Magnificient Empire Sdn Bhd. v Mpi Generali Insurans Berhad (WA-12BNCC-5-02/2024)

The appeal before me is directed against the post-trial decision of the learned Sessions Court Judge (“LSCJ”), delivered on 31 January 2024 dismissing the Plaintiff or Plaintiff’s claim under a Fidelity Guarantee Policy issued by the Defendant.

Parties will be referred to as they appeared in the Court below.

The appeal turns principally on whether the Plaintiff proved the essential policy trigger which is the direct pecuniary loss sustained by an act of fraud or dishonesty committed by an employee, during the period of insurance and during the employee’s uninterrupted continuance of employment.

Having carefully considered the Record of Appeal, the pleadings, the evidence adduced at trial, the written and oral submissions of the parties, and the applicable legal principles governing fidelity insurance and appellate review, I find no basis to disturb the findings of the LSCJ.

I dismissed the appeal with costs and affirmed the decision of the LSCJ.

The Plaintiff held a Contract of Fidelity Insurance (“Policy”) with the Defendant. The Plaintiff has been insured up to RM500,000 against loss and damage caused by the fraudulent or dishonest acts of employees for the period 1 July 2016 to 30 June 2017.

The Plaintiff pleaded that its employee, one Teoh Chin Kooi (“TCK”), who was employed as its accountant from 3 August 2015, had access to the Plaintiff’s accounts including cheque books.

In September 2016, five cheque books were applied for by the accounts department. The Plaintiff alleges fraud or dishonesty against TCK. It was alleged that TCK, in a position of trust, dishonestly caused cheques to be issued and payments to be made to persons not related to the Plaintiff, concealed the wrongdoing and retained control of the cheque book or leaflets used.

The pleading then contains a critical allegation and it is this; that even after TCK resigned on 17 November 2016, the cheque book was “stolen and kept” by TCK because that cheque book continued to be used to issue cheques after his resignation.

The Plaintiff pleaded that on 18 May 2017 its Chief Financial Officer discovered that one cheque book bearing serial numbers 315501 to 315600 could not be found.

Inquiries with the bank revealed cheques were issued and monies withdrawn. The total amount withdrawn through these cheques was RM746,393.25. The cheque images showed payments to unrelated parties and unauthorised signatures. This led to police reports being lodged. The Jabatan Kimia Malaysia forensic report later confirmed signatures on the cheques concerned were forged.

The Plaintiff then made a claim under the Policy. The Plaintiff further pleaded that the Defendant only allowed the claim for two cheques totalling RM22,900. The remainder rejected on the basis that the fraud or dishonesty occurred after resignation.

The Plaintiff pleaded that this rejection was wrong. The Plaintiff advanced a “chain of conduct” theory which is that the fraud commenced during employment and continued after resignation. The Plaintiff also pleaded that alternatively, the later cheques were “incidental” to fraud committed during employment. The Plaintiff further pleaded that by approving two of the claims, the Defendant had effectively acknowledged the existence of fraud and cannot deny the remainder of the claim.

The Plaintiff pleads, in the alternative, that certain clauses in the Policy, particularly Clause 10, are contrary to the Limitation Act 1953, Article 5 of the Federal Constitution, and Section 29 of the Contracts Act 1950.

After deducting sums recovered from the bank and the amounts paid by the Defendant, the Plaintiff pleads that it suffered losses of RM675,602.25. However, the Plaintiff limited its claim under the policy to RM477,100 being the Policy limit of RM500,000 less the amount already paid by the Defendant.

The Plaintiff seeks declaratory relief, payment of the sum of RM477,100.00 damages, and costs.

The Defendant admits that it issued the Policy, covering the period from 1 July 2016 to 30 June 2017, subject to the terms and conditions of the Policy. However, the Defendant disputes the Plaintiff’s allegations that the losses claimed fall within the scope of the Policy.

The Defendant’s pleaded defence is essentially that the alleged fraudulent acts and issuance of the cheques were carried out after TCK had ceased employment with the Plaintiff.

Under the terms of the Policy, coverage applied only to acts committed during the uninterrupted continuance of employment of the employee. As such, the losses claimed by the Plaintiff fall outside the coverage of the Policy.

The Defendant further disputed the factual allegations made in the Statement of Claim concerning the issuance of the cheques, the alleged fraud, and the circumstances surrounding the loss.

