to repudiate liability.¹[2017] MLJU 1015

This left the Court of Appeal’s flawed principle of ‘Commonality’ to haunt future jurisprudence.  This article is only concerned with the Court of Appeal’s reasoning on the ‘commonality principle’ and estoppel.

[C].  The so-called ‘Commonality’ principle

The Court of Appeal ruled that, “[The] assumption of proceedings by the insurers did not necessarily debar them from subsequently denying liability”.²At page 832, paragraph [42]

This dicta seems to accept that both insurer and insured share ‘identical objectives’ in litigation defence, thereby eliminating any potential conflicts of interest.

What all this meant, in real terms, was this. The principle operates on the premise that where insurers and insureds pursue ‘common interests’, no inherent conflict exists in joint representation.

In this case, both AmGeneral and Iskandar Nuli – the Court of Appeal seemed to assume – shared the objective of avoiding default judgment; and establishing that the crane truck driver bore primary liability for the Singapore accident. This ‘alignment of interests’, it was contended, ‘justified the insurer’s provision of an initial defence’ whilst ‘reserving rights to subsequently deny policy coverage.’

[D].  In summary: doctrinal and practical problems, against this principle

This enunciation of what has come to be called the “commonality principle”—requiring ‘factual commonality’ between original actions and subsequent proceedings under section 96(3) of the Road Transport Act 1987 (‘RTA’)—constitutes judicial legislation without statutory foundation.

The principle contradicts legislative intent, undermines protective frameworks for motor accident victims, and creates artificial barriers that favour insurers over claimants through a fundamental misunderstanding of estoppel doctrine.

Second, the commonality principle erroneously assumes insurers and insureds share identical interests when defending third-party claims. This ignores fundamental conflicts: insurers seek to minimise liability exposure whilst insureds require robust defence. The principle permits insurers to control litigation strategy whilst preserving rights to deny coverage, creating inherent conflicts of interest.

Third, there are fundamental conceptual flaws in this concept: It represents defective legal reasoning that fails to recognise the inherent tension between insurers’ commercial interests and insureds’ protection needs. The principle’s core assumption—that both parties share common objectives—is demonstrably false when examined through the lens of conflicting incentives –let alone the protective net cast over the Third Party by the provisions of the Road Transport Act 1987.

Fourth, there are ‘structural conflicts of interest: insurers possess dual motivations: defending claims to avoid adverse precedents whilst simultaneously seeking grounds to deny coverage. This creates an irreconcilable conflict where insurers may conduct inadequate defences to establish coverage exclusions. The principle ignores that insurers’ primary allegiance lies with shareholders, not policyholders, fundamentally undermining the supposed commonality of interests.

Fifth, there is the issue of procedural unfairness: the principle permits insurers to control litigation strategy whilst reserving rights to subsequently abandon insureds. This arrangement violates natural justice principles. It allows insurers to benefit from defensive outcomes whilst escaping coverage obligations. Such arrangements create asymmetric power dynamics, where insureds bear litigation risks without corresponding protection guarantees.

The final point concerns economic inefficiency. The commonality principle generates a moral hazard by reducing insurers’ incentives to provide vigorous defences. When insurers can escape coverage obligations regardless of defence quality, they lack economic motivation to invest adequately in litigation. This undermines the fundamental risk transfer function of insurance contracts and defeats legitimate policyholder expectations.

[II].  SUBSTANTIVE ISSUES

[A].  The Flawed Genesis and Application of the Commonality Principle

The commonality principle emerged from the Court of Appeal’s misinterpretation that section 96(3) declarations required factual circumstances to be ‘common’ between original actions and insurers’ applications. Vernon Ong JCA’s formulation that estoppel could not apply due to ‘commonality of interest’ between insured and insurer fundamentally misconstrues both the statutory scheme and underlying policy objectives of motor vehicle insurance legislation.

Section 96(3) of the RTA provides that where judgment has been obtained against any person in respect of liability covered by a policy of insurance, the insurer may apply to court for a declaration that it is not liable to indemnify such person. The provision contains no requirement for factual commonality between proceedings. The Court of Appeal’s interpolation of such a requirement represents judicial legislation of the most problematic kind—creating conditions Parliament never intended whilst ignoring the clear statutory language.

