LWM 723: MARINE INSURANCE

ASSIGNMENT 1

LISA SOFIE BINTI ADAM 2012468506 ASSOC. PROF. DR. IRWIN OOI UI JOO

Question Identify the jurisprudential difficulties attributable to Malaysia not having its own marine insurance legislation and suggest solutions for this problem. You must identify the strength and weakness of each legal solution. Answer The fields of maritime activities are expanding parallel to the growth and development of ports activities in Malaysia. It does not only affect the export and import trade but also the legal aspect of shipping issues. Malaysia has numerous maritime laws including the Carriage of Goods by Sea Act 1950, The Merchant Shipping Ordinance 1952, The Merchant Shipping (Oil Pollution) Act 1994, and various regulations made under these Acts. Malaysia adopts the English Bills of Lading Act 1855 and the English Marine Insurance Act 1906. The High Courts of Malaya and of Sabah and Sarawak, exercise the English Admiralty jurisdiction, as provided by the Supreme Court Act 1981 of England.1 Having said that, it is vital to acknowledge the fact that there is no statute in Malaysia that deals exclusively with the area of marine insurance. The Malaysian Insurance Act 1996 (Insurance Act 1996) is the governing statute for the regulation of Malaysian insurance industry. Therefore, in dealing with dispute under marine insurance which is not provided under the Insurance Act 1996, the Malaysian judiciary inclines to revert to English law for answer. In the renowned case of The Melanie United Oriental Assurance Sdn Bhd Kuantan v W.M. Mazzarol [1984] 1 MLJ 260, Salleh Abas C.J clarified that, we must refer to the Marine Insurance Act 1906 of the United Kingdom. This Act is made applicable to Malaysia as part of our law by virtue of section 5(1) of our Civil Law Act 1956. In a more recent case of Ng Peter @ Ng Chee Keong v Kurnia Insurans (M) Bhd (Robert Michael Fernandez (formerly t/a Hydrotec Marine Services, third party)) [2010] 5 MLJ 265

Stipah Selvaratnam. (2007). Particular Aspects of Legal Reform in Malaysia: Some Comparative Studies. Malayan Law Journal Articles. [2007] 4 MLJ cxv

the court held that the marine insurance law applicable was the UK Marine Insurance Act 1906 by virtue of s 5(1) of the Civil Law Act 1956. S.3 and s.5 of the Civil Law Act 1956 (the CLA 1956) provides for the reception of English law in Malaysia. S.3 of the CLA 1956 applies to all law generally and allows for application of English common law and rules of equity only and that the common law of England and rules of equity as administered on the cut-off2 date in England are binding on Malaysian law. Any decision after the cut-off date is only persuasive in nature. On the other hand, s.5 of the CLA 1956 states that it only governs laws relating to commercial matters. These commercial matters are listed in the said section and among others are carrier by sea, marine insurance and mercantile law generally. S.5(1) of the CLA 1956 states that in West Malaysia (Malay States), except Penang and Malacca, the cut-off date for the application of English commercial law is also 7th April, 1956. However, as for Malacca, Penang, Sabah and Sarawak, s.5(2) introduces English commercial law at the date on which the matter has to be decided. The relevant provision is: the law to be administered shall be the same as would be administered in England in the like case at the corresponding period, if such question or issue had arisen or had to be decided in England.3 Hence there exist some differences between the commercial law applicable in the former Malay States and Penang, Malacca, Sabah and Sarawak. In the latter group of states, there is a continuing reception of English commercial law in the absence of local legislation.4 In contrast, there is no such availability in the Malay States as the application of only English law and equity is as administered in England on or before the cut-off date.

The cut-off date in West Malaysia is 7th April, 1956 by virtue of s.3(1)(a); 1 st December, 1951 in Sabah by virtue of s.3(1)(b); and 7th April, 1956 in Sarawak by virtue of s.3(1)(c). 3 Wu Min Aun (2005). The Malaysian Legal System. Kuala Lumpur: Pearson Malaysia Sdn Bhd. 130. 4 Ibid.