The Defendant therefore denies liability for the amounts claimed by the Plaintiff and contends that the Plaintiff is not entitled to any relief.

The LSCJ identified the central issue as whether the alleged fraudulent or dishonest acts fell within the scope of the Policy, which expressly required that the fraudulent act must have been committed during the period of the Policy and during the uninterrupted continuance of the employee’s employment, and in connection with the employee’s duties.

Upon reviewing the evidence, the Court found that the Plaintiff had failed to establish, on a balance of probabilities, that the alleged fraud or dishonesty was committed by TCK during the period of his employment. The Court noted that although the Plaintiff suspected TCK to be responsible for the fraudulent cheques, the evidence showed that the majority of the disputed cheques, 44 out of the 46 cheques, were dated and encashed after TCK had resigned from the Plaintiff’s employment.

The Court further observed that the Plaintiff’s own evidence indicated that the alleged fraudulent activities were only discovered after TCK had left the company, and that police reports had similarly been lodged after the termination of his employment. In addition, the Court noted that the expert evidence from the document examiner did not conclusively establish that TCK had forged the signatures on the cheques. In the absence of definitive findings identifying TCK as the perpetrator of the alleged forgery during his employment, the Court held that the Plaintiff had not proven the essential elements required under the Policy.

In particular, the LSCJ accepted the Defendant’s contention that any financial loss suffered by the Plaintiff arose only when the cheques were encashed. The evidence demonstrated that the encashment of the disputed cheques occurred after TCK had ceased to be an employee. Consequently, the alleged acts did not satisfy the Policy requirement that the fraud or dishonesty must occur during the uninterrupted continuance of employment.

The Court concluded that the Plaintiff had failed to prove both the identity of the person who committed the alleged fraud and the timing of such fraudulent acts within the relevant employment period, as required under the Policy. In those circumstances, the Plaintiff had not discharged its burden of proof resulting in the dismissal of the Plaintiff’s claim.

At its core, the issues involved in determining this appeal, in line with the pleaded case of the parties and the decision of the Court below may be summarised as follows: i. Whether the Plaintiff proved that the loss was caused by fraud or dishonesty committed by an employee; ii. Whether such act occurred during the uninterrupted continuance of employment; iii. Whether the discovery clause in the Policy extended coverage to the present circumstances; and iv. Whether the Sessions Court erred in its assessment of the evidence such as to warrant appellate interference.

The Plaintiff submits that the LSCJ erred in the interpretation of the Policy and in concluding that the loss fell outside the scope of the Policy. It is contended that fidelity insurance is intended to indemnify employers against losses arising from the fraudulent or dishonest acts of employees placed in positions of trust. Reliance is placed on authorities such as Re Norwich Provident Insurance Society; Bach’s Case (1878) Ch D 334 and commentary in MacGillivray on Insurance Law, which recognise that such policies indemnify the insured against loss caused by fraudulent or dishonest acts committed by an employee.

The Plaintiff argues that the LSCJ adopted an unduly narrow construction of the Policy by focusing solely on whether the loss materialised during the employee’s period of employment, rather than considering whether the fraudulent scheme had commenced during the course of that employment and fell within the commercial purpose of the Policy.

The Plaintiff further submits that the LSCJ failed to properly consider the Policy’s discovery provisions and the applicable principles on causation and burden of proof. It is argued that fidelity policies commonly allow losses arising from fraudulent acts committed during employment to be discovered within a stipulated period thereafter, as discussed in Universal SpA v Royal Insurance (UK) Ltd [1982] 1 Lloyd's Rep 426.

The Plaintiff also maintains that it had discharged the burden of proof on a balance of probabilities and that the court ought to have drawn an adverse inference under Section 114(g) of the Evidence Act 1950, from the Defendant’s failure to produce the adjuster’s report, relying on Chin Fui Fong & Anor v Wong Swee Kwang & Ors [2021] 10 MLJ 43 and Munusamy v Public Prosecutor [1967] 1 MLJ

61.

Finally, the Plaintiff contends that the proximate cause of the loss was the employee’s misappropriation of the cheque book during employment, which set in motion the chain of events leading to the subsequent encashment of the forged cheques, relying on authorities such as Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 and Bina Puri Sdn Bhd v MUI Continental Insurance Bhd [2010] 7 MLJ 149.

The Defendant submits that the LSCJ correctly dismissed the Plaintiff’s claim as the Plaintiff had failed to discharge the burden of proving that its claim fell within the terms of the Policy.