The court’s reasoning that defending an action merely prevents default judgment and therefore creates no estoppel fundamentally misunderstands the nature of estoppel by conduct. This approach allows insurers to compartmentalise their conduct across different proceedings, defeating the very purpose of estoppel doctrine whilst undermining the RTA’s protective framework.

[B].  Contradiction with Established Estoppel Principles

The commonality principle creates artificial barriers that contradict well-established principles of estoppel by conduct. The Federal Court in Boustead Trading established that estoppel is “a flexible principle by which justice is done according to the circumstances” and “a doctrine of wide utility” that has been “resorted to in varying fact patterns to achieve justice”.³ Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331

Gopal Sri Ram JCA’s judgment in Boustead emphasised that all a litigant invoking estoppel must show is that “he was so influenced by the encouragement or representation that it would be unconscionable for the representor to enforce his strict legal rights”.

In Boustead, the detriment element does not form part of the doctrine of estoppel—all that need be shown is that it would be unjust to permit the representor to insist upon strict legal rights.

However, while Boustead downplayed the need for strict detriment, in a comparative context, some Commonwealth jurisdictions may still consider detriment a relevant factor, albeit interpreted broadly. In those circumstances, there is nothing stopping the third party to contend that on fact as well as principle, the claimant’s reliance on the insurer’s conduct (e.g., not pursuing other avenues, incurring legal costs or ‘taking steps’) constitutes sufficient detriment.

The commonality principle’s rigid requirement for factual similarity between proceedings fundamentally contradicts this flexibility. The principle established in Boustead requires no factual commonality between different proceedings. The focus must remain on the representor’s conduct and the representee’s reliance, not on artificial similarities between legal proceedings.

[C].  Misapplication of Hong Kong Authorities

The Court of Appeal’s reliance on the Hong Kong decisions in Chan Lam Chun v National Insurance Co Ltd [1977] ⁴ [1977] HKLR 417 and Oriental Fire & General Insurance Co Ltd v Cheuk Ma Yee [1980]⁵ [1980] HKC 32 demonstrates a fundamental misunderstanding of the respective ratio decidendi in those cases. The two Hong Kong cases actually support the proposition that insurers can be estopped from repudiating liability through their conduct in litigation.

In Chan Lam Chun, the insurer, on behalf of its insured defendant, filed an appearance and defence but later sought to withdraw from proceedings. The Hong Kong Court of Appeal held that by filing an appearance, the insurer had represented that it would defend and not repudiate liability, and was therefore estopped from doing so. The range of culpable behaviour, as a threshold, was established as the mere entrance of an appearance—not the extensive litigation conduct present in Iskandar Nuli .

Similarly, in Cheuk Ma Yee, despite the insured’s non-cooperation and disappearance, the court found that the insurer’s conduct in defending the action created an estoppel. The Hong Kong Court of Appeal recognised that once an insurer takes steps to defend proceedings, there comes ‘a point of no return’, where repudiation becomes unconscionable.

The Iskandar Nuli court’s interpretation that these cases ‘support a commonality requirement’ directly contradicts their actual holdings.

Both Hong Kong decisions establish that an insurers’ conduct at or during litigation (‘litigation conduct’) is sufficient to create an estoppel, regardless of the insured’s cooperation or the factual matrix of subsequent proceedings.

Such ‘litigation conduct’ can be inferred from the insurer ‘positive conduct’, such as entering an appearance, filing a defence, taking control of the defence (appointing lawyers, instructing experts, negotiating settlement) or indeed, in participating in discovery or other pre-trial procedures. The insurer’s ‘negative conduct’ meaning, omissions should also give rise to an estoppel: such as failing to reserve rights in a timely and clear manner.

[D].  Misapprehension of Legislative Intent and Third Party Protection

Parliament’s intention in enacting the RTA was unequivocally to protect third party victims of motor accidents. The Federal Court in AmGeneral Insurance Bhd v Sa’Amran a/l Atan & Ors [2022]⁶ [2022]  5 MLJ 809 recognised this protective purpose, noting that the RTA’s object is “to protect third parties against risks arising out of the use of motor vehicles”.

