A study of Appeal No. 7 in AmGeneral Insurance Bhd v Sa’Amran Atan & Ors [2022] 8 CLJ 175 — Pacific & Orient Insurance Co Bhd v Arnandan a/l Soria Demadu

There is a species of court order that insurers prize above most others: the declaration, under section 96(3) of the Road Transport Act 1987, that a policy is void and unenforceable. Obtained early enough, and served properly, it is a lawful escape from a victim’s judgment. The temptation, naturally, is to treat it as something grander — a writ against the world, good against anyone who might one day ask the insurer to pay. Appeal No. 7 of Sa’Amran is about an insurer that yielded to the temptation, and about the Federal Court’s reminder of a proposition so elementary it is easily forgotten: a declaration obtained against the insured binds the insured. The victim is another matter entirely.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; Appeal No. 7 is treated at [219]–[234].

I.  A FAMILY AFFAIR, AND AN ACCUSATION OF FRAUD

A.  The Suit in Kulim

The respondent, Arnandan a/l Soria Demadu, sued in the Sessions Court at Kulim over a motorcycle accident said to have occurred on 21 March 2014. The defendants were Kevin Raj a/l Neelakandan, the rider of the insured motorcycle, and the machine’s registered owner — who happened to be Arnandan’s own sister, Sandhi a/p Soria Demadu. Pacific & Orient was the insurer.²Sa’Amran [2022] 8 CLJ 175 at [220]. On notice of the proceedings, the insurer retained adjusters to find out what had happened.³Sa’Amran [2022] 8 CLJ 175 at [221].

B.  The Rider’s Remarkable Story

What the adjusters brought back was a tale to make any underwriter sit upright. Kevin Raj told them he had not been involved in any accident with the respondent at all, and on 15 October 2015 he swore a statutory declaration setting out an alleged fraud.⁴Sa’Amran [2022] 8 CLJ 175 at [222]. His account, later repeated on affidavit, was lurid: on the night in question he had been approached by a lawyer’s tout and asked to lodge a false police report; the respondent, he said, had in truth fallen off his own motorcycle — terbabas sendiri — and wished to dress the mishap up as a collision; and Kevin Raj, initially reluctant but worn down by persuasion and a degree of sympathy for the injured man, lodged the false report the next day, for which he now apologised to the insurer.⁵Sa’Amran [2022] 8 CLJ 175 at [228].

If the story was true, the claim was false from its first word.⁶Sa’Amran [2022] 8 CLJ 175 at [229]. The insurer added a second string: the insured herself, by failing to deny her motorcycle’s involvement, to disown her brother’s report, or to alert her insurer, had — it was said — breached the duty of utmost good faith and was to be deemed a conspirator in the fraud.⁷Sa’Amran [2022] 8 CLJ 175 at [230]–[231], the appellant relying on Hameed Jagubar bin Syed Ahmad.

II.  THE INSURER’S TIMETABLE

A.  A Declaration, a Withdrawal, and a Change of Heart

Armed with the rider’s declaration, the insurer applied by originating summons under section 96(3) to have the policy declared void and unenforceable for fraud. The High Court obliged on 28 April 2016.⁸Sa’Amran [2022] 8 CLJ 175 at [223]. The insurer then instructed its solicitors to withdraw from defending the rider and the insured in Kulim, reasoning that to fight on would be taken as a waiver of the declaration it had just won.⁹Sa’Amran [2022] 8 CLJ 175 at [224]. Only after the Court of Appeal’s decision in Iskandar bin Mohd Nuli — whose curious doctrine of “commonality” is examined elsewhere in this series — did the insurer think better of it and resume the defence.¹⁰Sa’Amran [2022] 8 CLJ 175 at [225].

The resumed defence did not prosper. On 29 November 2016 — seven months to the day after the declaratory order — the Kulim Sessions Court entered judgment for the respondent, establishing liability against both the rider and the insured owner.¹¹Sa’Amran [2022] 8 CLJ 175 at [226].

B.  The Order Brandished at the Victim

The insurer refused to pay, brandishing its declaration of April 2016.¹²Sa’Amran [2022] 8 CLJ 175 at [227]. The victim’s reply was to go to the Alor Setar High Court by originating summons for two orders: that the insurer could derive no benefit from the declaration as against him, it being not binding on a third party; and that under section 96(1) the insurer must pay the Kulim judgment sum.¹³Sa’Amran [2022] 8 CLJ 175 at [227]. The contest made its way to the Federal Court on six leave questions which, the Court observed, were in substance the very questions raised in Appeal No. 2 — by the same insurer.¹⁴Sa’Amran [2022] 8 CLJ 175 at [219]–[220].