The burden of proof rests on the insured to establish that the alleged loss satisfies the insuring clause of the Policy, including proof that the fraud or dishonesty was committed by the employee during the uninterrupted continuance of employment by reference to the cases of American Home Assurance Co v Nalin Industries Sdn Bhd [1993] 2 MLJ 409; Regina Fur Co Ltd v Bossom (1958) 2 Lloyd’s Rep 425.

It is contended that the Plaintiff failed to prove who forged the cheques or when the alleged forgery occurred, and that the allegation against the employee was based merely on suspicion without supporting police or forensic findings.

In any event, the evidence showed that the cheques were dated and cleared only after the employee’s resignation, such that the alleged loss did not occur during the period of employment as required by the Policy.

The Defendant further submits that pecuniary loss only arises when a cheque is honoured, and therefore the Plaintiff’s loss, if any, arose outside the coverage period based on the case of Lien Chung Credit & Leasing Sdn Bhd v Chang Chin Choi [1994] 3 MLJ 488.

Alternatively, the claim is contractually barred as the Plaintiff failed to refer the dispute to arbitration within twelve months as required by the Policy, rendering the claim deemed abandoned (see: Dancom Telecommunication (M) Sdn Bhd v Uniasia General Insurance Bhd [2008] 6 MLJ 52).

The Defendant therefore contends that the LSCJ properly appreciated the evidence and that there is no basis for appellate interference.

The scope of appellate intervention is governed by the well-established “plainly wrong” test. In UEM Group Bhd (previously known as United Engineers (M) Bhd) v Genisys Integrated Engineers Pte Ltd & Anor [2018] Supp MLJ 363, the Federal Court affirmed that an appellate court will not interfere with the findings of a trial court unless the decision is shown to be plainly wrong, particularly where the trial judge has properly appreciated the evidence.

In Renal Link (KL) Sdn Bhd v Dato’ Dr Harnam Singh [1997] 2 MLJ 373, Gopal Sri Ram JCA emphasised that findings of fact based on witness credibility are primarily within the province of the trial court and ought not to be disturbed unless there was no proper judicial appreciation of the evidence. As his Lordship observed: “The function of determining where the truth lies… is entrusted by law to the trial court… Unless we… are convinced that there was no judicial appreciation of the evidence… it would not be open to us to intervene and upset the findings made by a trial judge.”

Premised on these trite principles, the Defendant contends that the judgment under appeal is predominantly founded upon factual findings which were explained in a clear and logical manner by the LSCJ. It is therefore submitted that there was proper judicial appreciation of the evidence and the decision cannot be said to be plainly wrong so as to justify appellate interference.

Accordingly, the burden lies on the Plaintiff to demonstrate that the decision of the Court below was vitiated by material error warranting interference by this Court.

The clause in question reads as follows: “Now this policy witnesses that subject to the terms and conditions contained herein or endorsed hereon in the Schedule the Company (the insurer herein) agree to make good to the Employer all such direct pecuniary loss as the Employer shall sustain by an act of fraud or dishonesty committed by an Employee named in the schedule

during the Period of Insurance stated in the Schedule; and

during the uninterrupted continuance of employment of such Employee; and

in connection with the Occupation and Duties of such Employee Provided always that the Company (“the insurer herein”) shall not be liable:- In respect of any act of fraud or dishonesty committed by such Employee unless such act of fraud or dishonesty is discovered during the aforesaid Period of Insurance or within six months after the death, dismissal or retirement of such employee or within six months after the termination of this policy whichever shall be first to happen.

The Policy has its genesis in commercial business insurance. The words of the Policy must be given their ordinary meaning. There is no necessity for any form of gymnastic contortions of the words and phrases used in the Policy such as to benefit the insured party.

It is necessary to emphasise the fundamental burden of proof is borne by an insured who seeks indemnity under a Fidelity Guarantee Policy. The insured must establish, on a balance of probabilities, that the loss claimed falls within the operative scope of the policy. In the context of fidelity insurance, this requires proof that the loss was caused by a fraudulent or dishonest act committed by the employee during the period of uninterrupted employment.

This principle was succinctly articulated by the House of Lords in Rhesa Shipping Co SA v Edmunds (The Popi M) [1985] 1 WLR 948. Although that case concerned marine insurance, the reasoning on burden of proof is of general application to insurance claims. Lord Brandon observed: “Where a plaintiff alleges that a loss was caused by a peril insured against, the burden of proving on the balance of probabilities that the loss was caused by such peril rests upon him and remains upon him throughout the case.”

