Amgeneral Insurance Berhad v Veheng Global Traders Sdn Bhd (No. B-02(NCVC)(W)-404-03/2016,)

1 CIVIL APPEAL NO: B-02(NCVC)(W)-404-03/2016

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2. …

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2. … [In the Matter of the High Court of Malaya at Shah Alam In the State of Selangor Darul Ehsan, Malaysia Between

1. Veheng Global Traders Sdn Bhd

2. RHB Islamic Bank Berhad … Plaintiffs And

1. AmGeneral Insurance Berhad

2. Sun Life Malaysia Takaful Berhad 2 (Formerly Known As CIMB Aviva Takaful Bhd)… Defendants] [Consolidated Pursuant to Order of Court dated 3.6.2016 with] CIVIL APPEAL NO: B-02(NCVC)(W)-405-03/2016

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2. …

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2. … [In the Matter of the High Court of Malaya at Shah Alam In the State of Selangor Darul Ehsan, Malaysia Between

1. Veheng Global Traders Sdn Bhd 3

2. RHB Islamic Bank Berhad … Plaintiffs And

1. AmGeneral Insurance Berhad

2. Sun Life Malaysia Takaful Berhad (Formerly Known As CIMB Aviva Takaful Bhd)… Defendants] [Consolidated Pursuant to Order of Court dated 3.6.2016 with] CIVIL APPEAL NO: B-02(NCVC)(W)-580-04/2016

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2. …

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2. … [In the Matter of the High Court of Malaya at Shah Alam 4 In the State of Selangor Darul Ehsan, Malaysia Between

1. Veheng Global Traders Sdn Bhd

2. RHB Islamic Bank Berhad … Plaintiffs And

1. AmGeneral Insurance Berhad

2. Sun Life Malaysia Takaful Berhad (Formerly Known As CIMB Aviva Takaful Bhd)… Defendants] (An appeal against the decision of YA Dato’ Mohd Sofian bin Tan Sri Abd Razak, Judge, High Court at Kuala Lumpur made on 29.1.2016 and 19.2.2016) CORAM ROHANA YUSUF, JCA IDRUS HARUN, JCA MARY LIM THIAM SUAN, JCA 5 JUDGMENT OF THE COURT Rohana Yusuf JCA: Introduction [1] The three (3) appeals before us emanate from one civil action at the High Court at Shah Alam. At the High Court, the first respondent, Veheng Global Traders Sdn Bhd and the second respondent, RHB Islamic Bank Berhad, made a claim against the appellants as insurers under four insurance policies. The insurers are the first appellant, AmGeneral Insurance Berhad and the second appellant Sun Life Malaysia Takaful Berhad as the co-insurer to one of the policies. [2] After a full trial, the learned trial judge had on 29.01.2016 found the appellants liable for the claim under two of the policies. Pursuant to that finding on liability, the learned trial judge proceeded to make his finding on quantum. On 19.2.2016 the learned judge substantially allowed the quantum prayed for together with interest and costs in favour of the respondents. 6 Brief facts [3] The first respondent was issued by Kurnia Insurance Berhad [now AmGeneral Insurance Berhad] with two (2) Fire Material Damage Policies Nos. HB-0-08-H000005 (FMD Policy 005) and HB-0-08-H000006 (FMD Policy 006) and two (2) Fire Consequential Loss Policies Nos. HB-0-08- H000189 (FCL Policy 189) and HB-0-08-H000733 (FCL Policy 733), for the period from 01.07.2008 to 30.06.2009 with the situation risk, at Lot 711A, Jalan Batu Tiga, Sungai Rasau, Section 16, 40200 Shah Alam, 40200 Selangor (the premises) subject to the terms and conditions therein contained. [4] The coverage of the 4 policies are: a. FMD Policy 005 covered on stock in trade consisting of new recondition, rebuilt, recycle and used vehicle’s spare parts, metal products and goods held by them in trust or on commission for which they are responsible for an insured sum of RM40 million; b. FMD Policy 006 covered on renovation and all type of equipment in the premises for an insured sum of RM2,180,000.00; 7 c. FCL Policy 189 covered on standing charges on 6 months rental at the rate of RM85,000.00 per month and on increase cost of working for indemnity period of 12 months with multiplier of 100.00% for an insured sum of RM500,000.00; d. FCL Policy 733 covered on gross profit of RM20 million per year which the insured are entitled to recover under the provisions of the attached specification which is declared to be incorporated of the property insured, for the sum at RM60 million for 3 years. As for the definition of ‘damage’, it shall include destruction or damage caused by the extraneous perils of the company’s FMD Policies with indemnity period of 36 months and multiplier of 80%. FCL Policy 189 and FCL Policy 733 will be referred to collectively as the “FCL Policies”. [5] Sun Life Malaysia Takaful Berhad (formerly known as CIMB AVIVA Takafu Berhad) is the co-insurer to FMD Policy 005. Under FMD Policy 005, the total insured sum is 87.5% from Kurnia and 12.5% from Sun Life from the total insured amount of RM45,000,000.00. The second respondent is a mortgagee of this policy as stated in clause 1 of that FMD Policy 005 pursuant to it being a financier to the first respondent. The second respondent was the financier to the first respondent when it granted a Murabahah revolving credit facility vide letter of offer dated 8

29.06.2006. The facilities was subsequently restructured to Commodity Murabahah Overdraft-I’ facilities totalling RM30 million on 23.06.2009. [6] Fire broke out at the first respondent’s premises on 05.01.2009 damaging its assets and properties extensively. More than four months after the fire incident, on 14.05.2009 and at the request of the first respondent, the second respondent agreed to assign the insurance proceeds under FMD Policy 005 of RM45,000,000.00 to the second respondent. The assignment formed as an additional security for the restructured ‘Commodity Murabahah Overdraft-I’ facilities. A Deed of Assignment of Insurance Proceeds dated 14.05.2009 was subsequently executed between the first respondent and the second respondent. [7] Under the Deed of Assignment, the first respondent’s rights and interest over the insurance proceeds in the FMD Policy 005 were assigned to the second respondent. [8] The first respondent initially filed a suit against the appellants at the High Court in Shah Alam vide Suit No. 24-941-2010 [‘the First Suit’]. The first appellant filed an application to strike out that First Suit on the grounds that the first respondent had no locus standi to sue because all four (4) Fire Policies had been assigned to the second respondent though in fact only one policy was assigned to the second respondent. Furthermore, it was alleged that the first respondent had breached Condition 9(d) of the Fire Policies by failing to seek the consent of the appellants for the said Deed of Assignment. The First Suit was struck out on these grounds on 10.05.2011. On appeal to this Court, the appeal was dismissed on the ground of irregularities raised by the first appellant. The merits of the 9 appeal were never heard. An application for leave to the Federal Court was dismissed by the Federal Court on 07.05.2012. [9] In view of the issue of locus standi raised in the First Suit, both respondents proceeded to file the present suit with RHB Bank added as another party. The appellants again filed an application to strike out the present suit on the grounds of res judicata and the failure to obtain consent from the first appellant in executing the Deed of Assignment of the insurance proceeds. The application for striking out was dismissed as it was found that the assignment was valid pursuant to the Civil Law Act

1956. The decision was appealed to this Court. On the hearing date, the appellants withdrew the appeal but only as against the second respondent. The appeal proceeded against the first respondent on the issue of res judicata and breach of clause 9(d). It was however dismissed by this Court. [10] The second respondent then amended its claim to insert the mortgagee clause claim. The appellants had thereafter filed a second application to strike out the Amended Statement of Claim. However on the Case Management date on 21.03.2012, the appellants withdrew the said application. [11] In its claim the first respondent alleged that a fire occurred on 05.01.2009 at the risk premises triggering all 4 policies. The first respondent sought for damages under the respective policies. The second respondent claimed for payment in favour of the first respondent under FMD Policy 005, to be made to the second respondent. There were also claims for general damages plus interest and costs. 10 [12] The appellants in defence denied liability under all the policies based inter alia on the following grounds:

(ii) Kurnia pay RM48,000,000.00 under FCL 733 with 5% p.a. interest from the date of filing of the Writ on 22.06.2011 until full payment to the first respondent;

(iii) Costs of RM1,000,000.00 to be paid to first respondent; and

(iv) Costs of RM200,000.00 to be paid to the second respondent. The claim under FMD Policy 006 and FCL 189 was dismissed. 14 [15] The appellants filed two (2) separate appeals while the first and second respondents filed the third appeal: i. Appeal No. B-02(NCVC)(W)-404-03/2016 is an appeal on the liability found against them. The respondents cross-appealed on some of the findings by the learned Judge against them. ii. Appeal No. B-02(NCVC)(W)-405-03/2016 is an appeal on the quantum ordered by the learned trial Judge against them. iii. Appeal No. B-02(NCVC)(W)-580-04/2016 is by the first respondent against the dismissal of its claim under the FMD Policy 006. All the 3 appeals were consolidated and heard together before us. [16] The appeal by the appellants was broadly premised on the grounds that the learned Judge had erred in three main areas of liability and had also erred in the award of damages: i. that the learned High Court Judge had erred in finding that there was no breach of Condition 12 and had failed to consider and apply the standard of proof as established by the Federal Court in Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd [2015] 5 MLJ 1 in relation to this issue; 15 ii. that the learned Judge had erred in his finding that there was no breach of warranties; iii. that the learned Judge had erred in allowing the claim of the second respondent under the Mortgagee clause and the Deed of Assignment of proceeds; and iv. that the learned Judge had erred in awarding the quantum of claim which was not proven and had made various errors in arriving at the quantum allowed. [17] Having heard the elaborate submissions of parties that took 5 days before us, we have proceeded to deliberate on these appeals into three broad areas. Relying on the above factual background, each one of us will deal with each of those areas separately in this judgment. We will first deal with the issues on fraudulent claim that was raised by the appellants viz; the allegation on breaches of Condition 15 of the FMD policies together with Condition 12 of the FCL policies. We will then proceed to examine the alleged breaches of various warranties under the policies, followed by the claim of the second respondent under the Mortgagee Charge clause and the Deed of Assignment of Proceeds before finally dealing with the issue of quantum. 16 Breach of conditions and standard of proof Idrus Harun JCA: [18] This part of the judgment deals with the issues of breaches of Condition 15 of the FMD Policies together with Condition 12 of the FCL Policies and the standard of proof. The background facts as earlier set out are adopted herein. [19] One thing seems to be clear, my careful perusal of the appellants’ pleadings yields the finding of their firm position that the appellants are entitled to avoid both the FMD Policy 005 and FMD Policy 006 and the FCL Policies (see paragraphs 12, 13 and 14 of the appellants’ Reamended Defence No. 2). This position brings in sharp focus the appellants’ allegations that firstly, the fire that occurred on or about 5.1.2009 was deliberately caused by, or occasioned by the wilful act of, the first respondent or with the connivance of the first respondent through one or more of their servants or agents and secondly, the claims brought by the first respondent are fraudulent or deliberately exaggerated and these acts by the first respondent in turn bring me to the argument that consequently the first respondent was in breach of Condition 15 of the FMD Policies together with Condition 12 of the FCL Policies. [20] It is urged for the appellants that all the policies are subject to the terms and conditions stipulated therein. So far as it concerns FMD Policy 17 005 and FMD Policy 006, by virtue of the proviso in the preamble thereof, it is stipulated that due observance and fulfilment of the conditions is a condition precedent to the appellants’ liability to make payment under the policy. Further, the FCL Policies on the other hand are subject to the proviso set forth in the preamble that the appellants will pay to the first respondent if at the time of the happening of the damage there shall be in force an insurance covering the interest of the first respondent in the property at the insured premises against such damage and that payment shall have been made or liability admitted therefor under such insurance. It is clear in the authorities that when a term in an insurance contract is stipulated to be a condition precedent to the liability of an insurer, the insurer is not liable under the policy unless the term has been strictly complied with by the insured-see Teck Liong (EM) Sdn Bhd v Hong Leong Assurance Sdn Bhd [2002] 1 MLJ 300. [21] I accept that due observance and fulfilment of the terms and conditions of the policies, including Condition 15 of the FMD Policies and Condition 12 of the FCL Policies, is a condition precedent to the appellants’ liability. As regards Condition 12 of the FCL Policies, it will only respond if the FMD Policies under which the premises are insured respond to the claim by virtue of the proviso to the preamble which is expressed in the following terms: “Provided that at the time of the happening of the Damage there shall be inforce an insurance covering the interest of the insured in the property at the premises against such Damage and that payment shall have been made or liability admitted therefor under such insurance.” [emphasis added] 18 Therefore, based on these provisos and the authority cited, a breach of any limb of Condition 15 of the FMD Policies and Condition 12 of the FCL Policies by the first respondent or its agent automatically entitles the appellants to reject liability under the policies. [22] I shall now quote from the FMD Policies Condition 15 in full– “15 If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or any one acting on his behalf to obtain any benefit under this Policy; or, if the loss or damage be occasioned by the wilful act, or with the connivance of the Insured; or, if the claim be made and rejected and an action or suit be not commenced within three (3) months after such rejection, or (in the case of an Arbitration taking place in pursuance of Condition 22 of this Policy) within three (3) months after the Arbitrator or Arbitrators or Umpire shall have made their award, all benefit under this Policy shall be forfeited.” I do not propose to reproduce herein Condition 12 of the FCL Policies as it is couched in the terms similar in every detail to the above Condition 15 of the FMD Policies. [23] The learned judge on this point held that the decision in Asean Security Papers Mills Sdn Bhd v CGU Insurance Bhd [2007] 2 CLJ 1 was the correct position in law as regards the standard of proof in fraudulent claims in civil proceedings which was that it must be one of beyond reasonable doubt and not on the balance of probabilities. The learned judge on the strength of the evidence of DW1, DW2 and DW4 elicited during cross-examination observed that these witnesses agreed that there was no direct evidence linking the arson to the first respondent. 19 DW1, who was from Mestari Adjusters Sdn Bhd (Mestari), a company which was appointed by the appellants as a firm of independent loss adjusters, in his own report, according to the learned judge, found as follows: “We would advise ultimately at this stage that despite our strong suspicion we have yet to unearth any evidence following our extensive investigations to implicate the insured’s Directors in the above incident.” His Lordship had also considered DW10’s evidence in which DW10 agreed that there was a possibility of deliberate fire on 5.1.2009 might have been started by the first respondent’s competitor in similar business. Thus, the learned judge said, with the possibility that the fire at the material time could have been started or caused by the first respondent’s competitor meant that the appellants had failed to rule out that the fire was not started or caused by the first respondent’s competitor in business but by the directors of the first respondent with the connivance of its servants or agents. The learned judge consequently held that the allegation that the fire was deliberately started or caused by the first respondent was without basis and merit, highly speculative and circumstantial concluding that the appellants had failed to prove beyond reasonable doubt that the respondent’s claim was fraudulent. [24] Before I examine the rival arguments urged on behalf of the parties on this issue in this appeal, it would be convenient to start off by dealing with the question of the applicable standard of proof in civil proceedings where fraud is alleged. The Federal Court in Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd [2015] 5 MLJ 1 set the new applicable standard 20 of proof in civil proceedings of facts amounting to the commission of a crime to be only on a balance of probabilities. The decision was delivered on 10.8.2015. The decision of the High Court in the instant action was made on 29.1.2016 which was after the Federal Court’s decision in the seminal case of Sinnaiyah, supra. In the course of his submissions, learned counsel for the appellant emphasised the point that the learned judge was amply apprised of the decision in Sinnaiyah vide a letter dated 11.9.2015 containing a copy of the case and submissions which he had sent to the Court prior to His Lordship’s decision on 29.1.2016 in this matter. However, as already pointed out, the learned judge, decided to follow the decision in Asean Security Paper Mills Sdn Bhd, supra, without even referring to Sinnaiyah in his decision. In my judgment in this appeal, the proper standard of proof on the appellants who allege fraud is on a balance of probabilities and the ratio in Asean Security Paper Mills Sdn Bhd v CGU Insurance Berhad, supra, which is used by the learned judge is no longer applicable at the time His Lordship delivered his judgment. The Federal Court in Sinnaiyah in emphasising that the Court has been applying the wrong standards in the past and now it is time to realign our position in law with the rest of the Commonwealth countries said: “[48] As such, in our judgment the time has come to realign the position of the law in this country on the standard of proof for fraud in civil claims. While learned counsel for the Defendant seemed to favour the adoption of the Singapore position, learned counsel for the Plaintiff urged us to adopt the principle in In re B (Children) (supra). [49] With respect, we are inclined to agree with learned counsel for the Plaintiff that the correct principle to apply is as explained in In re B (children) (supra). It is this: that at law there are only two standards of 21 proof, namely, beyond reasonable doubt for criminal cases while it is on the balance of probabilities for civil cases. As such even if fraud is the subject in a civil claim the standard of proof is on the balance of probabilities. There is no third standard. And ‘(N)either the seriousness of the allegation nor the seriousness of the consequences should make any difference to the standard of proof to be applied in determining the facts.’ [50] Hence, it is therefore up to the presiding judge, after hearing and considering the evidence adduced as being done in any other civil claim to find whether the standard of proof has been attained. ‘The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies.’ The criminal aspect of the allegation of fraud and the standard of proof required thereof should be irrelevant in the deliberation. [51] Accordingly as stated earlier we agree with the reasons given by learned counsel for both parties that the present standard of proof for fraud in a civil claim in this country is not in line with the principle as applied in other common law jurisdictions and should therefore be reviewed (See: Chua Kwee Chen v Koh Choon Chin [2006] 3 SLR 469 which discusses the thorny issues related to the application of the criminal standard in a civil claim involving the allegation of fraud.) Indeed it is quite obvious in Narayanan (supra) that Lord Atkin did not provide any cogent reason for applying the criminal standard of proof in a civil claim when fraud is alleged. Similarly in Saminathan (supra) the principle in Narayanan (supra) was applied without any discussion on its rationale. [52] We therefore reiterate that we agree and accept the rationale in In re B (Children) (supra) that in a civil claim even when fraud is alleged the civil standard of proof, that is, on the balance of probabilities, should apply. And perhaps it is not out of place here to restate the general rule at common law that, “in the absence of a statutory provision to the contrary, proof in civil proceedings of facts amounting to the commission 22 of a crime need only be on a balance of probabilities”. (See Boonsom Boonyanit v Adorna Properties Sdn Bhd [1997] 2 MLJ 62, at page 74). [53] Accordingly, despite the reaffirmation of the law on the issue in Yong Tim v Hoo Kok Cheong (supra) we hold that it is no longer the law in this country. Similarly, the principles as pronounced in Ang Hiok Seng (supra) and Lee You Sin v Chong Ngo Khoon (supra) despite applying the civil standard to a certain extent are also no longer the law. Hence, the disapproval of Lau Kee Ko (supra) in Ang Hiok Seng (supra) is no longer relevant. [54] However, we should make it clear that this Judgment only applies to this appeal and to future cases and should not be utilized to set aside or review past decisions involving fraud in civil claims.” [emphasis added] [25] Sinnaiyah therefore is now the state of the law, even prior to the decision of the learned judge on 29.1.2016, and as such, His Lordship as with this Court, would be bound by the said decision. In Dalip Bhagwan Singh v Public Prosecutor [1998] 1 MLJ 1, the Federal Court at page 14 authoritatively held that – “If the House of Lords, and by analogy, the Federal Court, departs from its previous decision when it is right to do so in the circumstances set out above, then also by necessary implication, its decision represents the present state of the law. When two decisions of the Federal Court conflict on a point of law, the later decision therefore, for the same reasons, prevail over the earlier decisions”. [emphasis added] 23 The learned judge obviously fell into error by failing firstly to appreciate that the current state of the law for both civil fraud and breach of contract is that the standard of proof is one of balance of probabilities, and secondly, to take cognisance of the Federal Court’s decision in Sinnaiyah. The standard of proof for civil fraud and breach of policy conditions is now the same, that is, on a balance of probabilities. But the burden of proving that the fire was caused by the wilful act of the first respondent lies with the appellants. [26] It is strenuously contended on behalf of the appellants that Conditions 15 of the FMD Policies and Condition 12 of the FCL Policies had been breached by the first respondent principally on the following reasons:

10.5 Hasil siasatan awal di tempat kejadian, Pihak Polis telah menemui (4) tin minyak iaitu dipercayai minyak “kerosene” yang ditinggalkan oleh suspek di dalam bangunan untuk tujuan membakar kilang.

10.6 Pihak Bomba telah membuat siasatan di tempat kejadian dan hasil laporan Pihak Bomba telah mengesahkan kejadian ini berlaku adalah disebabkan oleh “Khianat”. 27

10.7 Selain itu, Jabatan Kimia turut melawat dan menyiasat di tempat kejadian. Hasil siasatan dan laporan Jabatan Kimia, mereka telah mengesahkan di mana (4) tin minyak yang ditemui di dalam bangunan tersebut merupakan minyak “kerosene” yang ditinggalkan oleh suspek.

10.8 Berdasarkan bukti-bukti dan keterangan yang diperolehi, Pihak Kami (Polis) telah mengklasifikasikan kes ini di bawah seksyen 436 Kanun Keseksaan iaitu (Khianat).

10.9 Sehubungan dengan itu, pihak kami masih lagi menjalankan siasatan lanjut. Sehingga kini Pihak Kami masih belum ada sebarang tangkapan dibuat ke atas mana-mana individu yang terlibat. Diharapkan kerjasama daripada pihak tuan agar menyalurkan sebarang maklumat (sekiranya ada) kepada Pihak Kami (Polis) sehingga membolehkan suspek yang terlibat ditahan dan didakwa di Mahkamah.”. [emphasis added] [32] Attached to Exhibit P62 are 5 police reports lodged regarding the fire one of which is a police report lodged by Manugaran a/l Maruthay dated 5.1.2009 who was the security guard on duty at the insured premises when it was set on fire. Manugaran in the said report stated that at about 1.15 a.m. on 5.1.2009, 4 Chinese men tied him up and then held him in the toilet with one of them standing guard. After he managed to free himself at approximately 1.30 a.m. he saw the 4 Chinese men fleeing from the scene in stand-by vehicles. [33] The appellants had also tendered as Exhibit D104 their own report prepared by Forensic Services (M) Sdn. Bhd. (FSM) dated 19.1.2010 which was appointed by the appellants as a firm of independent adjusters to investigate into the fire at the first respondent’s premises [pages 9678- 28 9844 of R/P3(19) and 3(20) with particular reference to page 9704], where it concluded that – “There was strong physical and circumstantial evidence indicating that the fire that broke out at the premises of Veheng Global Traders Sdn Bhd on 5 January 2009 was deliberately ignited. The eyewitnesses stated that the fire was started by four perpetrators. There was considerable evidence that the four perpetrators had detailed knowledge of the security arrangements, thereby enabling them to quickly set up the fire without leaving evidence of their identity.” [emphasis added] [34] It is a significant point to emphasize that the fact that the loss by fire in the first respondent’s premises was occasioned by a wilful act or that it was due to arson was never denied by the first respondent. This fact is even confirmed by the first respondent’s forensic consultant namely James William Munday (PW1) in his evidence elicited during cross-examination when he agreed that the above findings were consistent with his conclusion in respect of the cause of fire in his report [page 261 of R/P2 (1), PWS1 Q & A12 (iv) at page 5786 of R/P2 (30)]. PW7 who is the first respondent’s director in his witness statement and supplementary witness statement stated that the deliberate fire was started by the arsonist [pages 5947 and 5960 of R/P2 (30)]. Based on this overwhelming evidence, I find no difficulty whatsoever in holding that the fire which occurred at the first respondent’s premises on 5.1.2009 was occasioned by a wilful act of the arsonist. 29 [35] It is clear to me that the case before this Court at this point therefore begs the question whether it was the first respondent or its servants or agents who caused the fire at its premises on the day and at the time in question. Needless to say, the first respondent in its 3rd Re-amended Reply to Re-amended Defence firmly denied their involvement in the crime of arson. It would be useful to remember that the director of the first respondent, PW7 in his supplementary witness statement [page 5961 of R/P2 (30)] volunteered a motive of the arsonist in causing the deliberate fire that is to cause maximum damage to the insured premises and the stock and the obvious probable motive could be “our competitor, rival in our industry.” The appellants however disputed that it was the competitor who set fire to the premises contending that there is circumstantial evidence which can support the finding that it was highly probable that the fire was caused by the perpetrators with the connivance of the first respondent. It is apparent upon a careful consideration of the evidence that there is certainly force in the above contention as such finding can be inferred from the compelling circumstantial evidence. Brendon Lee Soon Beng (DW1), who was from Mestari, in his witness statement states at Q & A 4(e) [page 5987 of R/P2(31)]: “We concluded that the perpetrators were familiar with the building layout, security arrangement, site conditions and office contents. On the day of incident, it was reported that after the intruders to the 1st Plaintiff’s premises overcame the guard, they unlocked and opened the front gate of the compound. Upon entering the premises, 1 group of intruders single-mindedly targeted the 1st Plaintiff’s Computer Server Room in the Office Block to remove the 1st Plaintiff’s server, back-up server as well as CCTV recorder and spread kerosene in the PABX room and carpets of both the first and second floors of the Office Block; whereas another group proceeded to sever the cables linked to the Ground floor 30 door access keypad to gain access to the upper floors.” [emphasis added] [36] Khairul Za’im bin Mohamad Nor (DW10) who was the forensic investigator with FSM stated in his witness statement [pages 6138-6139 of R/P2(31)] – “When I first attended the 1st Plaintiff’s premises, all of the unburnt access keypads and proximity card stations had been removed by the 1st Plaintiff. However, these unburnt but damaged keypads were subsequently given to FSM for examination. Upon examination, we found that the manner in which the keypad/card reader module covers had been removed suggested prior knowledge of the internal structure of the cover screw retainers and locking lever. It was necessary to lift this cover before the circuit to the magnetic door lock can be cut to release the door. The server room at the 1st Plaintiff’s premises housed not only the main-frame server for the office complex, but also the server which ran continuously for the 24-hour CCTV security monitoring system. The solid wooden door was kept locked at all times and there was no notice at the front of the server room to indicate what lay beyond the locked door nor could the function of the room be determined from any other indications outside the room (see Figure 2 and Photograph 10 of the security failure report at pages 1616 and 1622 of the CBOD-C5 respectively). However, this server room was broken into and items therein were reported missing. From the evidence gathered, it is apparent that the intruders went into the 1st Plaintiff’s premises with prior knowledge of where the elements of the security system were located, where and how to gain access throughout the building and how best to neutralize any threat of identification.” [emphasis added] 31 [37] Another witness namely Anthony Stewart Jarrat (DW5), a consulting engineer from New Zealand with FSM, who together with DW10 prepared a report dated 19.1.2010 tendered as Exhibit D109 [pages 9885-9935 of R/P3(2)] testified in his witness statement [pages 6026-6029 of R/P2(31)] as follows – “We found that the security system in the building was never intended to provide building security per se but it was there merely to control and monitor staff movements and levels of privileged access. Records of staff movements were stated to be kept for the HR department use such as payroll. The security system was not monitored on a real-time basis and was not connected to an auto-dialler. In essence, we found that it is apparent that the intruders went into the premises with prior knowledge of where the elements of the security system were located, where and how to gain access throughout the building and how best to neutralize and threat of identification:-

11. Date of vacant possession: Commencing 9th September 2008 Permitted use: Storage and distribution of new and used autoparts as approved by MIDA under the International Procurement Centre (IPC) Scheme.” [emphasis added] As such, the fire was not unwelcomed and based on the forensic evidence, the fire was started by the first respondent and/or with the connivance of persons connected with the first respondent. In any event, notwithstanding PW2’s audited report of the first respondent’s healthy financial standing, the Broughton Park’s case, supra, demonstrates the position that whether or not the insured’s business was doing well was 41 immaterial in establishing arson on the part of the insured where the other evidence, so far as it shows in the appeal record, is overwhelming. [42] In the course of oral submissions on this point, this Court posed a question to learned counsel for the first respondent on whether he had rebuttal evidence to disprove the evidence of DW5 and DW10 as well as the FSM’s report dated 19.1.2010 (Exhibit D109) to which learned counsel said they admitted arson, but it was caused by a competitor. Thus, clearly the first respondent put forth its positive allegation to state that the fire was started by their competitor. However, contrary to this allegation, when PW7 during cross-examination was asked to identify who this competitor was, learned counsel for the first respondent, as shown in the notes of evidence reproduced elsewhere in this judgment earlier, strongly objected to this question. [43] There can be no doubt whatsoever that, in law, if the first respondent wants the court to believe that the fire was started by their competitors, they have to prove that particular fact. This is very clearly provided in section 103 of the Evidence Act 1950– “103. The burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence…”. However, from the notes of evidence reproduced above, PW7 despite lodging 3 police reports on the day in question [see Exhibit P62 page 9987 of R/P3 (20)] said that he did not name anybody when he lodged his police reports neither did he inform the police about his suspicion in respect of his rival before finally saying that there were big possibilities that the 42 arsonist might be the first respondent’s competitor. Based on his evidence above, it is abundantly clear that PW7 did not suspect any particular competitor, if he did he would have, as with any other reasonable person in his position, informed the police as such evidence could facilitate police investigation and greatly help the first respondent in its claim for compensation from the appellant. It could certainly help eliminate whatever suspicion that the appellants would entertain or as I have said earlier, demolish the appellants’ case that it was the first respondent who deliberately set fire on its insured premises. [44] A pertinent question that persistently comes to my mind is that if it is the first respondent’s rival who set fire, why would it do so. In this regard, PW7 in his evidence did not give any reason. There is obviously an absence of relevant and clear motive as to the cause of the deliberate fire by the so-called first respondent’s rival. Was the rivalry or dispute, as the case may be so serious that had driven the rival or competitor to set fire to the first respondent’s premises. No such evidence was forthcoming. Additionally there is a burning question that needs to be answered that is, why did the rival company burn down the first respondent’s premises when at the end of the day the latter would be hugely compensated in the sum of RM86,799,784.00 at 5% interest from the date of the Writ of Summons which is 22.6.2011 until date of full realisation and awarded with costs of RM1,000,000 and thus benefit significantly from the incident which certainly is commercially advantageous to the first respondent. I note that the award of RM38,799,784.00 under FMD Policy 005 for the loss of stock was apportioned on the basis of 87.5% to the first respondent and 12.5% to the second respondent. Despite this apportionment, without doubt the first respondent is compensated handsomely following the fire. 43 [45] I am convinced that the allegation by PW7 that the fire was deliberately caused by the first respondent’s competitor is only a bare and nonsensical allegation which ought to be dismissed as a sheer fabrication. There was, I find, absolutely no competitor involved as such I reject this evidence. Accordingly, contrary to the first respondent’s contention, the appellants have successfully proved their defence that the fire was a result of the deliberate act of the first respondent or the connivance of the first respondent through one or more of its servants or agents. [46] Learned counsel for the first respondent submitted on the first respondent’s evidence that the spare parts were only moved to the PKFZ premises after the fire and that the PKFZ premises were not meant for the spare parts business as it was meant for imported whole cars only. The first respondent’s position is entirely and diametrically opposed to that of the appellants. It clearly contradicts the Tenancy Agreement for the PKFZ premises commencing 9.9.2008 before the fire where at Schedule 1 under the heading “Permitted Use”, it is stated – “Storage and distribution of new and used autoparts…” [emphasis added] So, there was an acceptable basis for the loss adjusters to state that the first respondent could have moved the spare parts prior to the fire, it is only the first respondent’s version that they were moved after the fire. The point is that there were spare parts at the PKFZ premises when the adjusters visited the place. Such storage was clearly withheld from the appellants 44 when they completed the claim forms. I will show in a moment why this is so. [47] It is necessary to refer to the local case of Brighton Industries (M) Sdn Bhd v Supreme-QBE Insurance Bhd [1992] 2 CLJ Rep 206. LC Vohrah J in coming to his decision noted that the insurers there had rejected the claim pursuant to Clause 13 of the fire policy which is in pari materia with condition 15 of the FMD Policies in this appeal on the ground that the fire had been deliberately caused. Since the defendant sought to establish arson on the part of the plaintiff, it was incumbent upon the defendant to establish wilful misconduct on the part of the plaintiff. So the only issue His Lordship had to determine was whether the fire was caused by the wilful act or with the connivance of the plaintiff in breach of the said condition. Unlike the present appeal, the police investigation file there disclosed no suspicion of any misdeed. There was no direct evidence of the wilful act on the part of the plaintiff. However the court was more than satisfied that, on the strength of the evidence proffered by two experts, the defence had established that the fire was the result of a wilful act. In dismissing the claim, His Lordship said at page 210– “All the facts described impelled me to the conclusion that the defendant had succeeded on a high degree of probability to establish that the fire at the factory was set wilfully by or with the connivance of the plaintiff in order to make the claim under the policy of insurance.” [emphasis added] Having anxiously considered the entire evidence on this point, the first respondent’s case of deliberate fire by its competitor is a probable 45 concoction to which no degree of credence ought to be attached to its claim that the arson could not possibly be linked to it. I am satisfied that the fire and loss were occasioned by the unlawful and wilful act or connivance of the first respondent. [48] There is one remaining issue on the oral contention urged for the first respondent that there is a necessity for there to be a police report before the appellants can rely on arson linking the first respondent. I would say on this aspect that I am not aware of any law which makes it a prerequisite for a police report to be lodged for this purpose. It would suffice for me to say that this is the appellants’ pleaded case which is proved, not merely by, circumstantial evidence as contended by learned counsel for the first respondent, but by strong circumstantial evidence. In any event, the first respondent admitted that the fire was due to arson and since I have rejected the allegation that the fire was caused by the first respondent’s competitor, the circumstantial evidence points conclusively to the first respondent or its servant or agent as the perpetrator who had through its wilful act or connivance set the insured premises or fire thereby occasioned the loss and damage to the premises and stock of auto parts therein. By reason of the unlawful act committed by the first respondent, I hold that the appellants were entitled to repudiate the policies and the claims therefore must fail on this ground alone. This conclusion, is in my judgment, sufficient to dispose of this appeal. [49] Even so, in my view, it is necessary to consider further the appellants’ case on the issue of the breach of the policies’ conditions in question. This brings me to the next point on the appellants’ contention that the first respondent had breached both Condition 15 of the FMD Policies and Condition 12 of the FCL Policies. I am told by learned 46 counsel for the appellants that on this question, the position adopted by the appellants is that fraudulent means or device were used by the first respondent to obtain benefit under the policies. Before this Court, learned counsel for the appellants explained the meaning of the expression fraudulent device by referring to the definition of the term given by Mance LJ in Agapitos v Agnew and Others (2003) QB 556 at paragraph [30] when His Lordship said– “…A fraudulent claim exists where the insured claims, knowing that he has suffered no loss, or only a lesser loss that that which he claims (or is reckless as to whether this is the case). A fraudulent device is used if the insured believes that he has suffered the loss claimed, but seeks to improve or embellish the facts surrounding the claim, by some lie …” [emphasis added] [50] Now, the first respondent is claiming for the sum of RM47,180,000.00 under the FMD Policies and RM60,607,325.00 under the FCL Policies which means the total claim put forward under all the policies before the High Court is RM107,787,325.00. It is a fact however that when they were asked by Mestari to support their claims under the FMD and FCL Policies, the first respondent failed or refused to do so. This can be seen from DW1’s evidence page 5985 of R/P2(31)] where he said– “…despite numerous reminders, the 1st Plaintiff refused and/or failed to submit all requested claim documents to support its claim, in breach of Condition 12 of the fire material damage policies.” 47 These reminders can be found at pages 8850 to 8863 of R/P3 (14), pages 8867, 8874-8879 and 8881-8882 of R/P3(15). [51] During the trial in the court below, the first respondent only proffered 2 witnesses to prove their purported claim in excess of RM100 million, namely Mr Koong Lin Loong (PW2), an accountant, and Ms Tan Ah Hiang (Nicole) (PW3). When learned counsel for the appellants suggested to PW2 that the most accurate way to determine the volume and also the value of the stock that was purportedly destroyed in the fire was to do a physical count, he agreed. However, it has been shown for a fact that no physical stock count was carried out by PW2 after the fire [pages 689 to 690 of R/P2 (3)]. According to PW2, it was impractical to do it after the fire. In respect of his calculations on consequential loss, it was put to PW2 [pages 739 to 740 of R/P 2(3)] as follows: So in essence you are telling the Court that your calculations are based on assumptions from information fed to you by the directors or the Plaintiff is that correct? That’s what you said, base on assumptions. You see, all the figures is an estimated. Assumptions, if you say assumptions seems like I plug (sic) from the air. It is not. Not at all. It’s based on documents provided by the directors. Hence the responsibility of preparations the financial figures and figures is lying on the board of directors.” [emphasis added] The logical conclusion which can be drawn from the above answer would be that if the directors of the first respondent provided misleading or 48 incorrect information, PW2’s calculation which was based on his estimate would be wrong. [52] As regards the claim under the FCL Policies, DW1 as a licensed loss adjuster has confirmed that PW2’s calculations are not in accordance with the policies’ terms and conditions, not to mention that there were insufficient documents to prove the alleged loss. This is what he had to say in his supplementary witness statement [page 5998 of R/P2(31)] – “Based on the above, I disagree with the 1st Plaintiff’s Accountant’s computation of the 1st Plaintiff’s consequential loss claim as contained in his 2 reports. His computation may be in line with accounting principles but they are not in line with the consequential loss principles governed by a written contract in this case. Based on the currently available documents, there is insufficient information to properly compute the consequential loss suffered by the 1st Plaintiff (assuming that the policy is payable in the first place). Be that as it may, it would be absolutely incorrect to adopt the amounts suggested by the 1st Plaintiff’s Accountant for the many reasons above.” [emphasis added] [53] DW1’s evidence above is amply corroborated by DW8, Raghu Ramachandran, Director of RGL Forensic Accountants (Singapore) Pte Ltd. DW8 according to his curriculum vitae at Appendix “RR-1” of his witness statement [page 6127 of R/P2 (31)] had over 10 years of professional experience as a forensic accountant, inter alia, in relation to the assessment of damages and quantifying business interruption for insurers and their clients. This is what he had to say about the 2 reports 49 dated 27.5.2013 [Exhibits P18 and P20] produced by PW2 [pages 6123- 6126 of R/P2(31)]- “It is my view that the computation in the two reports does not follow the terms and conditions of the fire consequential loss [sic - policy]. My reasons for saying so are:-