III.  THE FRAUD THAT THE VERDICT BURIED

Here is the part of the judgment that gives Appeal No. 7 its lasting use. The insurer’s whole position rested on fraud — Kevin Raj’s tout, the false report, the staged collision. But the question of whether Kevin Raj and his motorcycle were in the accident had already been tried, in the one court charged with trying it. The Kulim Sessions Court heard the case and found liability established against him. The allegation of fraud, the Federal Court held, had to be measured against that finding.¹⁵Sa’Amran [2022] 8 CLJ 175 at [232].

And against that finding it could not survive. “It is inconceivable,” said the Court, “that the Kulim Sessions Court would have decided in favour of the respondent on the issue of liability if the learned judge had found the respondent to be lying on the involvement of Kevin Raj and the motorcycle in the accident. This finding of fact must be accepted as the truth as it was not appealed against.”¹⁶Sa’Amran [2022] 8 CLJ 175 at [233].

The reasoning rewards a moment’s pause. The insurer had its chance to prove the tout, the false report, the terbabas sendiri — at the trial, through the very solicitors it had appointed to defend the action. The trial court, having heard the case, found for the victim, and nobody appealed. An unappealed finding of fact is not a provisional opinion awaiting the insurer’s convenience; it is the truth, so far as the law is concerned. A fraud allegation that loses at trial does not get a second life merely because it is re-sworn in a different courtroom. The Court had said as much in Appeal No. 4, and applied that reasoning here without alteration¹⁷Sa’Amran [2022] 8 CLJ 175 at [234]: “We have dealt with a similar situation when dealing with Appeal No 4. What we said there applies mutatis mutandis to the facts of the present case.” Appeal No. 4, and the discipline it imposes on s.96(3), is the subject of its own essay in this series; so is the timing lesson of Appeal No. 8. — a quiet confirmation that the eight appeals, for all their varied facts, were policing a single boundary.

IV.  WHOM THE DECLARATION BINDS

A.  The Concession Hiding in the Questions

The most elegant stroke in the judgment is the Court’s observation about the insurer’s own leave questions. Two of them — the third and the fifth — were drafted on the footing that a section 96(3) declaration “is only binding between the insurer and the insured” and not on the third-party claimant. The insurer, in other words, had written the fatal proposition into its own questions. The Court’s response was brief and total: “We accept that as a correct proposition of law.”¹⁸Sa’Amran [2022] 8 CLJ 175 at [234].

That sentence is the answer to the question in this essay’s title. The declaration is an instrument between the contracting parties. It settles, as between insurer and insured, that the policy is void or unenforceable. It does not, of its own force, reach the stranger on the road — whose rights arise from the statute, not the contract, and who can be bound only if the statute’s own machinery for binding him is honoured. That machinery is the proviso to section 96(3): notice to the third party, and service of the cause papers, in time for him to be heard. The rule, and the wreckage of two insurers who ignored it, are the subject of the companion essay on the notice rule; the six questions here were answered in the same terms as their twins in Appeal No. 2.¹⁹Sa’Amran [2022] 8 CLJ 175 at [234]; the answers correspond to those in Appeals No. 2 and No. 4, and the formal disposition is recorded at 262.

B.  The End of the Matter

The appeal was dismissed with costs.²⁰Sa’Amran [2022] 8 CLJ 175 at [264]. The victim kept his judgment; the insurer kept its declaration, for whatever comfort an order binding nobody but its own insured could still give.

V.  THE SHAPE OF THE RULE

Appeal No. 7 adds two planks to the structure the consolidated judgment built. The first is finality: once the trial court has found liability and no appeal is taken, the finding stands as the truth, and an insurer cannot tunnel beneath it with affidavits sworn for another forum. The second is privity of a peculiarly statutory kind: a section 96(3) declaration operates between insurer and insured, and acquires force against the victim only through the proviso’s discipline of notice and service — never by ambush.

Neither plank is generous to insurers, and neither is meant to be. An insurer that genuinely scents fraud has its remedies: prove it at the trial, where the witnesses are; or move under section 96(3) early, openly, and on notice to everyone the order is meant to touch. What it cannot do is conduct a private duel with its own insured, win, and then present the trophy to the victim as if he had been a party to the contest. He was not. The statute exists precisely so that he need not be — and so that, when the dust settles, the man knocked off his motorcycle is paid by the company that took the premium, not lectured about an order made behind his back.

∞§∞

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 Curated Lifestyle 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.

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