The House of Lords further emphasised that the mere fact that the insurer may advance alternative explanations for the loss does not relieve the claimant from discharging that burden.

The principle is particularly apposite in the present case. The Plaintiff bore the burden of proving that the loss resulted from a dishonest act committed by its employee during uninterrupted employment. That burden did not shift to the Defendant.

The Plaintiff’s attempt to rely on suspicions, possibilities, or the mere disappearance of the cheque book cannot substitute the evidential proof required to trigger the policy.

The Plaintiff’s attempts at seeking to invoke adverse inference against the Defendant for failing to produce the adjuster’s report is misplaced. The burden of proof is on the Plaintiff. The Plaintiff cannot attempt to reverse the burden by requiring the Defendant to disprove that the commission of the forgery is but by TCK. In any event, if the adjuster’s report was crucial to the Plaintiff, the Plaintiff was at liberty to subpoena the adjuster as the Plaintiff’s witness. The Plaintiff did not avail itself of this avenue.

The Plaintiff’s case rests on the proposition that TCK was responsible for the forged cheques. However, the evidence falls significantly short of establishing this proposition.

The Plaintiff’s own expert witness from the Chemistry Department did not conclude that TCK had forged any of the signatures. The evidence therefore did not identify the perpetrator of the alleged forgeries.

The Plaintiff’s case rests squarely on suspicion that it must be TCK that forged the cheques because the discovery that the cheque books were missing occurred after TCK resigned. The LSCJ who saw and heard the witnesses did not believe this to be the case. The evidence elicited during cross-examination of the Defendant’s Manager by Learned Counsel for the Plaintiff amply supports this finding. : It may have been taken by Teoh Chin Kooi, or someone else, correct? NEOH: Yes … : So, that means someone else signed this cheque, correct? Yes : So, that means we do not know who forged these cheques, correct? Yes … : But, until now, we suspect TCK. But we are not sure if it is him actually,correct? Insured suspect. Not me. You mean we is me. It’s insured suspect … : We not know who may have taken the cheque, correct? Yes : It may have been taken by Teoh Chin Kooi, or someone else, correct? Yes … : And your adjuster can’t confirm who forged these cheques, correct?

A fidelity insurance policy requires proof that the loss was caused by a dishonest act committed by an employee. The phrase used in the policy reads “…the Employer shall sustain by an act of fraud or dishonesty committed by an Employee...”. It follows that in the absence of proof identifying the employee responsible for the fraud, the policy cannot be triggered. Suspicion is no substitute of proof.

The Policy requires the act of fraud or dishonesty of TCK to be committed during the uninterrupted continuance of employment of

Now, even if I assume for a moment that the cheques were forged, the Plaintiff was still unable to establish when the forgeries occurred.

The undisputed evidence shows that the 44 disputed cheques were dated and encashed after TCK’s resignation. However, there is nothing on record to show that the cheques were forged during the employment of TCK. Again, the testimony of the Defendant’s witness during cross examination confirms this fact: : We do not know the cheque was written, signed and post-dated Yes. We do not have we do not know the exact day the cheque was written, signed and post-dated : So, that also means there is a possibility that these cheques were post-dated cheques, correct? This one I’m unable to confirm this : You cannot confirm. But there is a possibility since we do not know when it was dated. It could have been post-dated also, correct? This one I have no knowledge

There is no evidence from the Plaintiff that conclusively points to the act of forgery by TCK during the period of his employment. What the Plaintiff wanted the lower Court to believe was that in all probability, it must have been TCK who committed the forgery of the cheques. Neither the Plaintiff’s witnesses nor the witness from the Chemistry Department could say that it was TCK who committed the forgery. Although a police report was lodged, the Plaintiff unfortunately did not call the Investigating Officer as a witness to shed light into the investigations.

What the evidence points to is that the Plaintiff’s loss arose only after TCK had ceased employment. That by itself is insufficient because the wording of the policy is explicit in that the dishonest act must occur during the uninterrupted continuance employment of TCK.

The Plaintiff cannot circumvent the clear and unambiguous requirement of the Policy by characterising the alleged theft of the cheque book as the operative fraudulent act. The reason is simple. The loss in question was not caused by the disappearance of the cheque book simpliciter. The loss was caused by the encashment of forged cheques. That loss occurred only after TCK’s resignation and not during the period of his employment. The condition required to trigger the Policy did not occur.