The commonality principle subverts this legislative intent by creating procedural obstacles that favour insurers over victims. By requiring ‘factual commonality’, the principle enables insurers to escape liability through technical distinctions between proceedings, even where their conduct has induced reliance and created legitimate expectations of coverage.

Section 96(3) must be read within the broader context of the RTA’s protective scheme. The provision operates alongside section 96(1), which creates direct rights for third parties against insurers, and section 96(2), which prevents insurers from avoiding liability based on policy breaches. This comprehensive framework demonstrates Parliament’s intention to limit insurers’ ability to escape liability through technical defences.

Compelling public policy imperatives demand that insurers cannot simultaneously reap the benefits of their defensive conduct whilst escaping liability obligations. This principle assumes particular gravity within compulsory motor insurance regimes, where the legislative purpose centres upon safeguarding innocent third parties from the vagaries of uncompensated loss. Justice requires that those who accept premiums and control litigation cannot thereafter abandon their protective duties when commercial convenience beckons.

[E].  The Motor Insurers’ Bureau Framework and Statutory Obligations

The Iskandar Nuli  decision failed to consider the Motor Insurers’ Bureau (‘MIB’) framework and its implications for insurer liability. Under the MIB agreement, authorised insurers expressly agree to be bound to pay liabilities even in extenuating circumstances that would otherwise entitle them to disclaim liability. This includes situations where cover is purchased for accidents that occurred before coverage was obtained, or where there has been non-disclosure.

The court’s failure to consider the MIB framework renders the decision per incuriam. The RTA’s construction must proceed hand-in-hand with MIB clauses, as both form part of the comprehensive statutory scheme designed to protect third party users. Any decision on insurer liability that ignores this framework is fundamentally defective.

Inconsistency with Statutory Construction Principles

The Court of Appeal’s approach in Iskandar Nuli  violates fundamental principles of statutory construction established in Pepper v Hart [1993] AC 593. Courts must give effect to Parliament’s clear intention as expressed in statutory language. Where Parliament has provided a comprehensive scheme—as in the RTA—courts should not add requirements that Parliament chose not to include.

The statutory language of section 96(3) is clear and unambiguous. Where Parliament intended to impose conditions upon the exercise of statutory rights, it did so expressly—as evidenced by the proviso requiring notice to the judgment creditor. The commonality principle represents, “a naked usurpation of the legislative function under the thin disguise of interpretation”, to adopt Viscount Simonds’ memorable phrase from Magor and St Mellons RDC.⁷ Magor and St Mellons RDC v Newport Corporation [1952] AC 189

[F].  Practical Injustice and Procedural Unfairness

The commonality principle creates practical injustices that defeat the RTA’s protective purpose. Insurers can now escape liability by arguing that factual differences between proceedings preclude estoppel, even where their conduct has created legitimate expectations of coverage. This approach rewards insurers for inconsistent conduct and penalises victims who rely on apparent insurance coverage.

The principle also creates procedural unfairness by requiring victims to prove ‘factual commonality’—a burden that Parliament never intended to impose. This additional requirement complicates litigation, increases costs, and creates uncertainty for accident victims seeking compensation. The Federal Court’s recognition in Sa’Amran that, “fairness to the third-party victim demanded that the evidence relied on by the first respondent in the s 96(3) application be tested in the pending trial,” demonstrates the problematic nature of the commonality principle’s rigid approach.

[G].  Comparative Jurisprudential Analysis

The commonality principle finds no support in comparative jurisprudence. English courts have consistently rejected attempts to limit estoppel through artificial requirements for factual similarity between proceedings. In Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd [1982],⁸ [1982] 1 QB 84 the Court of Appeal emphasised that estoppel operates based on conduct and reliance, not on similarities between different legal proceedings.

Australian courts have similarly rejected rigid approaches to estoppel. In Waltons Stores (Interstate) Ltd v Maher (1988),⁹ (1988) 164 CLR 387 the High Court of Australia recognised that estoppel principles must be applied flexibly to achieve justice, without artificial constraints that defeat the doctrine’s essential purpose.