6.1 The 1st Plaintiff’s Accountant’s scope of appointment is limited as admitted by 1st Plaintiff’s Accountant’s at Bundle-D10 at page 4410 where it is stated that “…The objective of a compilation is to assist the management in presenting financial information in the form of financial statements two (2) financial years before fire and three (3) financial years after fire occurred without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.” This shows that the 1st Plaintiff’s Accountant merely compiled information contained within the audited accounts without relying on the terms and conditions of the fire consequential loss policy or seeking to make an attempt to request for further information and/or verification to ensure whether such compilation is reasonable or specified within the terms of the fire consequential loss policy;

6.2 The 1st Plaintiff Accountant failed to take into account the 1st Plaintiff’s detailed monthly management accounts which will clearly show the 1st Plaintiff’s monthly expenses, monthly revenue and trend of the business pre-loss and post-loss. Such accounts have not been made available;

6.3 The 1st Plaintiff’s Accountant’s computation of the indemnity period cannot be accepted because he has failed to take into account the following:-

6.4 The 1st Plaintiff’s Accountant’s computation of any consequential loss has failed to take into account the following:

6.5 There are also insufficient documents made available by the 1st Plaintiff at this stage to allow for a comprehensive assessment of the appropriate consequential loss payable under the policy assuming that policy liability is not in issue.” [emphasis added] It is therefore clear that PW2’s computation for both material damage and consequential loss is flawed and not in accordance with the terms and conditions of the policies. Bearing in mind that the first respondent’s claim is wholly contractual in nature, PW2’s evidence does not support or justify their claim in excess of RM100 million under all policies. 51 [54] PW3 in her evidence stated that she only dealt with documents from overseas and not local documents [page 970 of R/P2 (5)]. Based on her evidence, the trial court marked only the foreign suppliers’ invoices as Exhibit P22 pages 7853 to 8658 of R/P3(9)-3(13)]. I would observe that no other evidence was given by her in respect of any of the other purported supporting documents on quantum to prove the claim of more than RM100 million. In my judgment, although the above invoices have been marked as an exhibit by the court, they cannot be accepted on the basis that they are dubious in nature and are not corroborated by any other independent evidence. This finding is obvious from the extensive cross-examination of PW3 on the invoices purportedly issued by the first respondent’s supplier in Japan as shown below –

11. Do you have stock at any other location? No I……do hereby declare that the above is a full, true and accurate statement, and I further declare that property worth RM…. According to the extent and values annexed and insured under your Policy or Policies numbered … was accidentally destroyed or damaged by the aforesaid fire without any design or procurement on my part: Wherefore I claim from my insurers the sum of RM…. I further declare that the attached documents and/or records are being submitted with this claim in proof of my loss.” [emphasis added] These answers have been found to be false in that, as found earlier, the first respondent is in breach of the FEA Warranties and the first respondent also has stock of auto parts at another location, namely, Jalan FZ10-P3, Port Klang Free Zone/KS12, 42920 Pulau Indah, Selangor. [59] In law, giving a false declaration is a clear breach of the duty of good faith which continues throughout a contract of insurance and continues even after the insured had commenced legal proceedings. In Galloway v Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Law Rep 56 IR 209, the plaintiff had made a claim not just for £16,133.94 (the probable value of the loss) but added an additional £2,000.00 in respect of a computer. He completed a claim form which contained the declaration that “the particulars given on this form are true and complete”. This was untrue, as there had been no loss in relation to the computer. The English Court of Appeal held inter alia (per Millet LJ) that the size of the genuine claim was irrelevant. The policy would be avoided by breach of the duty of good faith which rests upon the insured in his dealing with the insurer. Based on the false answers in the claim forms by the first respondent and the breach of duty of good faith, the first respondent would also be in breach of this limb of Condition 15 and Condition 12 by having made false declarations. [60] In the event, the appellants have successfully proved the first respondent’s contractual breach of Condition 15 of the FMD Policies and Condition 12 of the FCL Policies in view of all of the evidence led in the full trial relating to the allegation that the first respondent used fraudulent device and made false declarations in support of its claim which I have deliberated above. Based on such breach, the appellants are entitled to repudiate liability in respect of all the policies, and on that score alone, the first respondent’s claim ought to be dismissed. I have been referred, in this connection, to the case of Nsubuga v Commercial Union Assurance Co. Plc [1998] 2 Lloyd’s Law Rep 682 where Mr Justice Thomas quoted Mr Justice Mance’s judgment in Insurance Corporation of the Channel Islands Ltd v McHugh and Royal Hotel Ltd [1997] LRLR 94 with approval and held at page 686 that – “I agree with what Mr Justice Mance says; if there is fraud in relation to a claim, then that clause operates not merely in relation to the section of the 57 policy in respect of which the fraud has occurred but to all sections of the policy … The position at common law can be summarized as follows:

(1) A person who has made a fraudulent claim would not be permitted to recover at all. …

(2) If a claim is fraudulently inflated so that the claim is made in an amount which the plaintiff clearly knows he has not suffered, that will amount to a fraudulent claim and will have the same effect.” [61] I shall next refer to the case of Baghbadrani v Commercial Union Assurance Co Plc, supra, in which it was decided inter alia by Judge Gibbs QC that an insured’s duty to act in good faith continued even after the commencement of legal proceedings against an insured in that the insured was to abstain from making a fraudulent claim. The claimant operated a private Islamic college. The college premises were insured against material damage. The claimant was also covered under a business interruption policy for loss of profits. After a fire by unknown persons, the insurers indicated to the claimant’s solicitors that they were not denying liability under the policy and they duly appointed loss adjusters to negotiate the claim. In the meantime, the insurers appointed solicitors to look into the claimant’s claim to see if there were grounds for repudiating liability. The solicitors discovered that there were grounds to avoid the material damage policy because fraudulent invoices had been submitted by the claimant. Subsequently, the solicitors informed the claimant that the insurers were repudiating liability under the business interruption policy on the grounds of fraud. The claimant contended that the insurers could not raise these defences because they had entered into a binding compromise agreement and that the insurers had also elected to treat the claim as valid and thereby waived any breach of duty by the 58 insured. It was decided by Judge Gibbs QC that there was no binding settlement between the parties even if there was such a settlement, it was voidable owing to the fraudulent conduct of the claimant. Judge Gibbs QC held in particular at page 122 that– “For example, fraudulently making a claim or fraudulently misleading the insurer. The duty to abstain from such fraudulent conduct does, in my view survive the commencement of proceedings.” [62] The effect of the first respondent submitting or utilising fraudulent devices or documents in support of its insurance claims are far-reaching. In Baghbadrani, the insured only submitted fraudulent documents in relation to the business interruption claim (and not the fire material damage claim) and the fire was found to have been caused by some unknown third party (and not the insured) but the court eventually dismissed the insured’s claim under both policies due to the fraudulent conduct of the insured. [63] More recently in the case of Sanichi Precision Plastic Sdn. Bhd. v AMG Insurance Berhad [2011] 1 LNS 1759 which concerns a claim under a Fire Insurance Policy and a Fire Consequential Loss Insurance Policy by the plaintiff for losses allegedly suffered as a result of a fire that occurred at the plaintiff’s premises, VT Singham J dismissed the plaintiff’s claim on the grounds that fraudulent means or devices have been used by the plaintiff to obtain benefit under the said policies. His Lordship in his judgment held inter alia as follows: 59 “11. On the facts and surrounding circumstances when taken together with the compelling circumstantial evidence, this court finds that the plaintiff’s involvement in the setting up of the fire is not without foundation and that fraudulent means or devices have been used by the plaintiff to obtain the benefit under the said policies. Therefore, the defendant is entitled to repudiate its liability under the fire policy. As for the claim under the fire-consequential loss policy, this court finds that the claim is a grossly exaggerated claim together with non-existent claims which disentitles the plaintiff to claim indemnity under the said policy. Accordingly, the defendant is also entitled to repudiate liability and discharge themselves under any legal obligations to satisfy the plaintiff’s claim.

12. It is settled law that a contract of insurance is one, where the parties to the contract are under duty to exercise the utmost good faith in matters relating to the said contract. Consequently, where the party to the contract of insurance acts mala fide, the innocent party, the defendant in the present case, is entitled in law to be discharged from the obligations under the contract. In the present case, the plaintiff has made a grossly exaggerated claim which is fraudulent in nature to defraud the defendant. On the facts and the surrounding circumstances of the present case, the plaintiff’s entire claim is liable to be defeated as there has been, inter alia, failure to act in good faith. As stated, a contract of insurance is based upon good faith, and, if the utmost good faith is not observed by either party, the contract may be avoided by the other party.” [emphasis added] [64] It is my judgment that the appellants have succeeded in proving that some of the documents submitted by the first respondent were false or forged. Therefore, regardless of the actual cause of fire, the fact that the 60 first respondent had tendered false or forged invoices in support of its claim under the policy taints the whole claim. As such, on the false documents alone, the first respondent’s claim is fraudulent and ought to be dismissed based on the breach of Condition 15 of the FMD Policies and Condition 12 of the FCL Policies and the first respondent’s common law duty to act in good faith. In the event, if there is no liability under the FMD Policies, it follows that there is no liability under the FCL Policies. In a recent High Court case of Leng Chee Yean v Tokio Marine Insurance (Malaysia) Bhd [2015] 4 CLJ 660, Azizah Nawawi J when construing condition 15 of a fire policy which is in pari materia with the current FMD Policies had this to say a paragraph [50], [51] and [55] – “It is the submission of the defendant that the plaintiff has breached three

(3) limbs of condition 15, namely:

(ii) Using fraudulent or false means/documents in support of its claims; and/or

(iii) By submitting a fraudulent claim which is grossly exaggerated. [51] From the use of the word ‘or’ in condition 1, I am of the considered opinion that the three limbs of condition 15 is now to be read disjunctively, and that the defendant may only show one breach in order to support its decision to repudiate the plaintiff’s insurance claim. …. …. …. [55] Premised on the expert evidence that the fire-affected stocks are not cordyceps but common molds, I find that the plaintiff is also in breach 61 of condition 15 by submitting a grossly exaggerated claim, that the fire-affected stocks is cordyceps sinensis worth more than RM9 million.”. [emphasis added] I note that the above judgment has been upheld by the Court of Appeal vide an Order dated 27th May 2015 and by the Federal Court vide an Order dated 19th January 2016. [65] The appellants have proved that the loss is occasioned or the claim was made by the first respondent, as the case may be, by at least one of the acts specified in the following limbs under Condition 15 of the FMD Policies and Condition 12 of the FCL Policies –