The clause concerned reads as follows: In respect of any act of fraud or dishonesty committed by such Employee unless such act of fraud or dishonesty is discovered during the aforesaid Period of Insurance or within six months after the death, dismissal or retirement of such employee or within six months after the termination of this policy whichever shall be first to happen.

The operative words are “the death, dismissal or retirement of such employee or within six months after the termination of this policy whichever shall be first to happen.” In the present case, TCK’s cessation of employment was not a result of “death, dismissal or retirement”. The undisputed fact is that TCK resigned from his position.

Hence, the issue of discovery of loss does not arise as the triggering events are not applicable when an employee has resigned.

The Plaintiff’s argument is premised upon the logic that the loss of the cheque books were discovered after TCK’s resignation and therefore, the cheques that were encashed subsequent to TCK’s resignation must be due to acts attributed to TCK.

That logic does not accord with the crystal clear wordings of the Policy. The Policy requires dishonesty or fraud committed during the period of employment of TCK; assuming for a moment that TCK is the culprit responsible. Even if TCK stole the cheque book, that act by itself does not trigger the Policy. A stolen cheque book is as useful as a broken compass. It is when the cheque leaves in the stolen cheque books are filled up, a signature forged on the same and the cheque subsequently encashed that the thief gains an advantage. A Policy such as that before this Court is triggered when the thief happens to be the employee committing the fraud or dishonest act during the course of his employment.

What the lower Court had on the record was that the Plaintiff’s employee resigned, a cheque book was missing and the cheques encashed subsequent to the resignation. This falls very far short of what is required to trigger the Policy.

The LSCJ heard the witnesses and analysed the Policy within the four corners of the written document. On the evidence, the LSCJ was entirely right in identifying the issues, analysing the evidence and coming to the conclusion she did.

The findings are neither perverse nor plainly wrong such that appellate intervention is warranted.

The appellate court’s function is not to retry the case. It is to determine whether the trial judge was plainly wrong. On the record before me, she was not.

The lower Court’s decision falls well within the range of reasonable determinations open to a trial court that saw the witnesses and heard the evidence. There is therefore no basis for appellate intervention.

Accordingly, the appeal was dismissed with costs. Dated this 8th day of March 2026 -sgd- ……………………………………………………………………… MUHAMMAD ADAM @ EDWARD BIN ABDULLAH Judicial Commissioner (Commercial Division NCC 4) High Court of Malaya In the Federal Territory of Kuala Lumpur, Malaysia Counsel for the Appellant/Plaintiff : Joshua Kevin together with Intan Maisarah Khir Messrs. Kevin & Co. Counsel for the Respondent/Defendant : Pee Kui Yee Messrs. Azim Tunku Farik & Wong

American Home Assurance Co v Nalin Industries Sdn Bhd [1993] 2 MLJ 409 2. Bina Puri Sdn Bhd v MUI Continental Insurance Bhd [2010] 7 MLJ 149 3. Chin Fui Fong & Anor v Wong Swee Kwang & Ors [2021] 10 MLJ 43 4. Dancom Telecommunication (M) Sdn Bhd v Uniasia General Insurance Bhd [2008] 6 MLJ 52 5. Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 6. Lien Chung Credit & Leasing Sdn Bhd v Chang Chin Choi [1994] 3 MLJ 488 7. Munusamy v Public Prosecutor [1967] 1 MLJ 61 8. Regina Fur Co Ltd v Bossom (1958) 2 Lloyd’s Rep 425 9. Renal Link (KL) Sdn Bhd v Dato’ Dr Harnam Singh [1997] 2 MLJ 373 23 10. Re Norwich Provident Insurance Society; Bach’s Case (1878) Ch D 334 11. Rhesa Shipping Co SA v Edmunds (The Popi M) [1985] 1 WLR 948 12. UEM Group Bhd (previously known as United Engineers (M) Bhd) v Genisys Integrated Engineers Pte Ltd & Anor [2018] Supp MLJ 363 13. Universal SpA v Royal Insurance (UK) Ltd [1982] 1 Lloyd's Rep 426

Article 5 of the Federal Constitution 2. Limitation Act 1953 3. Section 29 of the Contracts Act 1950 4. Section 114(g) of the Evidence Act 1950

MacGillivray on Insurance Law