The Malaysian courts’ departure from this established jurisprudential consensus through the commonality principle represents an unfortunate regression that undermines legal certainty and international harmonisation of commercial law principles.

[H].  The Doctrinal Foundations of Estoppel and Insurance Law

The Boustead decision established that estoppel may assist a plaintiff in enforcing a cause of action by preventing a defendant from denying the existence of some fact that would destroy the cause of action. The maxim ‘estoppel may be used as a shield but not a sword’ does not limit the doctrine of estoppel to defendants alone—plaintiffs too may have recourse to it.

The commonality principle’s rigid requirements contradict these established doctrinal foundations. The principle creates artificial barriers that prevent the flexible application of estoppel doctrine necessary to achieve justice. This is particularly problematic in insurance law, where the doctrine serves to prevent insurers from benefiting from their own representations whilst avoiding contractual obligations.

The principle in Soole v Royal Insurance Co [1971]¹⁰ [1971] 2 Lloyd’s Rep 332 establishes that where an insurer ‘takes steps’, e.g., to defend proceedings, there comes a point of no return where repudiation becomes unconscionable. The Iskandar Nuli  court’s attempt to distinguish this principle through the commonality requirement fundamentally misunderstands the nature of estoppel by conduct.

[III].  THE PATH FORWARD: JETTISONING THE COMMONALITY PRINCIPLE

The commonality principle must be jettisoned for several compelling reasons.

First, it lacks statutory foundation and represents impermissible judicial legislation. Second, it contradicts established estoppel principles and undermines the doctrine’s essential flexibility. Third, it subverts Parliament’s clear intention to protect motor accident victims. Fourth, it creates practical injustices and procedural unfairness that favour insurers over victims.

The Federal Court’s approach in Sa’Amran provides a blueprint for reform. By emphasising fairness to third party victims and recognising the RTA’s protective purpose, the Federal Court has demonstrated the path toward principled jurisprudence that respects both statutory language and legislative intent.

Future courts should reject the commonality principle and return to established estoppel principles that focus on conduct, reliance, and unconscionability. The test should remain whether an insurer’s conduct has induced reliance that makes it unconscionable to deny liability, regardless of factual differences between proceedings. This approach would restore coherence to motor insurance law whilst ensuring that the RTA’s protective purpose is fulfilled.

[IV].  CONCLUSION

The commonality principle represents a jurisprudential aberration that contradicts statutory language, legislative intent, and established legal principles. Its continued application undermines the RTA’s protective framework and creates injustices that Parliament never intended. The principle’s artificial requirement for factual commonality between proceedings defeats the essential purpose of estoppel doctrine whilst favouring insurers over accident victims.

The principle awaits its twilight. As Tennyson wrote, “the old order changeth, yielding place to new”.[‘The Passing of Arthur’: in this opening stanza the king Arthur speaks to Bedivere in a low voice, that, “Change is the law of nature. One thing does not remain the same at all times. The old systems change and new systems take their place. One good system if it continues for a long time may spoil the whole world.”¹¹ https://www.doubtnut.com/pcmb-questions/196382

This doctrine, born of noble intent yet flawed in execution, deserves respectful retirement to jurisprudence’s quieter chambers. Legal evolution demands that well-meaning but misguided precedents gracefully surrender their place, permitting clearer, more coherent principles to illuminate the path forward.

Only through principled application of established estoppel doctrine—focused on conduct, reliance, and unconscionability rather than artificial requirements for ‘factual commonality’—can Malaysian courts ensure that justice is done according to law rather than judicial innovation.

The Iskandar Nuli  decision represents everything that is wrong with modern judicial reasoning: the creation of artificial barriers that defeat legislative purpose, the misapplication of comparative authorities, and the elevation of technical distinctions over substantive justice.

Its immediate abrogation is essential for the restoration of coherence in the law of motor insurance, and the protection of third party victims –which Parliament had intended all along.

∞§∞

 

The author thanks G. Naidu, UK Menon, KN Geetha, TP Vaani, JN Lheela and Lydia Jaynthi.

 Acknowledgements: the image is from Pierre Astier, Unsplash

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