413. [83] In response, learned counsel for the first respondent submitted that the FEA Warranties were not applicable or enforceable because no discounts were given or provided for. There was an absence of consideration on the percentage of premium under which an allowance is enjoyed by the first respondent. The Schedule of the FMD Policies stated that it was rated at “0.000” which meant no discount was given and enjoyed by the first respondent. Since the policy was subject to “basic rate, extraneous perils and sprinkle leakage only”, for the FEA Warranties to be applicable, it should have been rated with some figures rather than not being listed. [84] On the subject of waiver, learned counsel for the first respondent submitted that on the contrary it is the appellants who had waived their rights with the renewal of the policies, and that the appellants were estopped from repudiating liability on the non-maintenance or the non-working of the sprinkler system. The cases of Wing v Harvey [1854] 5 De.G.M. & G 265 and Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Bhd [1995] 3 MLJ 331 were cited in support. The first respondent contended that there could not have been a waiver on the first respondent’s rights because when it renewed its policies in 2008, the appellants did not raise any issues on ‘any breaches/non-compliance of the FEA Warranty’. The appellants had inspected the water sprinkler in 2008 when the first respondent decided to add on peril for water sprinkler leakage in that year. The acceptance of premium from the first respondent followed by a renewal of the policies are said to be 70 evidence that there were no breach of warranties or any of the terms and conditions of the policies. [85] The second line of submissions deals with the issue of whether breaches of the FEA Warranties were proved as a matter of fact. The first respondent responded to this with its alternative plea that in any event there was no breach of any of the warranties. [86] Each of the FEA Warranties spells out what the first respondent is required to have and/or maintain in respect of the particular equipment that the first respondent must have on the premises. The appellants alleged that each of these warranties had been breached and they relied on the evidence of several witnesses, including witnesses from: i. Mestari Adjusters Sdn Bhd, the independent loss adjusters who investigated the claim; ii. Sri Kembang who supplied the first respondent with the fire-fighting equipment and who had last checked the system on 9.9.2008 and found the equipment and system wanting; iii. Srijaya Teck Sdn Bhd, Forensics Services (M) Sdn Bhd and Safety Services & Logistics Sdn Bhd; these companies inspected the premises after the fire and found evidence of breaches of the FEA Warranties. [87] In respect of FEA Warranty I (Approved Portable Extinguishers), the requirement was that “one unit of approved portable extinguishers must be provided for every 210 square metre (2250 square feet) of open floor 71 area or part thereof floor area, with not less than 2 units on each floor.” The appellants claimed that the first respondent is in breach of FEA Warranty I because only two fire extinguishers were found in the premises. Both fire extinguishers were found at the office with none located in the factory area of the premises [see p 102 R/P1 and p 8699 R/P3 (14)]. [88] The appellants also found the maintenance and upkeep of these two fire extinguishers wanting. For instance, under General Requirement I(2), all portable extinguishers have to be maintained in a fully charged and operating condition. Only one of the two fire extinguishers mentioned earlier was found with a fully charged status [see p 102 R/P1 and p 8700 R/P3(14)]. In breach of General Requirement I(5) which requires all portable extinguishers to be installed on hangers/brackets or mounted in cabinets or set shelves, the two fire extinguishers were observed to have been placed on the floor [see p 102 R/P1 and p 8700 R/P3(14)]. In breach of General Requirement I(6), one of the two fire extinguishers was also found to have an overdue Bomba service certificate dated 24.6.2004, whilst the other one had no certificate on it [see p 102 R/P1 and p 8700 R/P3(14)]. The appellants also claimed that in breach of Maintenance Requirement I, there were no records of weekly inspections of the portable extinguishers to ensure that they complied with General Requirements I(2), I(3), I(4), I(5) and I(6) nor were there yearly service records of the portable extinguishers [see p 102 R/P1 and p 8700 R/P3(14)]. [89] As for FEA Warranty II (Hydraulic Hose Reels), there were various requirements specified in General Requirements II on how and where these hydraulic hose reels and/or internal hydrants must be sited; that these hose reels must be permanently connected to a constant water 72 supply; that where the hydraulic hose reel and/or internal hydrant system is connected to a suction tank, the tank then must be constantly filled with water. Even the minimum capacity of the tank is specified, that it must be 3,600 litres (800 gallons). The General Requirements also stipulate how and where the pump must be housed, that it must be in an easily accessible position where the pump will not be liable to be damaged by fire or otherwise, and that the pump must either be started automatically; or can be readily started by one person. There is also provision for there to always be sufficient fuel to run the pumps at full load for not less than four (4) hours. [90] The appellants’ loss adjuster reported that the first respondent is in breach of FEA Warranty II. There was no available power supply to test the pump-set to establish hose reel flow rate and water throw distance nor was there any hose reel design plans complete with calculation to verify the effectiveness of the system layout. During the inspection on 15.1.2009, the battery set for the standby diesel driven pump set was found to be faulty and non-functioning. The existing diesel in the fuel tank was also found to be half full. This meant that there was sufficient fuel to run the pumps at full load for not less than 4 hours. There were also no weekly inspections of the hose reels and/or internal hydrants and testings of the pump as were required under Maintenance Requirement II. [91] The next breach is breach of FEA Warranty VI. As provided by General Requirements VI(2), the detectors must be connected to a central fire control panel which in turn, must be linked directly to a Fire Services Department (BOMBA) station or alternatively the central fire control panel may be connected to a remote central monitoring station which must be directly linked to a BOMBA station. Under both circumstances, the first 73 respondent is required to obtain a certification from BOMBA or the remote central monitoring station certifying that their automatic fire alarm system is connected. [92] The first respondent is alleged to be in breach of FEA Warranty VI in that the automatic fire alarm and detection system were not triggered because they were not in a functional condition prior to the fire. The appellants claimed that there was admission by the first respondent’s witnesses that there was never any link to a central monitoring station (CMS). In fact, the admissions were accepted by the Learned High Court Judge. [93] Finally, the appellants alleged that the first respondent had warranted that there is “an approved automatic sprinkler installation complying with Maintenance requirements IX and internal appliances according to General Requirements I (Portable Extinguishers and/or Buckets) for the extinction of fires and that during the currency of this policy such installation under his/their control shall be kept in proper working order. No liability shall attach to the Company under this policy unless the terms of this warranty are complied with.” [94] The appellants alleged that the first respondent is in breach of this Warranty XI in that no sprinkler heads were seen on the 2nd floor office as the heads were covered by plaster ceiling boards; based on forensic examination, the jockey, duty and standby sprinkler pumps were all in a turned “OFF” position; and that the only switch turned on was the charger of one battery. The appellants claimed that with the switches turned off, it was not possible for any of the pumps to operate at the time of the fire. Furthermore, there was only one battery that was connected to the 74 standby pump instead of the normal two. The battery that was connected was tested and found to be flat as it was already damaged and could no longer hold a charge. The appellants also alleged that the forensic expert had concluded that even if the switches were turned ON and turned OFF after the fire, the standby pump would still not operate. Sri Kembang, the fire protection company carrying out maintenance of the first respondent’s premises, also reported that the only inspection carried out on 9.9.2008 revealed that the pump, meter and battery in the first respondent’s premises were not in an operating condition. [95] To each of the above allegations, the first respondent countered with its set of evidence. [96] On the issue of FEA Warranty I (Approved Portable Extinguishers), the first respondent submitted that there were admissions by the appellants’ witnesses on the possibility that there was more than two fire extinguishers on the premises; that the validity and operational dates of the fire extinguishers could not be ascertained as all of them had been damaged by the fire; that there was no specific requirement prohibiting placement of the fire extinguishers on the floor; that the appellants had waived the requirement for records for weekly inspection in written form. [97] On FEA Warranty II (Hydraulic Hose Reels), the first respondent’s case was that there were specific personnel tasked to attend to daily checking of the many hose reels and to ensure that the hose reels were well maintained and in good condition. The first respondent also contended that the appellants themselves were unable to ascertain if the hose reel system was in operational condition at the time of the fire as the appellants’ inspection was conducted well over a month after the fire. By 75 this time, many had had access to the premises and the first respondent suggested that this gave plenty of opportunity for sabotage by intruders who had switched off the sprinkler valve position of the fire-fighting system. The appellants had found the hose reel fire annunciator for duty pump set in the ‘off’ mode and the standby pump set in ‘auto’ mode which led the appellants to conclude that the system was shut down at the time of the fire. Consequently, the first respondent maintained that the appellants’ investigations were actually not thorough enough. [98] Moving next to FEA Warranty VI, the first respondent submitted that there is in fact no warranty for this. Quite aside from the matter of want of consideration in that no allowance or discount was given, the first respondent argued that this warranty has to be read with item IF of the General Requirements VI on Automatic Fire Alarm and Detection Systems. Because the first respondent had never been furnished item IF of the General Requirements VI, that it was not even aware of this item IF, that the policy was incomplete and insufficient, applying the contra proferentum rule, this issue must be decided in the first respondent’s favour. A line of authorities were relied on in this regard - see Houghton v Trafalgar Insurance Co Ltd [1954] 1 QB 247; New Zealand Insurance Co Ltd v Ong Choon Lin [1992] 1 CLJ 44; Fowkes v Manchester and London Life Assurance Association [1863] 129 RR 607; Malaysia British Assurance Berhad v Syarikat Pembenaan Karun Sdn Bhd [2008] 1 LNS 491; Malaysia National Insurance Sdn Bhd v Abdul Aziz Bin Mohamed Daud [1979] 2 MLJ 29; Syarikat Uniweld Trading v The Asia Insurance Co Ltd [1996] 2 MLJ 160. [99] On the last warranty, which is FEA Warranty XI on the auto sprinkler system, that it was not wholly under the first respondent’s control, the first 76 respondent once again responded that this warranty had to be read with Maintenance Requirements IX. The latter was neither stipulated in FEA Warranty IX nor drawn to its attention at the material time, rendering such warranties inapplicable and unenforceable. The first respondent further contended that the reason why the auto sprinkler system was not wholly under its control was simple - the system was installed by the landlord as the first respondent was a tenant in the premises. iii. Findings and decision of the High Court [100] The following are the findings of the learned Judge on the whole of this issue. [101] First, the matter of applicability or application of the FEA Warranties; the specific issue being whether the appellants can even begin to raise complaints of breaches when there is absent the relevant proposal forms, the want of explanation or information to the first respondent at the material time, and the lack of discounts and thereby consideration such that the FEA Warranties do not apply and, are not enforceable. [102] The learned Judge answered every aspect as described above in the first respondent’s favour. At page 48 of the judgment, the learned Judge stated that it was not disputed that no proposal forms were rendered by the appellants to the first respondent at the material time. These proposal forms contain declarations by the first respondent that all statements and answers made in the forms were “true nothing but the truth”. According to the learned Judge, these statements, answers and 77 declarations must necessarily relate to the matters which form the subject matter under consideration, such as whether there were sufficient fire extinguishers at the premises. [103] The learned Judge further added that “this forms the basis for the contract of insurance and the declaration of truth was a condition precedent and the 1st plaintiff would then sign the insurance agreement.” The learned Judge acknowledged the importance of the declaration and its truthfulness in that if the statements made in the proposal forms were not correct, the appellants are entitled to avoid the contract as was the case in Ong Eng Chai v China Insurance Co Ltd [1974] 1 MLJ 82. Since there were no forms in the first place, there cannot be any misstatement of material inaccuracy on the matters complained of by the appellants. [104] The learned Judge also concluded the appellants had waived any breaches by the first respondent when it continued to collect premiums from the first respondent. The appellants had relied on a Risk Survey Report prepared by one Lim Chee Wei dated 25.6.2006 [exhibit P115]; Lim was not called to testify. This report is said to mention “some deficiency in the equipment and condition of the premises.” Since this report was made before the policies were renewed in 2007 and later in 2008, the learned Judge concluded that the appellants were precluded from denying the existence of the contract of insurance. [105] On the matter of explanations and information, the learned Judge accepted the evidence of the first respondent’s witness [Nicole Tan, PW3] and found that since the appellants’ relevant personnel in charge of the first respondent’s account had not explained to the first respondent at the material time about inter alia what was to be done before the appellants 78 would agree to revise the insured sum or to renew the insurance policies; or about the need for regular maintenance work of the fire-fighting equipment; that the appellants’ representative only gave short and brief explanation pertaining to the perils clause at the time of delivery of the schedule to the insurance policy; and that there was no mention on the FEA Warranties, the FEA Warranties were therefore, not applicable and not enforceable. [106] As to the matter of discounts, the learned Judge also accepted the first respondent’s contention that none were given and enjoyed by the first respondent. Consequently, the FEA Warranties were not applicable “so conversely there cannot be any breaches of the FEA Warranties and the Court has no qualms with this view.” [107] The learned Judge proffered an “alternative view” on the assumption that FEA Warranties were given and applicable; and this covers the second line of reasoning by the learned Judge on this issue of FEA Warranties. [108] In respect of each of the applicable warranties, the learned Judge found that the first respondent was not in breach. On the first warranty relating to the fire extinguishers, the learned Judge was of the considered view that “there was no positive documentary and/or photographic evidence to confirm that there were only 2 fire extinguishers one of which has an expired Bomba certificate.” According to the learned Judge, “there could well be more than 2 fire extinguishers at the office and warehouse as stated by 1st plaintiff witness PW8 in his evidence.” 79 [109] In relation to the second warranty, the learned Judge was similarly of the “considered opinion that in the light of the evidence by the witnesses for the 1st plaintiff and the contradictory evidence of DW2, there was no conclusive proof that the 1st plaintiff had breached FEA Warranty II”. The contradictory evidence referred to by the learned Judge pertains to the evidence of DW2. DW2 had testified inter alia on the settings of the duty pump; that such settings indicated that the system was shut down at the time of the fire. However, DW2 had also answered that the wiring “system seems to be in good condition at the time of the fire”; and had agreed that “it does not matter if the duty pump was set as ‘AUTO’ mode and the standby pump was set at ‘OFF’ mode, the system would still be functioning”. Given this “contradictory evidence”, the Court was of the considered view that there was no conclusive proof that there was breach of this warranty. [110] On the matter of the FEA Warranty VI, the landlord had testified that the building was not designed and equipped with a CMS or central monitor station; and this was still the position when the policies were taken in 2006. The CMS provided a link between the insured premises and the Bomba. Without CMS, it would have been impossible for the first respondent to comply with FEA Warranty VI and General Requirement VI(2). In the absence of a proposal form, the High Court found it “inappropriate to state that there has been a misstatement or material non-disclosure of fact relating to the CMS”. The learned Judge was thus of the view that there was no breach of FEA Warranty VI by the first respondent. [111] On the final warranty under FEA Warranty XI relating to sprinkler leakage, the learned Judge accepted the evidence of the first respondent’s witness that the “sprinkler system at the material time when 80 the fire broke out was functioning and in good working order at the insured premises.” The learned Judge preferred the evidence of the first respondent’s expert, PW1 [Mr. James William Munday] over that of the appellants’, that is, DW11 [Mr. Barry Ian Dillon]. [112] DW11 had performed experiments to explain his point that the sprinkler system was not functioning at the material time. Two video presentations were made to better explain and illustrate DW11’s evidence. PW1 had commented on the video presentations, opining that DW11 had not used the same sprinkler head as that found on the premises, or even identical pipes and fittings. In fact, DW11 is said to have no idea what type of sprinkler heads were installed at the premises at the material time. [113] For these reasons, the learned Judge found PW1’s evidence more credible and convincing based on PW1’s track record, that PW1 could be considered an expert in the field of fire-fighting equipment as compared to DW11. The Court was thus of the view that the sprinkler system at the material time of the fire was functioning and in good working order at the premises. [114] The conclusions of the learned Judge on this issue can therefore be summarised as follows: i. there were no proposal forms completed for the issuance of FMD Policy 005 and FMD Policy 006 which means the FEA Warranties were not incorporated into the policies; 81 ii. the appellants had not given any discounts in order to render the warranties as part of the underlying contract; iii. the appellants had failed to inspect the premises in order to verify and ensure that the first respondent, as an insured, had complied with all its warranties under the FMD Policy 005 and FMD Policy 006 throughout the period of insurance; iv. there were no breaches in the manner as alleged by the appellants; v. the appellants were not entitled to repudiate liability as the appellants had not sent a warning letter to the first respondent informing the first respondent that the claims will be repudiated if the warranties are not complied with. iv. Decision at the Court of Appeal [115] It is the submission of the appellants that when the FEA Warranties were breached, Condition 9(a) of the FMD Policies and Condition 8(c) of the FCL Policies were triggered as the risks of loss or damage by fire that were assumed by the appellants were increased. Since the appellants never sanctioned those breaches, whether in writing or otherwise, the appellants claimed that, they were entitled to avoid liability under the policies because of these breaches. [116] These are the relevant Condition 9(a) of the FMD Policies and Condition 8(c) of the FCL Policies which are under consideration in this part of the judgment: 82 FMD Policies

9. Under any of the following circumstances the insurance ceases to attach as regards the property affected unless the Insured, before the occurrence of any loss or damage, obtains the sanction of the Company signified upon the Policy, by or on behalf of the Company:

8. The Insurance by this Policy shall cease if:

(4) A proposal form and, where no proposal form is used, a request for particulars by the licensed insurer shall prominently display a warning that if a proposer does not fully and faithfully give the facts as he knows them or ought to know them, the policy may be invalidated. [139] The failure to afford such a statutory warning does not obviate the right of the insurer to avoid the policy where there has been either non-disclosure or a breach. The duty to exercise not just good faith but utmost good faith, maintains. [140] Section 149(4) also reflects consistent and current modern day insurance practice where written proposals, which is a document generated during the negotiations and forthcoming from a party such as the first respondent, may not even have been used. This does not diminish the formation of valid insurance contracts such as the FMD Policies and FCL Policies that are scrutinised in the present appeals. There are no statutory requirements in the Insurance Act of 1996 that mandate that all insurance contracts must be in writing or assume a certain format in order to be valid. The Insurance Act 1996 serves substantially to regulate the insurance industry, in particular to ensure that insurers must first be licensed before they can offer such services, that their forms are standardised and the premium rates approved by the Central Bank. The long title to the Act describes the Act as- 93 “An Act to provide new laws for the licensing and regulation of insurance business, insurance broking business and adjusting business and for other related purposes.” [141] As opined at page 121 of MacGillivray on Insurance Law [13th Edition, Sweet & Maxwell]: “There is no rule of common law requiring contracts if insurance to be in any particular form, or, indeed in writing at all… … There is nothing to prevent a valid contract of fire, accident or burglary insurance being constituted by informal writing or correspondence, or even by mere oral communications.” [142] This view is further fortified by the provisions of section 150, in particular section 150(1) of the Insurance Act 1996 which statutorily requires that a proposer, such as the first respondent, is under a duty to disclose certain minimum matters; and also section 150(3). These matters need not be set out in any proposal form but are provided for under Part XII of the Act containing provisions relating to policies. Section 150 reads as follows: DUTY OF DISCLOSURE

150. (1) Before a contract of insurance is entered into, a proposer shall disclose to the licensed insurer a matter that –

(2) The duty of disclosure does not require the disclosure of a matter that –

(3) Where a proposer fails to answer or gives an incomplete or irrelevant answer to a question contained in the proposal form or asked by the licensed insurer and the matter was not pursued further by the licensed insurer, compliance with the duty of disclosure in respect of the matter shall be deemed to have been waived by the licensed insurer.