As Malaysia has no specific marine insurance statute, we apply the UKs Marine Insurance Act 1906. The next question to ask is whether the latest developments in England on the legal principles existing on the cut-off date are applicable in Malaysia? As of now, UKs Marine Insurance Act 1906 is put under review due to the perception that there is a problem with the element of uberrimae fidei. Generally, insurance is about transferring risk in return of insurance premium and it is important for the assured to make full disclosure of all material risks to the insurer. Regardless of this, some parties take advantage of it and try to gain as much profit from non-disclosure. The first difficulty is that if UKs parliament decides to reform, repeal or amend the Marine Insurance Act 1906, Malaysia will face a dilemma, particularly the Malay States. This is because the application of the reformed Marine Insurance Act will be obstructed by s.3 and s.5 of the CLA 1956. Penang, Malacca, Sabah and Sarawak would not be so affected since s.5(2) provides for the application of the present law at the time dispute arose and as to be decided in England. If that is so, what will happen to uniformity of law in Malaysia? Other Malay States will still be caught with the old Marine Insurance Act 1906. Therefore, in answering the question put beforehand, one of the jurisprudential difficulties identified in Malaysia not having its own marine insurance legislation is uniformity and certainty. Secondly, the judiciary is getting comfortable in reverting to English law whenever the issue of marine insurance arose whereby applying English law would not provide any practical solution in some instances. Take for example the issue of remedy for consequential loss because of insurers liability. The Insurance Act 1996 is silent hence the application of s.17 of the Marine Insurance Act 1906. The remedy would be avoidance of the contract. Having the contract ab initio would not ensure a more balanced outcome between the breach by the insurer and the consequential loss sustained by the insured. The insurer as a financially stronger entity compared to the insured would not be unnecessarily prejudiced if the contract is avoided. English law if to be applied would not provide any remedy as it does not recognise damages for consequential loss for the insurers breach of contract.5

Available: agc-wopac.agc.gov.my/e-docs/Theses/Untitled.pdf. Last accessed 21st October 2012.

Thirdly, the Malaysian courts are persuaded to follow UK decided cases and common law principles which more often than not are pushing Malaysia away from developing its own principles concerning maritime law. To resolve this problem, it is about time Malaysia has her own marine insurance legislation. Although the UKs Marine Insurance Act 1906 is appraised for being a codification of common law principles relating to marine insurance, the maritime industry is expanding and more modern elements come into picture. Having a 1906 statute to govern millennium trade would be odd. In regaining confidence of other maritime key players, Malaysia needs a reformation by promoting certainty and uniformity. In Jindal Iran v Islamic Solidarity [2005] All ER 175, p 184 Lord Steyn restated Lord Mansfields observation in Vallejo v Wheeler (1774)1 Cowp 143, p 153; 98 ER 1012, p 1017 that: In all mercantile transactions that great object should be certainty: and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon. and stressed that this consideration remains relevant and was recently affirmed by Lord Bingham in The Starsin[2003] 2 All ER 785 at p 13. 6 It is unarguable that Malaysia should have its own marine insurance legislation and to do so, the Parliament should take in serious account the above statement. By clinging to UKs Marine Insurance Act would not provide for that standard of certainty required because we are still subjected to their reformation. Once they do so, we would be in a legal vacuum as certain states would not be able to apply the new law of England. The proposed marine insurance legislation should be able to standardise harmoniously the application of the law in all states of Malaysia. This will eliminate the problem of split laws between Malay States and Malacca, Penang, Sabah and Sarawak. Australia for example had developed its own Marine Insurance Act 1909 which is in all relevant respects the same as the Marine Insurance Act 1906 (UK). The Australian Law Reform
6

Stipah Selvaratnam. (2007). Particular Aspects of Legal Reform in Malaysia: Some Comparative Studies. Malayan Law Journal Articles. [2007] 4 MLJ cxv

Commission (ALRC) has been asked by the federal attorney general to review their Marine Insurance Act 1909. They too are looking forward for reformation to be at par with the current trend and challenges in international trade. Another option to resolve this matter is to stay with the current approach. However, if UK Marine Insurance Act changes, the matter will be left for the two group of states (Malay States and Penang, Malacca, Sabah and Sarawak) to be bound by different laws. This will then create more constitutional problem as marine insurance falls under Trade, commerce and industry in the Federal List of Ninth Schedule of the Federal Constitution. However, by having its own legislation that subject to local circumstances, this might open up another difficulty that is differences in application with other trading countries. Malaysia should also be aware of Malaysias major trading partners like England, Singapore, Hong Kong, India, Canada, Japan, Taiwan and Germany.7They would want a secured, familiar and similar application of law for them to have faith in Malaysias legal administration. In conclusion, Malaysia is faced with a number of jurisprudential difficulties for not having its own marine insurance legislation and among others are high-reliance on United Kingdoms Marine Insurance 1906, lack of uniformity within states in Malaysia and also traditional approach by judges in reverting to common laws. There few options to counter these problems such as having Malaysias own marine insurance legislation or just merely stick to the present approach now.

Ibid.