(4) No licensed insurer, insurance agent, licensed financial adviser or financial adviser’s representative in order to induce a person to enter into or offer to enter into a contract of insurance with it or through him –

(5) Where a person is induced to enter into a contract of insurance in a manner described in subsection (4), the contract of insurance shall be voidable and the person shall be entitled to rescind it. [emphasis added] 95 [143] From the provisions of sections 150(1), (2) and (4), it is apparent that the duty of utmost good faith has been codified into statute; that the insured as well as the insurer have this reciprocating duty to have utmost good faith at all times. In the case of the insured like the first respondent, the insured is required to disclose any matter which the first respondent knows to be relevant to the decision of the appellants on whether to accept the risk or not and the rates and terms to be applied; or that a reasonable person in the circumstances could be expected to know to be relevant – section 150(1). That duty of disclosure is not engaged where the matter is one which either (a) diminishes the risk to the appellants; (b) is of common knowledge; (c) the appellants know or in the ordinary course of business ought to know; or (d) in respect of which the appellants have waived any requirement for disclosure. [144] In short, if the matter or information to be disclosed will increase or is likely to increase the risk or peril assumed by the appellants, then the appellants must be told. However, where the matter or information is out there in the public domain and is of common knowledge, or that the appellants should learn of such information in the ordinary course of business or, if the appellants have specifically waived the need to be told such matter or information, then the first respondent is discharged from such statutory obligation to disclose. In the absence of such circumstance and where the insured breaches that statutory duty, the contract of insurance may be avoided by the appellants; while in the case of the insurer appellants, there are penal sanctions. [145] As will be shown shortly, the learned Judge failed to appreciate, as he should have, that the warranties and the General Requirements in these policies were breached and that such breaches heightened or 96 increased the risks or perils assumed or to be assumed by the appellants. It was therefore incumbent upon the first respondent to inform the appellants accordingly. The failure to do so meant that the appellants were entitled to avoid the contracts. [146] Furthermore, it is apparent that the learned Judge failed to appreciate that the first respondent’s claim and later, the suit is premised on the FMD Policies and the FCL Policies. By suing on these policies, it is plainly clear that the first respondent is affirming these policies without which there would be no underlying contract upon which the first respondent can assert its complaints or claims. Once that position is properly appreciated, it should also become apparent the rights and obligations of the first respondent and for that matter, the appellants, will be determined by reference to the policies. And, it will be the totality of the policies and not a matter of picking and choosing which particular provisions of the policies apply or do not apply. This was made clear in Baker v Yorkshire Fire and Life Assurance Co [1892] 1 QB 144, where it was held that when a plaintiff sues upon a policy, he is affirming the policy to be his contract; “he cannot then disaffirm a part of the very contract on which he is suing.” The first respondent, as the plaintiff, cannot accept and rely on the policy on the one hand, and repudiate one of its terms, on the other – see also the decision of the House of Lords in Dawsons, Limited v Bonnin & Others [1922] 2 AC 413. [147] Moving next to the related issue of waiver, the argument is that because the appellants had knowledge or were aware of the first respondent’s breaches of the FEA Warranties, there is waiver. The first respondent had submitted before the High Court that the appellants waived their rights to rely on the first respondent’s breach of the FEA 97 Warranties when it accepted and renewed the policies because of a risk survey report conducted prior to the inception of the policies. This report purportedly contained statements of breaches by the first respondent. This submission was accepted by the learned Judge. [148] With respect, this cannot be right. The risk survey report that was identified by the learned Judge was tendered as exhibit P115 – see page 45 of the grounds of judgment. This was a report on the fire extinguishing systems [FEA] at the premises on 25.6.2006 and this report was made prior to the acceptance of risk by the appellants. The person who inspected the premises at the material time was one Lim Chee Wei who recorded inter alia the following observations from his inspection: i. there was a fire alarm system installed; ii. there was connection to CMS linked to Bomba Sungai Rasau; iii. there were portable fire extinguishers in the form of 25 units of dry powder extinguishers and 6 units of carbon dioxide extinguishers with certificates expiring in November 2006; iv. there was a functioning 12 point hose reel system with a water throw of more than 6m and duty and standby water pumps; v. there was a functioning automatic sprinkler system and this system was maintained by a contractor on a quarterly basis. [149] In his concluding comments, Lim Chee Wei noted that there was compliance of the FEA Requirements on Portable Fire Extinguisher, Hose Reel, Fire Alarm and Sprinkler system. This report can be found at pages 11165 to 11175 of R/P 3/26. 98 [150] Having scrutinised the risk survey report, with respect to the learned Judge, this document cannot constitute knowledge of breach such as to amount to waiver. Lim Chee Wei was not called but that cannot be faulted bearing in mind who bears the burden of proof that there is waiver. Furthermore, and with respect, contrary to what was observed by the learned Judge, nowhere in this report is there any mention or statement of “some deficiency in the equipment and condition of the premises”. Factually, the learned Judge is in error as there is no basis for the observations made. At best, this initial survey only indicates that the first respondent was in compliance in 2006. I also agree with the submissions of learned counsel for the appellants that this report cannot form the basis that the first respondent would be in compliance at the time of the fire in

2009. Neither can it be said that the acceptance of premiums in subsequent years and in renewal of the policies is conduct amounting to waiver by reason of this report carried out in 2006. The facts here are entirely different from those presented in Wing v Harvey [supra] where there was actual knowledge. Consequently, I find the learned Judge in error both on the facts and on the law in this respect. [151] The issue of waiver was also considered by the learned Judge when dealing with a breach of FEA Warranty XI which is on the sprinkler leakage. In 2008, the first respondent decided to add on peril for water sprinkler leakage. One Lau Yeow Huey [Lau] inspected the premises. Thereafter, the appellants issued a quotation dated 30.5.2008 for sprinkler leakage, followed by a non-motor slip for the period between 1.7.2008 to 30.6.2009. It was the learned Judge’s view that Lau ought to have known of any issues pertaining to any breach or non-compliance of the FEA Warranties from this inspection. It was the learned Judge’s findings that when the appellants accepted this additional peril and renewed the 99 policies, the appellants are taken to have waived their right to repudiate based on FEA Warranty XI if the sprinkler system was not in working condition as alleged by Sri Kembang in their report dated 9.9.2009. [152] Again, the learned Judge’s appreciation of the principle of waiver and estoppel is erroneous on the facts and on the law. In order to constitute waiver and estoppel, the first respondent must prove that the appellants had full, actual and complete knowledge of the breaches. There is no evidence to this effect; that Lau either knew or ought to have known of breach by the first respondent, or that the breach by the first respondent of this warranty is “of common knowledge, or that the appellants should learn of such breach in the ordinary course of business”, as is required under section 150 of the Insurance Act 1996. There is also no evidence of the appellants having specifically waived the need to be told such breach. [153] The requirement of actual and full knowledge to constitute waiver in the law of insurance contracts was discussed by Ramly Ali J [as his Lordship then was] in Putra Perdana Construction Sdn Bhd v AMI Insurance Bhd & Ors [supra]. At page 143, his Lordship cited Woolf J in Victor Melik & Co Ltd v Norwich Union Fire Insurance Society Ltd [1980] 1 Lloyd’s Rep 523 [which I have taken the liberty of correcting the actual text cited]; and Siti Norma Yaakob J (as she then was) in Chong Soo Sin v Industrial & Commercial Insurance (M) Bhd [1992] 1 MLJ 636 in support of this view: [63] The Court shall now deal with the plaintiff’s case based on estoppel/waiver. The plaintiff contended that the defendant had knowledge of the breaches from the reports issued by the Risk Managers, 100 Asia Pacific Risk Management Center (APRMC). The plaintiff said that since the defendants knew about the breaches through APRMC reports, and did nothing, they are now estopped from or have waived their rights to rely on the breaches to repudiate liability. [64] Before examining the evidence in relation to estoppel/waiver in the present case, the Court shall highlight first on the legal position. It is, at the outset, necessary for the plaintiff to prove that the defendants had full knowledge of the breaches. The defendant’s knowledge of the breaches must be full and complete, before waiver or estoppel can be asserted. This is best illustrated by Justice Woolf in Victor Melik & Co Ltd v Norwich Union Fire Insurance Society Ltd [1980] 1 Lloyd’s Rep 523, when he said: …when he heard from Mr Melik, as I am satisfied he did, that the alarm was not going to be repaired, Mr Kemp did not communicate again with the insurers, and if there was going to be any reliance upon a waiver or an estoppel here, in my view, it was essential that the fact should be brought to the knowledge of the insurers if they were going to be in a situation where they were not going to be entitled to rely on the terms of the policy which they were otherwise entitled to reply upon. That really means that what happened here was at best the giving of information to the insurers of a limited nature. There was not full knowledge, and, what is more, there was no positive act by the insurers but mere inactivity, and mere inactivity in these circumstances is insufficient to amount to a waiver. My view as to waiver also applies to estoppel. Estoppel can be by conduct. The conduct can be such as to give rise to a representation that the particular term of the policy will not be relied upon. Here, there was nothing which in fact could amount to such a representation. 101 [65] In Chong Soo Sin v Industrial & Commercial Insurance (M) Bhd [1992] 1 MLJ 636, the Court considered the issue of waiver of a breach of warranty. In that case, the insured contended that the insurer had knowledge of the breach through its agents but waived the right to rely on the breach. On the question of knowledge, Siti Norma Yaakob J (as she then was) ruled that even when the breach had been communicated to the sub-agent, there was no actual knowledge on the part of the insurer. The implication of this is clear – it must be shown that the insurer had full and actual knowledge of the breach before the waiver can be asserted. [66] Knowledge of the breach cannot be imputed to the defendant simply because the circumstances suggest that there is a possibility of a breach of condition 29. This is especially so since the plaintiff was contractually bound to comply with condition 29. It was not for the defendants to remind the plaintiff to comply, (See Arterial Caravans Ltd v Yorkshire Insurance Co Ltd [1973] 1 Lloyd’s Rep 169). [67] In the present case, it is for the plaintiff to comply with condition 29; not for the defendants to remind them to comply. [Emphasis added] [154] His Lordship further referred to the case of Locker & Woolfe Company Ltd v Western Australian Insurance Company Ltd (1936) 54 Lloyd’s Rep 211 where the Court explained on the requirement of full knowledge as follows: “There must be, in the first place, full knowledge of the circumstance, and knowing the circumstances, the insurers must do some act which, apart from the policy, they are not entitled to do … Now, the full circumstances, that is to say, the fact of the non-disclosure were not known until the beginning of October.” 102 [155] The textbook writers of Colinvaux’s Law of Insurance [10th Edition Sweet & Maxwell] dealing with the matter of waiver of breach of warranty, stated at page 422 that waiver may be by affirmation or by estoppel: “ Once a breach of warranty has taken place, and the insurer is aware of such breach, the insurer may by statement or act waive the breach, leaving the risk under the policy intact although the assured may remain liable in damages to the insurer for loss caused by the breach of contract. It remains to consider exactly when a breach of warranty will be taken to have been waived by the insurers. English law recognises two forms of waiver: waiver by affirmation, where insurers choose between their rights to affirm or disaffirm a contract; and waiver by estoppel, which arises where insurers unequivocally represent to the assured that they do not intend to rely upon their rights and that representation is relied upon by the assured. By reason of the principle of automatic termination of risk on breach of warranty, the insurers do not have any choice to make as to whether to affirm or disaffirm the contract, and it follows that waiver by affirmation is not available as a defence to breach of warranty. It follows that a breach of warranty can be waived by the insurers only if they are estopped from relying on their rights. In order to establish waiver of breach of warranty by estoppel, it must be shown by the assured that the insurers have made a clear and unequivocal representation that they do not intend to stand on a legal right to treat the risk as discharged and that the assured has relied upon the representation in which it would be inequitable to allow the insurers to resile from the representation. If it simply appears to the assured that the insurers believe that the cover is 103 subsisting and there is no indication that the insurers are aware that they have been discharged, it is not inequitable to permit the insurers to stand on their rights.” [Emphasis added] [156] It is important to remember that there is no corresponding duty on the appellants to remind the first respondent to comply with the terms of the policy. The duty is on the first respondent to disclose and not on the appellants to remind the first respondent to disclose. Silence or a non-reminder does not amount to a representation upon which the first respondent may mount its defence to a contention of breach of warranties. In Handley, Estoppel By Conduct and Election [Sweet & Maxwell] the writers observed at page 57: “Where there is no legal duty to speak silence is not a representation and cannot support an estoppel. “Silence is innocent and safe where there is no duty to speak. So in Weld-Blundell v Synott the first mortgagee who overpaid the second after the sale of the security was not estopped from claiming a refund. A surety has no duty to warn the principal creditor against an act which will release the surety. The failure of one party to correct the other’s erroneous interpretation of their contract does not endorse that interpretation. As Clarke J has said a litigant or potential litigant has no general duty to point out mistakes to his opponent. The grantor of a security who receives notice of an assignment owes no duty to the assignee and his silence is not a representation that he has no equities. There is a duty if the notice contains a statement known to be false, or shows that the assignee was being deceived.” 104 [157] The above principles are consistent with the decision of the Supreme Court in Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Bhd [1995] 3 MLJ 331. [158] Consequently, the first respondent who bears the burden of proving waiver has not in fact discharged that burden. In Spencer Bower & Turner, The Law Relating to Estoppel by Representation it was said: “Not only must a party raising an estoppel be prepared to prove that the precise representation on which he relies was made to him by the representor, a matter which, especially in the case of oral representations, is not seldom one of difficulty and importance, …, but if challenged on the primary question of whether the alleged statement is a representation, the burden is on him of establishing the affirmative. If the fails at this stage, he fails in limine, for obviously nothing can create an estoppel by representation which never was a representation at all.” [159] There was no evidence or basis before the learned Judge to prove that there was knowledge or even representation such as to invoke the doctrine of waiver by estoppel. The inspection by Lau, the acceptance of premium or even the renewal of the policies, whether taken on its own or together, cannot amount to evidence of waiver and estoppel by conduct. [160] For completeness, learned counsel for the first respondent had suggested that Lau ought to have been called to testify and the Court was invited to draw an adverse inference or conclusion for such a failure. I note that the learned Judge made remarks on the failure to call Lim Chee Wei and not Lau. I have already expressed my view in respect of Lim and 105 I now make the same observations in respect of Lau; that it is for the first respondent and not the appellants to call these witnesses, if at all. [161] In the absence of any proof of knowledge of the breaches by the first respondent, the first respondent’s reliance on waiver must fail and ought to have been dismissed by the learned Judge. The learned Judge was therefore plainly erroneous in this respect and his findings and conclusions here must be set aside. [162] On the matter of discount, the learned Judge found that there was none given. Consequently, there was no consideration for the application of the FEA Warranties; in which case there can be no basis for the appellants to allege breach. [163] Again, I am compelled to disagree with his Lordship. [164] The learned Judge looked at exhibit P26 and in particular at the Schedule to the FMD Policies – see pages 8691 to 8707 of R/P 3(14). At pages 8692 and 8693 where it reads:

6. PREMIUM WARRANTY 01 FEA WARRANTY I (APPROVED PORTABLE EXTINGUISHERS) (0.000000) 02 FEA WARRANTY II (HYDRAULIC HOSE REELS) (0.000000) 03 FEA WARRANTY VI (AUTOMATIC FIRE ALARM SYSTEM) (0.000000) 04 FEA WARRANTY XI (AUTO SPRINKLER SYSTEM – NOT WHOLLY UNDER THE CONTROL OF THE INSURED) (0.000000) 106 [165] According to the learned Judge, the policy was stated to be “subject to basic rate, extraneous perils and sprinkler leakage only” and that if the FEA Warranties were applicable, there “should have been rated with figures rather than not being listed.” It is because of the entry of the rate “(0.000000)” under “Loading/Discount” and the evidence of the first respondent’s witness, Nicole Tan [PW3] who testified that she was not explained and/or informed anything about the warranties, or told that the first respondent was required to regularly maintain the fire-fighting equipment; or told about the discount but instead, was each time given short and brief explanations lasting about 15 minutes by Madam Cheu Lai Kuan, the Marketing Manager of the appellants at the material time, that led the learned Judge to conclude that the FEA Warranties did not apply and were not enforceable against the first respondent. The learned Judge found none of the appellants’ witnesses who testified on this aspect of the case, helpful as they were without personal knowledge. As for Madam Cheu’s evidence, she testified as DW9, that discounts of “0.15881%” were given were rejected by the learned Judge on the basis that it was not sustainable in the face of exhibit P26. [166] The learned Judge had added that the policies also stated that the first respondent as the insured, “warrants that during the currency of this policy the provisions laid out in the General Requirements I and Maintenance Requirements I are complied with; in consideration of which an allowance on the premium of … per cent is made to the Insured. No liability shall attach to the Company under this policy unless the terms of this warranty are complied with.” Since no allowance was given, the warranties were not engaged. This non-allowance was confirmed by the 107 issue of the “Non-Motor Confirmation Slip” [see page 8708 of R/P 3(14)]. In that slip, none of the FEA Warranties was reflected. Furthermore, “the applicable discount rates, if given were 2.5% for FEA WARRANTY I, 5% for FEA WARRANTY II, 12.5% for FEA WARRANTY X [where the whole of the appliance is under the control of the insured]; and 7.5% for FEA WARRANTY VIII-A for external hydrant with water supply fed by public mains. This countered the evidence of DW9 and her explanation of the discounts of “0.15881%”. [167] On this issue, once again, I go back to the basis of the first respondent’s claim. It is undeniably premised on the relevant policies. As I had mentioned earlier, the first respondent is not then at liberty to choose which parts of the policies apply and which do not, as it suits them. [168] On examining the whole exhibit P26, it is evident that the FEA Warranties and the General Requirements are clearly part of the policies, whether or not discounts were given. The whole of the FMD Policy 005 and FMD Policy 006 must be examined and not just selected parts of the policies, which is what the learned Judge did; and that is obviously erroneous. Once these FEA Warranties form part and are enshrined in the contract of insurance, and the first respondent has sued upon the policies, as I had concluded earlier, the first respondent is bound by all the terms and conditions of the policies, and this would include the FEA Warranties. Inasmuch as the first respondent is bound, so are the appellants. Hence, in the absence of breach, the appellants must honour the policies. And, where there is breach, the appellants are entitled to avoid the policies. 108 [169] Further, in the absence of an application by the first respondent to rectify the FMD Policies so as to take out the FEA Warranties as opposed to accepting them and suing on the contract of insurance, it would be erroneous to allow the contracting parties to renege from the plain terms and conditions of their contract. The Court must give effect to such terms so that the sanctity of the insurance contract may be upheld – see Chiew Swee Chai v British American Insurance Co (M) Sdn Bhd [supra]; and Aswan Engineering Establishment Co Ltd v Iron Trades Mutual Insurance Co Ltd [1989] 1 Lloyd’s Rep 289. [170] In any case, I find that the learned Judge has failed to weigh the totality of evidence on this matter of discounts. Exhibit P26 ought to have been examined in full in order to appreciate that discounts were finally given, at the rate of 0.133283% for the FMD Policy 005 and 0.180230% for the FMD Policy 006 as reflected therein. The witnesses who prepared and/or who are familiar with the reading and preparation of such policies, namely DW2 and DW9, had fully and adequately explained how the whole policy was to be read. Yet, their evidence was disregarded by the learned Judge. The learned Judge rejected their evidence because they were said to have no personal knowledge on the discounts. [171] That rejection is erroneous since DW9 was directly involved with the preparation of the FMD Policy 005 and FMD Policy 006 having communicated with PW3; and so her testimony ought to have been properly considered. DW2 was also a person very much familiar with the reading of such policies. DW2 was the Risk Manager with the appellants. These persons were able to explain the presence of discounts in the rates mentioned earlier. Despite their explanation, the learned Judge was not satisfied. On the other hand, the presence of discounts in the policies 109 have gone unexplained by the first respondent save to say that the rates were “0.000000”. Given these circumstances, the learned Judge ought to have accepted the evidence of the appellants’ witnesses. [172] The learned Judge further should have considered the evidence of past conduct. These were not one-off policies. The policies were renewed with perils added on by the first respondent without complaint on the applicability of the FEA Warranties which appear glaringly in these policies despite this purported failure by the appellants to give discounts. In Wollenberg v Royal Co-operative Collecting Society [1915] LT 1036, it was held that once the premiums were paid and the risks have run, there can be no refund of the premium; or for that matter a complaint that the FEA Warranties were attached despite the lack of discounts. [173] In the matter of premiums, I agree with the submissions of learned counsel for the appellants that the amount or adequacy of the premium and thereby the discount in relation to the risks run by the insurer/appellants is a matter for the appellants to decide, not the Court – see MacGillivray on Insurance Law relating to all risks other than marine [12th Edition, Sweet & Maxwell], page 175; although the amount paid may assist in the determination of the risks the insurer intends to run: “The premium is the consideration required of the assured in return for which the insurer undertakes his obligations under a contract of insurance. It will generally be a money payment but need not necessarily be so. Thus, in the case of a mutual insurance society it may consist of the liability of the member to contribute to a fund to indemnify other members of the society for their losses. The amount or adequacy of the premium in relation to the risks run is a matter for the insurer rather than a Court, 110 but it has been said that the amount of the premium charged might be of assistance in determining what risks the insurer intended to run if the premium was assessed on a fixed scale commensurate with the scope of the risk.” [174] Further, there were evidence of a series of quotations that led to the issuance of FMD Policy 005 and FMD Policy 006 and the FCL Policies. These quotations which were unchallenged, unequivocally show that the insurance coverage was always subject to the FEA Warranties since the initial period of cover in 2006. The learned Judge was consequently erroneous in holding that the FEA Warranties did not apply and were not enforceable by reason of the non-provision of discounts. This was clearly erroneous in principle and on the facts. [175] Coming now to the last aspect of this issue of breach of the FEA Warranties. In the alternative finding of the learned Judge made on the assumption that discount on the FEA Warranties were given and the FEA Warranties were applicable, the learned Judge found none of the relevant warranties, breached. [176] Again, it is noted that the learned Judge proceeded, quite erroneously, to deal with the issue on the assumption that the appellants knew or ought to have known of the existence of the breach. This is not the proper or correct approach as it ignores the principle of uberrimae fides, and that the duty of disclosure is on the first respondent, and not the appellants to know or be aware of the breaches. As was pointed out earlier, there were no breaches as found in Lim’s report before the cover was given; hence the suggestion that the appellants should have informed 111 the first respondent to make good the fire-fighting system at the material time, assuming that was correct to begin with, does not arise. [177] The specific findings of the learned Judge in respect of each of the applicable warranties were set out earlier and I do not propose to repeat the same save to say that the learned Judge concluded that the first respondent was not in breach. Here, I also must disagree with the learned Judge. [178] Contrary to the learned Judge’s findings, there was more than sufficient proof proffered by the appellants to show that there were indeed breaches of the applicable FEA Warranties. There is no need to prove every single breach; the breach of any one of these warranties is sufficient basis and within the agreed terms of contract, for the appellants to repudiate the contract and to avoid liability. Further, bearing in mind that the FEA Warranties are part of the Policies and the Policies must be read as a whole, these warranties must be read with the relevant General Requirements. The onus is on the first respondent to keep to its obligations and ensure that the warranties and the General Requirements are adhered to. It is not the obligation of the appellants to check or to remind the first respondent on any of these obligations. The keeping of good faith means that the first respondent is obliged to keep the terms of the policies honest and true. Where there is a breach of any of the warranties and requirements, it is for the first respondent to bring to the appellants’ attention, and not the other way round. This is because the risks are assumed and borne by the appellants, and any change of or to those risks must be alerted so that the appellants, can consider the issue of whether it will continue to run the risks, to waive or to take any other 112 action that it considers appropriate. This is consistent with the nature and underlying principle of insurance contracts. [179] In any event, as mentioned earlier, there was ample evidence led by the appellants which were not properly considered by the learned Judge. All these evidence more than satisfactorily discharged the burden of proof that the appellants had to meet. In support of its claims, the appellants called a good number of relevant witnesses who gave strong and cogent evidence. Contrast with the case of the first respondent, I find that what the first respondent was really doing was to poke holes in those evidence, with the hope that it would do sufficient damage. No concrete and independent evidence was led to show that the warranties and representations were kept at all material time. [180] This is evident from the manner in which the learned Judge treated the evidence led by the appellants. The witnesses called by the appellants to prove breach included technical experts specialised in this area of concern: i. Brendan Lee Soon Beng [DW1], a practising insurance loss adjuster from Mestari Adjusters Sdn Bhd, the independent loss adjusters who investigated the first respondent’s claim; ii. Rubrendran a/l Subramaniam [DW2], Risk Manager of the Non-Bank, Non-Motor Underwriting Department of the appellants who conducted a post-loss survey of the premises on 13.2.2009 and prepared a Post Loss Survey marked as exhibit D108; 113 iii. Yee Sing Kiong @ Johny [DW12] from Sri Kembang, the fire-fighting service provider who checked the premises on 9.9.2008 and prepared the report marked as exhibit D105; iv. Lim Cheng Lai [DW13], the sales manager from Sri Kembang who testified on the working condition of the fire-fighting system of the premises at the time exhibit D105 was prepared; v. San Wa (Tony) [DW7] from Srijaya Teck Sdn Bhd (fire protection engineering) who inspected the fire-fighting facilities at the premises on 15.1.2009 and prepared a report marked as exhibit D106; vi. Leong Peng Seng [DW6], a Fire Safety Management and Engineering Consultant from Safety Services & Logistics Sdn Bhd who prepared report marked as D107; [181] As the appellate Court, it is for good reasons that findings of fact are rarely interfered with. Similar views were expressed in Lee Chee Keong v Fadason Holdings Sdn Bhd & Other Appeals [2017] 7 CLJ 295, that “intervention should be where the decision reached is plainly wrong and unsustainable by the strong evidence adduced at trial or where the decision is not one that would reasonably have been arrived at giving rise then to a miscarriage of justice. When that happens, the appeal Court must intervene to prevent that error from causing injustice.” - see the Federal Court decisions in Gan Yook Chin v Lee Ing Chin [2004] 4 CLJ 309, Merita Merchant Bank Singapore Ltd v Dewan Bahasa dan Pustaka [2014] 9 CLJ 1064 and Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 CLJ 453. In Dream Property Sdn Bhd, the 114 Federal Court reminded that an appellate Court should only intervene to reverse findings of fact by the trial Court on a “plainly wrong test”: “…It is now established that the principle on which an appellate court could interfere with findings of fact by the trial court is “the plainly wrong test” principle; see the Federal Court in Gan Yook Chin & Anor (P) v Lee Ing Chin @ Lee Teck Seng & Anor [2004] 4 CLJ 309; [2005] 2 MLJ 1 (at p.10) per Steve Shim CJ SS. More recently this principle of appellate intervention was affirmed by the Federal Court in UEM Group Berhad v Genisys Integrated Pte Ltd [2010] 9 CLJ 785 where it was held at p. 800: It is well-settled law that an appellate court will not generally speaking, intervene with the decision of a trial court unless the trial court is shown to be plainly wrong in arriving at its decision. A plainly wrong decision happens when the trial court is guilty of no or insufficient judicial appreciation of evidence. (see Chow Yee Way & Anor v Choo Ah Pat [1978] 1 LNS 32; Watt v Thomas 10 [1947] AC 484; and Gan Yook Chin & Anor v Lee Ing Chin & Ors [2004] 4 CLJ 309.” [182] In the present appeals, I am convinced and satisfied that the findings of the learned Judge are plainly erroneous. There are real compelling reasons to intervene as the findings, reasons and conclusions of the learned Judge demonstrate a clear misapprehension of the applicable principles and a “demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence”; quite aside from misapprehension of the applicable legal principles. 115 [183] After the first respondent had lodged a claim with the appellant, the appellants set about putting together a team comprising the relevant and necessary experts and know-how – see evidence of Lim Chee Keong (Eddie) [DW4], the Head of Non Motor Claims of the first appellant. Mestari Adjusters Sdn Bhd, Fire Brigade and Forensic Services (M) Sdn Bhd [FSM], Srijaya Teck Sdn Bhd and Safety Services & Logistics Sdn Bhd were appointed and given their respective tasks consistent with their area of expertise. That team came up with their reports which were all tendered in evidence. The findings in those reports ought to have been given their full weightage which the learned Judge failed to do. [184] In this part of the judgment, I shall only deal with those reports and evidence relevant to the issue of breach of warranties. There were several witnesses including Anthony Stewart Jarratt [DW5] and Khairul Za’im bin Mohamad Nor [DW10], both with Fire Brigade and Forensic Services (M) Sdn Bhd [FSM]. DW5 and DW10 investigated into the fire at the premises, especially on the aspect of security, and prepared a Security Failure Report and a Fire Loss Report. Both reports are dated 19.1.2010. The two reports were tendered in evidence at the trial and were marked respectively as exhibits D109 and D110. I do not propose to deal with these two reports here as they pertain to the security issue and these matters have already been touched on earlier. [185] DW1 is an experienced loss adjuster having been in the specific field since 1981. He has the proper and necessary qualifications to testify on his findings. When DW1 concluded in his investigations that there were breaches of the FEA Warranties, that conclusion was not without basis. It was reached after careful analysis of the relevant contemporaneous records of the fire-fighting system purportedly in place at the premises at 116 the material time and the findings of forensic experts who investigated the premises after the fire. DW1 went back over the records and found the state of the system wanting and not in keeping with the relevant General Requirements which are read with the FEA Warranties. The relevant records included worksheets of the first respondent’s own maintenance contractor, Sri Kembang. These worksheets were prepared well before the fire broke out. [186] DW2 who prepared the Post Loss Survey Report [exhibit D108] did so after having visited the premises. DW2 made observations and took photographs at the time of his visit on 13.2.2009. Like DW1, DW2 made particular findings on each of the FEA Warranties before concluding that the first respondent was in breach of all the FEA Warranties under discussion – see exhibit D108, the details of which have already been set out earlier. [187] DW6 also visited the premises for the specific purpose of independently evaluating the fire-fighting system with reference to the FEA Warranties. DW6 made specific findings on each of the conditions at the premises in respect of each requirement and warranty, concluding that there were breaches of all the related warranties. In his concluding remarks, DW6 opined that “the essential elements of the fire extinguishing appliances at the 1st plaintiff’s premises were either faulty or unavailable to operate at the time of my inspection, like the case of the rechargeable battery set and control panel for the sprinkler and hose reel pumping system.” [188] DW7 from Srijaya Teck Sdn Bhd inspected the premises on 15.1.2009 and his report is at exhibit D106. Aside from a physical 117 inspection, DW7 also examined the plans and took photographs of the equipment he had inspected. DW7 states in exhibit D106 that he found from his general inspection that although the hose reel and fire alarm system is “generally satisfactory”, the “system does not extend into the office building”; that the fire brigade’s requirement that the sprinkler system be linked to a central monitoring system or CMS was not done at the premises; that the sides of the compound of the premises were blocked; that there were no fire extinguishers on the office floor, and the two units examined had either no certificate from the Fire Brigade or had expired certificates. DW7 also found concerns with the hydrant and hose reel systems and the sprinkler system, the details of which have also been touched on the earlier. All these findings and concerns were recorded and related in the “as is examined and inspected” basis, and not as a matter of opinion. This is significant and important and was not taken into account by the learned Judge. These were hard facts and evidence which clearly proved that the FEA Warranties had been breached. The first respondent did not and could not counter with any credible reply; and the learned Judge failed to appreciate that. [189] None of the above evidence which I find to be independent and cogent, were accepted by the learned Judge. On the first warranty relating to the fire extinguishers, the learned Judge seemed to have focused his attention on the number of fire extinguishers instead of looking at the larger picture and the obligations imposed under General Requirements I, amongst which is that the fire extinguishers, regardless the number, must have certificates issued by Bomba. It goes without saying that the certificates issued must be current and valid. Instead, the learned Judge disregarded the evidence of DW6 finding that there were “no positive documentary and/or photographic evidence to confirm that 118 there were only 2 fire extinguishers one of which has an expired Bomba certificate”, and preferring the evidence of PW8 that there were more than two fire extinguishers on the premises. [190] As for the evidence of DW12 and Sri Kembang’s report dated 9.9.2008 and marked as exhibit D105, the evidence shows the existence of serious faults and defects to the sprinkler system, fire alarm system and the CO2 system, all of which required rectification. DW12 had testified that these faults were pointed out to the first respondent in Sri Kembang’s report and it would appear that the first respondent did nothing to rectify them. DW12 had further testified that if the faults were not rectified, the fire-fighting system was not workable in the event of a fire. [191] DW12’s evidence is corroborated by DW13 who testified that the fire-fighting system was in proper working condition in 2006 but in 2008, at the time of the survey and the report, defects had been observed and rectifications had been suggested. In fact, a quotation was even given to the first respondent. The first respondent never reverted to Sri Kembang on the quotation. DW13 also testified that the first respondent did not service the fire-fighting system on a regular four times a year basis, and that no servicing was done for two years before they were called in 2008. [192] None of the first respondent’s witnesses testified that rectification works were done. Despite knowing of these serious and major defects and faults, and despite seeking a quotation for rectification works, and not carrying on with the works, the first respondent did not disclose any of this information to the appellants but, instead, the first respondent proceeded to seek cover. The onus is on the first respondent to disclose and having failed to disclose, it would be wrong and certainly inequitable for the first 119 respondent to take advantage of its own wrong and, now dispute the appellants’ right to avoid the Policies. The learned Judge is plainly wrong in ignoring the evidence of these two independent subpoenaed witnesses who, as submitted by learned counsel for the appellants, have no reason to lie. Their evidence was clearly borne out by the contemporaneous documentary evidence and unfortunately was not given due weight by the learned Judge. [193] The breaches of the FEA Warranties examined were breaches of material terms of the Policies and the appellants had, contrary to the findings of the learned Judge, satisfactorily proved such breaches on a balance of probabilities – see New India Assurance Co Ltd v Pang Piang Chong & Anor [1971] 2 MLJ 34. There was clear evidence of material non-disclosure or non-disclosures of material facts. The state of the fire-fighting system, that it was defective and that there were breaches of the General Requirements, were known to the first respondent at all material time before the fire. That state and certainly the breaches would certainly influence the appellants on whether to run the risk, and at what premium. In the face of such hard evidence, it would be difficult to deny that these were all material facts that would seriously have impacted on the appellants’ decision to run the risk or provide the policies upon which the first respondent have made its claims - see Arterial Caravans Ltd v Yorkshire Insurance Co Ltd [1973] 1 Lloyd’s Reports 169. [194] With such overwhelming evidence of breaches of the FEA Warranties, the appellants are entitled to rely on Condition 9(a) of the FMD Policies and Condition 8(c) of the FCL Policies to avoid liability under the policies. In addition, the FCL Policies do not respond once the FMD 120 Policies are not engaged. This is evident from the Preamble to the FCL Policies: “Provided that at the time of the happening of the Damage there shall be in force an insurance covering the interest of the Insured in the property at the premises against such Damage and that payment shall have been made or liability admitted therefore under such insurance.” [195] Finally, there is the matter of the first respondent’s complaints and the cross-appeal on the matter of waiver in respect of the tender and salvage exercise. The tender and salvage exercise was carried out after the fire and the issue is whether the involvement of the loss adjusters in that exercise amounts to a waiver of the breaches by the first respondent. The first respondent had relied on this as an additional ground in support of the contention that there is waiver. The learned Judge did not rule on this. [196] Although the learned Judge did not rule on this additional basis under Condition 14, the learned Judge nevertheless ruled in favour of the first respondent on the issue of waiver. Under such circumstances, the cross-appeal is not sustainable. In any case, even if it is, the earlier observations and findings on the principle and operation of waiver and estoppel apply equally to this cross-appeal; that there cannot be waiver unless there is actual full knowledge of the breach. On the facts, there is none established. Next, having examined Condition 14 of the FMD Policies and the related correspondence, particularly those issued by the adjusters, it is obvious that the adjusters were careful at the material time, keeping all correspondence properly reserved and without prejudice to the 121 terms and operation of the policies. The adjusters, Mestari were assisting the first respondent in the tender exercise and such assistance cannot and does not amount to waiver of any breach of the policies on the part of the first respondent. [197] Furthermore, the proceeds of the salvage exercise were paid to the first respondent and never to the appellants or even to the adjusters. Under such circumstances, the actions and involvement of the adjusters cannot amount to waiver, in law or on the facts. The facts and circumstances in the present appeals are vastly different from those presented in Yorkshire Insurance Co Ltd v Craine [1922] 2 AC 541. In that case, the insurers had clearly taken possession of the insured premises and had not sold the goods as salvage. Contrast with the facts in the present appeals, the appellants never took possession, even through the adjusters. The correspondence by the adjusters and insurers there were also unreserved. Most significantly, condition 12 in that case is vastly different in intent and effect from Condition 14 of the FMD Policies in that the appellants here have plainly stated: “…the Company shall not by any act done in the exercise or purported exercise of its powers hereunder, incur any liability to the Insured or diminish any right to rely upon any of the conditions in this Policy in answer to any claim.” [198] As held by the Federal Court in Capital Insurance Bhd v Cheong Heng Loong Goldsmiths (KL) Sdn Bhd [2005] 4 CLJ 1, the adjusters, as licensed loss adjusters, have no authority to make any admissions on behalf of the insurer. In principle and on the facts, there is no support for 122 the first respondent’s proposition on this aspect of the cross-appeal. The cross-appeal is consequently, without merit. [199] For all these compelling reasons, the appellate Court must intervene as the learned Judge has plainly erred and seriously misapprehended the principles and the facts and has further erred in his application of the law to the facts. Contrary to the learned Judge’s findings and conclusions, there was ample evidence of breaches of the FEA Warranties and thereby breaches of Conditions 9(a) of the FMD Policies and Condition 8(c) of the FCL Policies. The appellants are consequently entitled to avoid liability under these policies. [200] My learned sister, Rohana Yusuf JCA and my learned brother Idrus Harun JCA have read this draft judgment and they agree with the reasons given and the conclusions reached. 123 Liability towards the second respondent Rohana Yusuf JCA: [201] This part of the judgment deals with the claim by the second respondent and the liability of the appellants towards that respondent. It also deals with the appeals on quantum. [202] The second respondent is suing as the mortgagee of the first respondent in respect of FMD Policy 005 and claiming the insurance proceeds under this policy based on the same incident of fire on 05.01.2009. The claim was premised on: a. Mortgagee clause that is enumerated in the terms of the FMD Policy 005; and b. The Deed of Assignment of Insurance Proceeds dated 14.05.2009 executed between the first and second respondents, in respect of the FMD Policy 005. [203] The second respondent now claims from the first appellant and the second appellants respectively for the part of 87.5% and 12.5% under the mortgagee clause and the Deed of Assignment under the FMD Policy 005 for all amounts outstanding and due including interest that are to be paid 124 by the first respondent to the second respondent. And, as at 19.02.2016, the amount due and outstanding from the first respondent was in the sum of RM29,430,766.90. [204] It is the second respondent’s stand that the appellants are liable to pay under the FMD Policy 005 based on the mortgagee clause regardless of whether the fire was deliberately caused by the first respondent’s conduct, neglect or breaches under the said Policy as the same will not affect or invalidate the second respondent’s claim. Thus notwithstanding the earlier findings on the breaches by the first respondent which entitled the appellants to absolve themselves from any liability under the policies, the second respondent maintained its right of claim to the insurance proceeds. [205] In resisting this part of the claim, the appellants first contended that the second respondent has no locus standi to sue the insurers under the FMD Policy 005 as they are not named as an insured party in that Policy. Since the second respondent is not an insured party it has no privity to the insurance contact. The appellants argued that the second respondent also is not a privity to the insurer as the Deed of Assignment was executed between the first respondent and the second respondent without making the appellants a party to it. That apart, the Deed of Assignment is to be held ineffective since it was made without consent as required under Condition 9(d) of the FMD Policy No 005. Finally, it is also the appellants’ case that since the appellants are not liable to the first respondent under the policies, the second respondent’s claim is not maintainable. [206] In relation to the claim of the second respondent, the learned High Court Judge had made the following findings: 125 a. that Condition 9(d) of the FMD Policies and FCL Policies applies only where the consent of the defendants/appellants must be obtained in order to assign the fire policy before the occurrence of the fire loss; b. under the mortgagee clause it was clear that any loss or damage shall be payable irrespective of whether there was any act or neglect on the part of the first respondent insured or whether there were breaches of the terms and conditions of the policy of the FEA Warranties; c. the second respondent has the locus standi to sue the appellants, by virtue of the mortgagee clause in the Deed Of Assignment; d. Condition 12 that notification of claim to be made within 15 days after loss or damage does not extend to the second respondent as the second respondent had only come into the picture upon the assignment being created by the first respondent; e. the issue of res judicata is a non-issue as an application was already made before another Judge and was unsuccessful using the same reason of res judicata and an appeal to the Court of Appeal was also dismissed. [207] I would begin my discussions on the second respondent’s case by examining firstly, the second respondent’s right to sue under the Mortgagee (Chargee) Clause. In its pleaded case, the second respondent is suing as the mortgagee in the FMD Policy 005. According to the second 126 respondent, the second respondent was recognized and acknowledged in the Fire Material Damage Schedule that stipulates that the Insured is the first respondent and under the heading Mortgagee/Chargee/Lessor/ Hirer, the second respondent’s name is stipulated. Clauses forming part of the FMD Policy 005 stipulates “C006(A) Mortgagee (Chargee) Clause”. A letter dated 28.04.2009 from the appointed adjuster of the first respondent, Mestari Adjusters Sdn Bhd to the first appellant had acknowledged the second respondent as a chargee whereby it was noted that: In view that RHBIBB’s interest as Chargee is noted in your above fire policies, we are extending a copy of this letter to the Bank to keep them informed to which we trust you have no objection. [208] Apropos the Mortgagee clause, the appellants contended that the learned High Court Judge had erred in holding that the second respondent had the necessary locus standi to sue the appellants under the FMD Policy 005 as they are not named as an insured party in that FMD Policy. This policy merely makes a mention of RHB Bank as a “mortgagee/charge/lessor/hirer” and not as a contracting party. That mere mention does not clothe the second respondent with the capacity to sue. The appellants further contended that it is clear that the second respondent is a stranger or a third party to the insurance contract embodied in the FMD Policy 005 because the policy is a contract entered into between an insurance company and the entity being insured, when only the first respondent being the only named insured. The second respondent’s interest in the FMD Policy 005 as such is as a mere mortgagee but not a contracting party. Learned appellants’ counsel cited 127 in authority the case of Kepong Prospecting Ltd v Schmidt [1968] 1 MLJ 170 to illustrate the position of law on privity of contract. [209] To be noted are the findings made at the High Court on this subject. It was held by the learned trial Judge in his grounds of judgment at page 70, that the second respondent has locus standi to sue the Insurers “by virtue of the mortgagee clause in the Deed of Assignment which creates an entirely separate contract between the Defendant and 2nd Plaintiff.” I find it plain that there is no “mortgagee clause” in the Deed of Assignment. The mortgagee clause in FMD Policy 005 and the Deed of Assignment are in fact two distinct matters. In the FMD Policy 005, the second respondent is not a party to the insurance contract as it is not named as the insured. The Deed of Assignment does not include the insurers/appellants as a party to the Deed. The Deed of Assignment is only a contract between the first and the second respondents exclusively, to the exclusion of the appellants. I will deliberate further on the Deed of Assignment in the ensuing paragraphs. [210] I agree with the contention of the learned counsel for the appellants that the mere mention of a third party in a contract does not confer the third party the right to sue even where the contract is for the benefit of that third party. I refer to the Privy Council decision in Kepong Prospecting and Punca Klasik Sdn Bhd v Foh Chong & Sons Sdn Bhd & Ors (supra). In that case where a contract entered into between A and B for B to take over A’s obligation to pay Schmidt, the Privy Council held that Schmidt being a non-contracting party to the said agreement, has no right to sue B directly for payment. This principle was followed and applied most recently in the case of Life Minerals Sdn Bhd v Insporasi Gabungan Felda Wilayah Kuantan Sdn Bhd & Anor [2014] 1 LNS 128

1509. The mere mention of the second respondent as a mortgagee in the FMD Policy 005 therefore is not sufficient to give rise to a right and thereby a cause of action to sue the appellants/Insurers for the insurance monies. [211] I have examined the mortgagee clause relied upon by the second respondent in staking the claim herein. The Mortgagee (Chargee) Clause 1 in FMD Policy 005 provides: “Loss, if any, payable to (as per Schedule) as Mortgagee (Chargee) as interest may appear in this insurance, as to the interest of the Mortgagee (Chargee) only therein, shall not be invalidated by any act or neglect of the Mortgagor (Chargor) or the Owner of the within described property nor any foreclosure or other proceedings or notice of sale relating to the property or by the occupation of the premises for purposes more hazardous than are permitted by this Policy, or by the non-occupation thereof, or by any other increase in risk taking place in the property insured hereunder. Provided that in case the Mortgagor (Chargor) or Owner shall neglect to pay any premium due under the Policy the Mortgagee (Chargee) shall on demand pay the same. Provided also that the Mortgagee (Chargee) shall notify the Company of any non-occupancy or any change of ownership or occupancy or increase of hazard which shall come to the knowledge of the said Mortgagee (Chargee) and unless permitted by this Policy it shall be noted thereon and the Mortgagee (Chargee) shall on demand pay the premium for such increased hazard for the term thereof otherwise this Policy shall be null and void…” [212] Even at a glance, it is clear from the opening words that the above Clause 1 will only apply if there is any loss payable under the Policy. The opening words envisage firstly, there must be a payable loss. Hence, if there is any loss payable to the mortgagee it will not be invalidated by any 129 act or neglect of either the mortgagee or the owner. In interpreting such a clear unambiguous term the courts must always give effect to the plain and ordinary meaning of those words. In Chiew Swee Chai v British American Insurance Co (M) Sdn Bhd [supra], Shankar J (as he then was) held that when the terms in an insurance policy are clear, effect must be given to those terms, where His Lordship said: “Of course the interpretation should be reasonable, and of course any ambiguities should be resolved against the person in whose favour the document has been framed. …But where the words of the policy are crystal clear it is the view of this court that the sanctity of the contract should be upheld…” [213] In the High Court decision of Chan Ting Hong v The Asia Insurance Co Ltd [1998] 6 MLJ 522, the insurer paid the mortgagee pursuant to a similar mortgage clause policy although the claim against the insured is not payable under the policy. It was held in that case that since the condition precedent of the policy had been breached the insurer should not have paid the mortgagee. I agree that this is the true construction of the mortgagee clause. [214] Learned author, Malcolm A. Clarke in The Law of Insurance Contracts 2nd Edition describes the Mortgagee (Chargee) Clause as a loss payable clause, but gives no rights to the loss payee unless it also constitutes or evidences an assignment of the rights of the insured under the policy. Thus, the purpose of the clause is to authorise the insurer to pay the insurance money whenever payable to a non-contracting party 130 such as the mortgagee whose money the insured owed. As stated by the same learned author at paragraph 5-1A: Some policies direct that the insurance money shall be paid to a named third party, such as a creditor of the insured. Such a clause, known as a loss payable clause, ‘gives no rights to the loss payee unless it also constitutes or evidences an assignment of the insured’s rights under the policy or evidences an assignment of the insured’s rights under the policy or evidences the fact that the designated person is an original assured’. A simple form of the loss payee clause, however, is not as an assignment of the policy proceeds. Such a clause purports to benefit a third party, the loss payee, and is subject to the rule of privity against enforcement by the third party, and subject to the exceptions to or evasions of that rule in the law of insurance discussed the pages that follow. Moreover, the loss payee can be in no better position that the insured through whom he is, if at all, entitled to the insurance money. [emphasis added] [215] Thus a mortgagee clause per se is a mere loss payee clause which gives no right to the loss payee, like the second respondent to make a claim unless it also constitutes an assignment. In this regard, I particularly note the finding by the learned trial Judge on the Deed of Assignment. The learned trial Judge held that Condition 9(d) of the FMD Policy only applies where the consent must be obtained for the purpose of assigning the policy before the occurrence of the fire. What can be deduced from this finding therefore, is that the policy was never assigned to the second respondent. Without any assignment the mortgagee clause cannot confer on the second respondent any rights to the insurance policy. This interpretation is congruous with the conduct of the second respondent in 131 causing the first respondent to execute The Deed of Assignment of the Insurance Proceeds. Had the rights of the second respondent remain infallible under the FMD 005 Policy then there is no necessity to execute any more assignment of the proceeds of that Policy. This is further confirmed by the testimonies of PW9 on behalf of the second respondent. In cross-examination PW9 confirmed that it would be unnecessary to execute the Deed of Assignment if the right of the second respondent has been secured, even if there is no payment due under the policy to the first respondent. [216] In the earlier deliberations in the preceding paragraphs it was found that there are evidence of breaches on the part of the first respondent. It was also found that the breaches by the first respondent had exonerated the appellants from any liabilities under all the four (4) Policies. Nothing therefore becomes payable under the FMD Policy 005. If there is no loss payable, then the Mortgagee (Chargee) Clause 1 would not trigger. Thus, even though the clause gives the second respondent the right to receive monies under the policy there are no monies at all to be assigned or, received. [217] The above proposition is supported by the ratio in Chan Ting Hong v The Asia Insurance Co Ltd [1998] 6 MLJ 522. In Chan Ting Hong, the insurers paid the mortgagee (Visia Finance) although the claim was not payable vis a vis the named insured allegedly in accordance with the Mortgagee (chargee) Clause. The court held in no uncertain terms that since a condition precedent of the policy has been breached, the insurers should not have paid the mortgagee at all. I agree with this decision as a true and correct construction of the Mortgagee Clause. 132 [218] In arriving at the above proposition I have given my due considerations to the various cases cited by learned counsel for the second respondent, in support of his contention that the Mortgagee Clause 1 in the FMD Policy 005 endows the second respondent with the right to the insurance monies, notwithstanding any act or neglect of the insured which absolve the liability of the insurer. The first case cited to us in the line of authorities is the Federal Court decision in Standard Chartered Bank v KTS Sdn Bhd [2006] 4 CLJ 79. That case dealt with an insurance policy taken by the financier bank and the borrower with Hong Leong Assurance. The property insured under the fire policy was found by the court to include third party’s goods. It was held that a fire insurance policy is a form of indemnity and is meant to compensate the owner of the goods covered by the policy. It is meant to compensate the owner of the goods covered by the policy which were destroyed by fire. The insurance proceeds in that case was therefore found to belong to the owner of the goods even though he was not a party to that fire policy. The facts and issues in that case were so different and hence I do not see the application or the relevance of it to the issue, as contended by the learned counsel. [219] It was discussed in that case the difference between a composite and a joint policy by referring to learned author Colinvaux’s Law of Insurance. From the explanation of the learned author, a joint policy is applicable to a situation where a property is jointly owned by parties and their interest is covered by a single policy. In a joint policy if one of the assured has been guilty of misrepresentation or of some breach of duty neither can recover. A deliberate destruction of the insured subject by a joint assured person will prevent recovery. Whereas, in a composite policy the rights of individual assureds are independent. It was explained 133 by learned author that a composite policy normally applies where the interests of parties in the property are different as in the case of landlord and tenant or mortgagor and mortgagee but the interests are insured in one single policy. Under a composite policy each party has a separate contract with the insurer and has to be paid individually because a composite policy consists of a number of contracts in a single policy. The case of the second respondent would be sustainable if it can be proven that the Mortgagee Clause in FMD 005 Policy is a composite policy where the first respondent has one set of contract and the second respondent has another set with the insurer under that Mortgagee Clause. [220] The case of First National Commercial Bank plc v Barnet Devanney (Harrow) Limited; All England Official Transcripts (1997 – 2008) is a decision of the Queen’s Bench Division. It is a case where the plaintiff therein is jointly insured with the financier, Quo Vadis. The plaintiff sued the defendant for negligence and breach of contractual duty of care for failure to arrange an insurance for the plaintiff as mortgagee of a property. The plaintiff contended that had a mortgage protection clause or non-invalidation clause been inserted it could have been no case of the insurer trying to avoid the policy against both the plaintiff and Quo Vadis. The defendant argued that a mortgage protection clause or non-invalidation clause would have added nothing to the policy. The learned Judge then after considering some Canadian authorities held and found the plaintiff failed to establish negligence. Amongst the reasons stated was that the plaintiff had failed to establish that all reasonable competent brokers during the period in the years 1989 and 1990 would have effected a policy of insurance on behalf of the plaintiff which contains a mortgage protection clause. There were discussions on the effect of mortgage 134 protection clause but it was not the ratio of that decision to support the contention of the second respondent’s right as mortgagee. [221] The case of Caisse Populaire des Deux Rives v Societe’ mutuelle d’assurance contre l’incidenie de la Vallee du Richelieu

(1984) 19 DLR (4th) 411, [1990] 2 SCR 995, is a decision of the Supreme Court of Canada. It involves the insured who was the owner of a farm. The insured intentionally burned down the farm buildings. The court was faced with the issue of whether the insurer was liable to pay the mortgagee pursuant to what is termed as the “hypothecary insurance clause”. In construing the standard hypothecary clause in that case, the court referred to the case of Aetna Insurance Co. v Kennedy, 301 U.S 385

(1937) decided by the United States Supreme Court, where the US Supreme Court adopted the interpretation that the mortgagee clause created two separate contracts in the same policy. The Supreme Court of Canada found an insurance policy containing a hypothecary insurance clause used in that case, sets out two contracts; one between the policy holder and the insurer and the other between the latter and the mortgagee. It was observed in that case that whether or not a mortgagee clause would amount to one or two sets of contracts would depend on the way the said clause was drafted. The Supreme Court of Canada found the wordings of the clause under consideration in that case to have created a separate insurance contract. In arriving at that interpretation, the Supreme Court of Canada was giving recognisance that this interpretation would reflect the intents of parties and consistent with the general scheme of insurance law practised in North America and also in keeping with the rules of Quebec civil law as a whole. While holding so the Supreme Court reminded that “it is thus necessary to examine the 135 actual wording of the hypothecary clause to determine whether it contains the component of a separate contract”. [222] In the case of Woolcott v Sun Alliance and London Insurance Ltd [1978] 1 Lloyd’s Rep 629 the mortgagee was a named insured. Caulified J held inter alia that when an insurance policy was taken out by a mortgagee to insure his own interest and that of a mortgagor, the interests of the mortgagee and the mortgagor did not constitute a joint interest but were separate and distinct interests. The court found the policy was not a joint policy but a policy to cover two separate interests namely the society’s interest in protecting their loan advanced and the plaintiff’s interests in protecting the value of the property. [223] In Arab Bank plc v Zurich Insurance Co, [1999] 1 Lloyd’s Rep. 262, the court in construing the policy first found it to be a composite policy covering separate and distinct interests of various parties, hence the fraudulent and dishonest conduct of one insured would not affect the interest of the other insured parties. The court found the policy to be a composite policy because it was expressly contemplated that individual insureds may be covered where others may not be and the proviso to the professional indemnity insuring clause in condition 5 and condition 2 are both designed to ensure that, it was only the individual insured guilty of dishonest conduct which was prejudiced by his or its dishonesty but not other innocent insureds. [224] In the case of J.B. Kramer Grocery Co. Inc. v Glens Falls Ins. Co., 497 F. 2d 709 (1974), the court held that the defence of the owner’s arson was not available to the insurer in an action by the mortgagee. This was premised on Paragraph 7(d) of the security document obligating the 136 owner to insure the building for the benefit of the mortgagee. Hence, it was clear that the policy was indeed for the benefit of the mortgagee. [225] The case of Colonial Mutual General Insurance Co Ltd v ANZ Banking Group (New Zealand) Ltd [1995] 1 WLR 1140, [1995] 3 All ER 987, is a Privy Council decision from New Zealand. It was found that by virtue of s 78 of the Property Law Act 1952 of New Zealand, there was implied into the mortgage executed by the insured property owner in favour of the mortgagee bank. Furthermore, the insurance under consideration contained an express insurance obligation that the bank alone shall have the power to settle, compromise and recover or claim against the insurance company. On that basis, it was expressly clear that the mortgagee bank had been granted the right to recover and decide on the insurance policy claim. [226] In Aetna Life & Casualty Co. v Charles S. Martin Distributing Co. Inc., 169 S.E. 2d 695 (1969), the court held that under the mortgagee clause which is known as the “New York standard mortgage clause”, the mortgagee could indeed collect for the loss, even though the insured had wilfully and fraudulently burned her property in order to collect the insurance thereon and had failed to perform all of the policy’s conditions precedent. The said mortgagee’s claim to the proceeds of the policy under the mortgagee clause was consequently not barred. [227] Learned counsel for the second respondent cited the case of Chan Ting Hong v The Asia Insurance Co Ltd [1988] 6 MLJ 522. There, there was a breach by the Mortgagee/Chargee itself of the mortgagee/chargee clause. Under the proviso to the mortgagee/chargee clause, it was the duty of the mortgagee/charge to notify the insurance company of any 137 occupancy or increase of hazard which shall come to the knowledge of the mortgagee/chargee. Notwithstanding the vacant risk warranty, the insured rented the premises and this was made known to the chargee. The court had held that the duty to notify of the occupancy lies with the mortgagee/chargee and as the mortgagee failed to do so, then the policy becomes null and void. Thus, the insurance company was not liable under the policy to pay to the mortgagee/chargee. [228] From the list of cases cited by the second respondent before us, there are two cases which appear to support the contention and proposition of the counsel for the second respondent. First, the Canadian case of Caisse Populaire des Deux Rives v Societe’ mutuelle d’assurance contre l’incidenie de la Vallee du Richelieu (supra). However, notwithstanding that construction of the mortgagee clause, the Supreme Court of Canada reminded that each clause is to be interpreted on its own wordings. To be noted the Canadian Court was persuaded by a decision of the US Supreme Court which upheld the New York Standard Mortgage clause, that is, the case of Aetna Insurance Co. v Kennedy (supra). The Supreme Court of Canada did deliberate on the issue of public policy, that a person cannot benefit from his own wrong doings. The Canadian Court took the view that while the insured in that case had breached a term of the policy by burning the insured property, hence could not benefit from his own wrong, the creditor is not under the same contract because the Supreme Court found the hypothecary clause created two distinct contracts between the insured and the mortgagee with the insurer. [229] While on the issue of public policy, in my view, on the facts of the present appeal, if the insurers are liable to pay the outstanding debt of the first respondent to the second respondent mortgagee, it tantamounts to 138 the first respondent benefiting from its own wrong. By its wrongdoing, the first respondent’s liability to the second respondent under the loan agreement would appear to be discharged by that wrongdoing. On this ground of public policy alone the claim of the second respondent here should not be entertained. [230] The other case that was decided in favour of the second respondent is Aetna Life & Casualty Co. v Charles S. Martin Distributing Co. (supra) by the US Supreme Court. Both this case and the Canadian case of Caisse Populaire des Deux Rives v Societe’ mutuelle d’assurance contre l’incidenie de la Vallee du Richelieu are decisions which are based on the principles of the American jurisprudence and have no relevance to this country. His Lordship Gopal Sri Ram JCA (as he then was) had reminded in Inter Maritime Management Sdn Bhd v Kai Tai Timber Company Ltd. Hong Kong [1995] 4 CLJ 164 on the important difference that exists between Malaysia and other foreign jurisdictions where His Lordship remarked at page 176 that: “The important differences that exist between Malaysian and any foreign jurisprudence should always be borne in mind when deciding whether to incorporate the foreign principle into our common law. There are inherent dangers in importing a foreign doctrine and then subjecting it to the limitations of the municipal law. Due regard must always be had to the manner in which the foreign Court applies a particular principle in its domestic context. There must either be an acceptance of the entire jurisprudence upon a subject or a rejection of it in its totality; no piece-meal reception should be entertained.” 139 Thus even if the two decisions based on American jurisprudence are to apply, the Court must be cautious in relying on such decisions. [231] From all the above discussions, I am convinced that the mere incorporation of the Mortgagee (Chargee) Clause 1 in the FMD 005 Policy in this case, do not automatically confer on the second respondent as the mortgagee to the monies regardless of any breach of conditions or warranties. It could not have been the intention of the policy to create a separate contract with the second respondent since the second respondent had not been named as an insured under the policy “for its respective rights and interests”. [232] As I have alluded to earlier, the conduct of both the first and second respondents executing the Deed of Assignment clearly demonstrated that the intention of the parties in inserting Mortgagee (Chargee) Clause 1 was that, it was to operate as a mere “loss payable” clause which does not confer on the second respondent any locus standi to sue in its own name. The Deed of Assignment [233] I next examine the Deed of Assignment of the Insurance Proceeds executed between the first and second respondents. The Deed of Assignment was executed soon after the fire. The appellants had challenged the validity of the assignment for want of compliance with Condition 9(d) of the FMD Policy 005 and FCL Policies. Under Condition 140 9, sanction of the appellants is required before any benefit under the policies may be assigned to a third party. The execution of the Deed of Assignment made in breach of Condition 9(d) is against the contractual prohibition to assign. Such an assignment would be ineffective and hence cannot vest any contractual rights on the second respondent as the purported assignee. The Supreme Court in United General Insurance Co Sdn Bhd v Progressive Credit Sdn Bhd [1988] 2 MLJ 297, held that since no written consent was obtained as required, there was no lawful assignment of the policy. [234] The argument by the second respondent was that, sanction is only required before the occurrence of any loss or damage as stipulated in Condition 9(d). That may be the position if the first respondent had wanted to assign the policy to the second respondent. If it is to assign the proceeds, consent is not required, and it will only be enforceable if there are any proceeds to be assigned. [235] The second respondent further contended that the assignment is valid by virtue of section 4(3) of the Civil Law Act 1956. Under section 4: “Any absolute assignment, by writing, under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, shall be, and deemed to have been, in effectual in law, subject to all equities which would have been entitled to priority over the right of the assignee under the law...” 141 [236] Learned counsel submitted that the second respondent in executing the Deed had fulfilled all the requirements of section 4 since the Deed was in writing and that notice in writing had been given to the appellants’ loss adjuster in the form of the draft Deed of Assignment. Learned counsel submitted the assignment had therefore granted the right to the second respondent to sue for a debt in law. On this issue, I agree with the submission of learned counsel for the appellants that by submitting that the Deed of Assignment had assigned the first respondent’s chose in action to sue under FMD Policy 005 to the second respondent, evinces a clear admission of a breach of Condition 9(d). This, in my view would further reinforce the appellants’ case against the claim because a breach of Condition 9 for failure to obtain consent, will cause all benefits under the policy to be forfeited. [237] In any case, it is trite that an assignee cannot be in a position better than the assignor. The second respondent therefore is not entitled to any insurance monies where the claim is not payable vis-s-vis the first respondent as the assignor. In Re An Arbitration between Carr and the Sun Fire Insurance company (1897) 13 TLR 186, by the terms of the policy, if any fire were to happen the insured has to make their claim within 15 days, and if they made a fraudulent claim, the company would not be bound to pay any insurance money. It was argued by the plaintiff in that case that this dispute was not between the insured and the insurer, but between an assignee of the insured and the insurer. The plaintiff said that he was not bound by the fraud of the insured. The Court of Appeal held that if the plaintiff was proceeding on the claim of the insured, their fraud hit him. If he was proceeding on his own claim, he had not complied with 142 the terms and conditions of the policy, namely, he was in breach of the notice provision. As such, the plaintiff’s appeal was dismissed. [238] In the final analysis, it is observed that the second respondent had pursued its claim under two inconsistent footings. If the second respondent says it is making this claim as a contracting party under the Mortgagee Clause, it cannot at the same time be an assignee under the Deed of Assignment for the same insurance proceeds. [239] For the same reasons and circumstances, I agree with the appellants that the second respondent has failed to acquire any rights to sue the appellants as insurers under the FMD Policy 005. The second respondent had failed to discharge the burden of proving that it has the required locus standi to bring and maintain this suit against the insurers either under the Mortgagee Clause or the Deed of Assignment. [240] The claim of the second respondent is also not sustainable by reason of a breach of Condition 12 of the FMD Policy 005. As Condition 12 is a condition precedent to the appellants’ liability to pay, the second respondent’s breach entitles the appellants/Insurers to reject its claim. In any event the claim of the second respondent would be defeated in view of the earlier finding that the first respondent’s claim is not payable. There was therefore nothing to be assigned to the second respondent. [241] The learned Judge had clearly misdirected on this issue in allowing the claim by the second respondent. Therefore, the appeal by the appellants against the second respondent ought to be allowed. 143 Quantum [242] I now come to the last remaining point. The learned trial Judge in determining the quantum of claim allowed the claims without having regard to the policy terms and conditions, and without strict proof of loss. The learned trial judge allowed the first respondent’s stock claim of RM38,799,784.00 under the FMD Policy 005 on sole reliance of the first respondent’s accountant’s report produced as Exhibit P18. This matter has been extensively dealt with by my learned brother, Idrus Harun JCA in his part of the judgment. [243] I accept the submissions of the appellants that in essence, exhibit P18 has been expressly qualified in that it was done based on reconstructed documents, that all information and explanation necessary to the financial statements were not available, and that there is insufficient audit evidence. I further accept the submissions of learned counsel for the appellants that the policy is clearly an “unvalued policy” and indemnity in its nature. Such a policy requires the insured to prove actual loss resulting from the fire incident. The learned Judge has also wrongly disregarded the independent loss adjusters’ evidence that, in any event, the stock loss would not have exceeded RM23,360,000.00. [244] I am in further agreement with the appellants that the documents submitted by the first respondent were dubious and not proven according to the rules of evidence. A simple reconciliation of the sales and purchase invoices tendered by the first respondent show that all stocks would have 144 been sold prior to the fire. That would mean that there would have been no stock present at the premises at the time of the fire. This shows that the first respondent’s own document contradict its accountant’s report at exhibit P18. [245] The learned trial judge allowed the first respondent’s consequential loss claim of RM48,000,000.00 under the FCL Policy 733 by awarding the maximum sum insured under the policy, i.e. RM20 million x 3 years x 80% indemnity, despite the fact that: