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Court of Appeal: Insurers must pay Settlement Sum to Plaintiff/Claimant

30 May 2025

On 25 March 2025, the Court of Appeal in Dato’ Dr Abd Wahab bin Abd Ghani v Mohd Rashid bin Mohd Noor & Ors [2025] 4 AMR 237 held that the issuance of a payment cheque by an insurer for the settlement sum in the Plaintiff’s favour was in compliance with the terms of the settlement agreement and the Bank Negara Malaysia (“BNM”) Claims Settlement Practices Guidelines (“Claims Settlement Guidelines”)1.
 
The Court of Appeal found that the parties had agreed that the settlement sum be paid to the Plaintiff pursuant to the settlement agreement. The Court of Appeal held that the Claims Settlement Guidelines constitute a binding subsidiary legislation under the Financial Services Act 2013 (“FSA”). The Court of Appeal also found that the Plaintiff had failed to prove its allegations that the insurer had issued the payment cheque in the Plaintiff’s favour due to a refusal to recognise a solicitor’s authority to receive payment on behalf of its client or because the insurer had ignored a solicitor’s lien on costs owed by its client.
 
Brief Facts
 
The appeals before the Court of Appeal arose from Kuala Lumpur High Court Civil Suit No. WA-22NCVC-281-05/2018 (“Suit 281”), which in turn, arose from a settlement agreement entered between the same parties in Civil Suit No. WA- 22NCVC-75-02/2016 (“Suit 75”).
 
In Suit 75, Mohd Rashid bin Mohd Noor (“Plaintiff”) had brought a medical negligence action against the 1st defendant, Dato’ Dr Abd Wahab bin Abd Ghani (“Dr Wahab”), the 2nd defendant, Dr Arul Balasingam (“Dr Arul”) and the 3rd defendant, Ampang Puteri Specialist Hospital Sdn Bhd (“the Hospital”). The parties entered into a settlement agreement whereby the Defendants agreed to pay “to the Plaintiff” the sum of RM200,000.00 (“Settlement Sum”), with Dr Wahab’s portion being RM145,000.00, Dr Arul’s portion being RM25,000.00, and the Hospital’s portion being RM30,000.00.
 
Dr Wahab’s insurer, Pacific & Orient Insurance Company Berhad (“P&O Insurance”), issued a cheque (“P&O Cheque”) in favour of the Plaintiff for the sum of RM145,000.00, while Dr Arul’s and the Hospital’s insurers each issued cheques in favour of the Plaintiff’s solicitors’ client account.
 
Dr Wahab’s solicitors delivered the P&O Cheque to the Plaintiff’s solicitors, but the latter rejected the P&O Cheque on the basis that it was not made in favour of their client account. Dr Wahab’s solicitors re-delivered the P&O Cheque to the Plaintiff’s solicitors, who again rejected and returned the P&O Cheque to Dr Wahab’s solicitors. Following the second rejection and return of the P&O Cheque, the Plaintiff’s solicitors also returned the cheques issued by Dr Arul’s and the Hospital’s respective insurers to their respective solicitors. In its letter to Dr Arul’s and the Hospital’s solicitors, the Plaintiff’s solicitors stated, inter alia, that the settlement agreement had not been performed because Dr Wahab had not paid his portion of the Settlement Sum in cash or in a cheque in the favour of the Plaintiff’s solicitors.
 
Judgment of the High Court in Suit 281
 
In light of the series of events that transpired, Dr Wahab commenced Suit 281 seeking, inter alia, declarations that the settlement agreement constitutes a binding agreement and all parties to Suit 75 are bound by it; and the Settlement Sum is to be paid to the Plaintiff himself. Dr Wahab also sought an order to compel the Plaintiff to accept payment of the Settlement Sum as apportioned in the settlement agreement.
 
The Plaintiff in his counterclaim in Suit 281 sought, among others, judgment against Dr Wahab, Dr Arul and the Hospital for the sum of RM200,000.00, damages, pre-judgment and post-judgment interest at the rate of 8% per annum and 5% per annum respectively.
 
After a full trial, the High Court held that the settlement agreement constituted a binding agreement and all parties in Suit 75 were bound by the said agreement. The High Court also held that the words “to the Plaintiff” in the settlement agreement also refers “to the Plaintiff’s solicitors” and that the Claims Settlement Guidelines are merely guidelines and do not have the force of law.
 
Premised on these findings, the High Court made the following orders:
  1. A declaration that the settlement agreement constituted a binding agreement and parties in Suit 75 are bound by the settlement agreement;
  2. The Settlement Sum of RM200,000.00 is to be paid to the client account of the Plaintiff’s solicitors;
  3. Dr Wahab is to pay interest at the rate of 5% on RM200,000.00 from the date of judgment until the date of resolution; and
  4. Dr Wahab is to pay costs of RM30,000.00 to the Plaintiff and costs of RM15,000.00 each to Dr Arul and the Hospital. 
Both Dr Wahab and the Plaintiff were dissatisfied with the findings and judgment of the High Court in Suit 281. Dr Wahab appealed against orders (2), (3) and (4) made by the High Court and the Plaintiff appealed against the High Court’s dismissal of his counterclaims for pre-judgment interest, general and aggravated damages, and the costs in the sum of only RM30,000.00 to him.
 
Judgment of the Court of Appeal
 
In arriving at the decision to allow Dr Wahab’s appeal and to dismiss the Plaintiff’s appeal, the Court of Appeal, inter alia, considered the following issues:
 
First Issue: What did the parties in Suit 75 agree to in the settlement agreement?
 
The Court of Appeal held that it is a well-established legal principle that the construction and interpretation of a contract is a question of law to be determined by the Courts2 in accordance with the following legal principles:
  1. Determining the intention of the parties by looking at the contract as a whole. The Courts should adopt an objective approach and interpret the words in their natural and ordinary sense3;
  2. Examining the factual matrix forming the background to the transaction4;
  3. The Courts are not bound by the testimony of witnesses or concessions made by counsel5; and
  4. The Courts do not have the power to improve on an instrument that it is called upon to construe. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means6. 
The settlement agreement is a contract entered between the Plaintiff and the Defendants, i.e. Dr Wahab, Dr Arul and the Hospital in full and final settlement of the Plaintiff’s action for medical negligence against the Defendants in Suit 75. The settlement agreement expressly states that the Settlement Sum of RM200,000.00 is to be paid “to the Plaintiff”.
 
Applying the principles of construction and interpretation of contracts, the Court of Appeal held that the phrase “to the Plaintiff” must be construed objectively and accorded its natural and ordinary meaning. The Court of Appeal also considered the factual matrix leading to the settlement agreement, where the Defendants had offered to pay the Settlement Sum to the Plaintiff directly and the Plaintiff had accepted the Defendants’ offer.
 
The Court of Appeal also held that the Plaintiff could not resile from the undertaking given to Dr Wahab based on the following key factors:
  1. The language in the settlement agreement, the offer to settle and the acceptance of offer is plain, clear and unambiguous;
  2. The Plaintiff and the Defendants in Suit 75 had legal representation;
  3. The Defendants’ offer to settle and the Plaintiff’s acceptance of offer were professionally drafted by their respective solicitors; and
  4. The Plaintiff had accepted the offer to settle with the benefit of legal advice from his solicitors. 
Accordingly, the Court of Appeal concluded that the Settlement Sum was intended to be paid directly to the Plaintiff himself. The High Court was plainly wrong and had disregarded established principles of contractual interpretation and construction to hold that the words “to the Plaintiff” in the settlement agreement also refer “to the Plaintiff’s solicitors” by taking into consideration the Plaintiff’s testimony. Hence, the High Court had erred in ordering the Settlement Sum to be paid to the Plaintiff’s solicitors’ client account.
 
Second Issue: Do the Claims Settlement Guidelines have the force of law?
 
The Claims Settlement Guidelines were issued by BNM on 5 October 2006 pursuant to section 201 of the now repealed Insurance Act 1996 (“IA”). Paragraph 2.1 of the Claims Settlement Guidelines expressly stipulates that the Guidelines must be observed by insurance companies and loss adjusters in relation to their general insurance business. It also stipulates in paragraph 4.4.4.1 that “full payment must be made to the claimant”.
 
The Court of Appeal held that the Claims Settlement Guidelines constitute a piece of subsidiary legislation with the force of law for the following reasons:
  1. BNM derives its powers and functions under the Central Bank of Malaysia Act 2009 (“CBMA”) and the FSA. Section 7(2) of FSA expressly states that the BNM’s powers and functions under the FSA are in addition to and not in derogation of its powers and functions under the CBMA 
Among others, the Court of Appeal highlighted the following provisions:
  • Section 95 of the CBMA which provides that BNM has the power to issue guidelines, by-laws, circulars, standards or notices;

  • Section 272(b) of the FSA which provides that every guideline, direction, circular or notice issued under the repealed Acts7, including the IA, are deemed to be “standards” that have been lawfully specified under the FSA and shall remain in full force and effect in relation to the person to whom it applied until amended or revoked; and

  • Section 272(m) of the FSA which provides that BNM’s actions under the repealed Acts are deemed to have been done under the FSA and continue to be valid and lawful under the FSA. 
Based on the foregoing, the Court of Appeal concluded that pursuant to section 272(b) of the FSA, the Claims Settlement Guidelines are deemed to be standards and shall remain in full force and effect until they are amended or revoked. Pursuant to section 272(m) of the FSA, all BNM’s actions and things done under the IA are deemed to be done under the FSA and continue to be valid and lawful under the FSA.
  1. According to section 234(1)(d) of the FSA, non-compliance with any standards is a breach of the FSA. It follows, therefore, that non-compliance with the Claims Settlement Guidelines is a breach of the FSA. If a licensed insurance company fails to comply with or give effect to the Claims Settlement Guidelines, BNM may take any of the actions stipulated in the FSA against the non-compliant insurance company, including imposing a monetary penalty against the said insurance company, and/or making an order of restitution8. Thus, P&O Insurance, and other insurance companies licensed under the FSA, are compelled to comply with and give effect to the Claims Settlement Guidelines.

  2. The Court of Appeal referred to decisions where the Malaysian Courts have recognised that guidelines issued by BNM under the Banking and Financial Institutions Act 19899, guidelines issued by BNM under the Payment Systems Act 200310, ECM notices issued by BNM under the Exchange Control Act 195311, and guidelines issued by the Labuan Financial Services Authority pursuant to section 4A of the Labuan Financial Services Authority Act 199612 are subsidiary legislation and have the force of law. “Subsidiary legislation” is defined in section 3 of the Interpretation Acts 1948 and 1967 as “any proclamation, rule, regulation, order, notification, by-law or other instrument made under any Act, Enactment, Ordinance or other lawful authority and having legislative effect”. 
By reason of the foregoing, the Court of Appeal concluded that the Claims Settlement Guidelines are indeed subsidiary legislation, which have the force of law and that the High Court had erred in finding that the said Guidelines were merely guidelines lacking the force of law.
 
Third Issue: By making the payment cheque for the Settlement Sum in favour of the Plaintiff, did Dr Wahab and or his insurers: (a) refuse to recognise the authority given by law for asolicitor to receive payment on behalf of their client, or (b) ignore a solicitor’s lien on costs owed by their client?
 
The Court of Appeal found that Dr Wahab’s solicitors and his insurers did recognise a solicitor’s right to receive payment on behalf of its clients. The facts showed that Dr Wahab’s solicitors did not on any occasion deliver the P&O Cheque to the Plaintiff directly. Even after the cheque was rejected and returned by the Plaintiff’s solicitors, Dr Wahab’s solicitors re-delivered the P&O Cheque to the Plaintiff’s solicitors, which was rejected and returned again by the latter.
 
With regard to a solicitor’s lien on costs owed by their client, the Court of Appeal explained that a solicitor’s lien is a legal right recognised under common law which allows the solicitor to retain a client’s document or property in its possession until the client settles sums due and payable to the solicitor, under a bill of costs or an order to tax the costs13. This right is also codified in rule 9.02 of the Rules and Ruling of the Bar Council Malaysia and rule 7(a)(v) of the Solicitors’ Account Rules 1990, made by the Bar Council pursuant to sections 78(1) and 78(2) of the Legal Profession Act 1976, allows a solicitor to draw money from a client’s account to pay the solicitor’s costs under a bill of costs.
 
However, in this case, at the time Dr Wahab’s solicitors delivered the P&O Cheque to the Plaintiff’s solicitors, the Plaintiff’s solicitors had not issued a bill of costs of its fees and disbursement for representing the Plaintiff in Suit 75. As no bill of costs had been issued to the Plaintiff at the time the P&O Cheque was delivered to the Plaintiff’s solicitors, there were no determined costs due or payable by the Plaintiff to the Plaintiff’s solicitors. The solicitor’s lien cannot attach to indeterminate costs.14
 
Furthermore, a solicitor’s lien is a passive and possessory right, limited to the retention of a client’s documents or property in the solicitor’s possession15. By rejecting and returning the P&O Cheque, along with the other two cheques delivered by Dr Arul’s and the Hospital’s insurers, the Plaintiff’s solicitors no longer retained possession of the cheques representing the Settlement Sum. Consequently, even if the Plaintiff’s solicitors issued a bill of costs to the Plaintiff, the Plaintiff’s solicitors no longer had a possessory right over the cheques. It is trite that, without possession, no possessory rights exist.
 
Comments
 
This Court of Appeal decision is noteworthy as the Court of Appeal held that the Claims Settlement Guidelines issued under the now repealed IA constitute subsidiary legislation and have the force of law. As a result, licensed insurance companies are bound by the Claims Settlement Guidelines to pay all settlement sums directly to the claimant/ Plaintiff.
 
While the Court of Appeal did not expressly address the issue, a reading of the Judgment suggests that the Claims Settlement Guidelines - which require settlement sums to be paid by licensed insurance companies directly to the claimant/ Plaintiff - do not negate or conflict with a solicitor’s right to receive payment on behalf of its clients or to exercise a solicitor’s lien on costs owed by their client. There would be recognition of the solicitor’s right to receive payment on behalf of its clients provided that the cheque (made payable to the claimant/ Plaintiff) is delivered to the claimant’s/ Plaintiff’s solicitors. On the other hand, a solicitor’s lien is a passive and possessory right which only arises upon the issuance of a bill of costs and the subsequent delivery of the cheque to the claimant’s/ Plaintiff’s solicitors.
 
 
Case Note by Loo Peh Fern (Partner) and Tan Yng Yiin (Associate) of the Insurance and Reinsurance Practice of Skrine.
 
 
1 Bank Negara Malaysia’s Claims Settlement Practices Guidelines (Consolidated) [BNM/RH/GL/0003-9]. These Guidelines have been superseded by BNM’s Policy Document on Claims Settlement Practices [BNM/RH/PD 029-69] issued on 1 July 2024.
2 Silver Concept Sdn Bhd v Brisdale Rasa Development Sdn Bhd [2005] 4 MLJ 101, Court of Appeal.
3 Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 1 MLJ 592, Federal Court; Lucy Wong Nyuk King & Anor v Hwang Mee Hiong [2016] 3 MLJ 689, Federal Court; Wong Yee Boon v Gainvest Builders (M) Sdn Bhd [2020] 3 MLJ 571, Federal Court.
4 Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd (supra).
5 NVJ Menon v The Great Eastern Life Assurance Co Ltd [2004] 3 MLJ 38, Court of Appeal; Silver Concept Sdn Bhd v Brisdale Rasa Development Sdn Bhd (supra).
6 Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd (supra).
7 The IA, together with the Banking and Financial Institutions Act 1989, the Exchange Control Act 1953 and the Payment Systems Act 2003 (“collectively referred to as “the repealed Acts”), were repealed by the FSA. The FSA came into force on 30 June 2013.
8 Subsections 234(3), 4(d), (6), (9) and (10) of the FSA.
9 Affin Bank Bhd v Datuk Ahmad Zahid Hamidi [2005] 3 MLJ 361, High Court.
10 Diana Chee Hsui v Citibank Bhd [2009] 5 MLJ 643, High Court.
11 Development & Commercial Bank Bhd v Cheah Theam Swee [1989] 2 MLJ 496, High Court.
12 Nabors Drilling (Labuan) Corporation v Lembaga Perkhidmatan Kewangan Labuan [2019] 8 MLJ 259, High Court.
13 V Manuel v Omar Bin Haji Ahmad & Ors [1976] 1 MLJ 132, Federal Court; Zulpadli & Edham v Inai Offshore & Marine Engineering Sdn Bhd (in liquidation) [2011] 4 MLJ 161, Court of Appeal; Messrs Roland Cheng & Co v Konkamaju Sdn Bhd [2014] 1 MLJ 894, Court of Appeal; M Wealth Corridor Sdn Bhd (formerly known as Fantastic Megaway Sdn Bhd) v Chen Tse Yuen (sued as a firm) [2018] 10 MLJ 1, High Court.
14 V Manuel v Omar Bin Haji Ahmad & Ors (supra).
15 Zulpadli & Edham v Inai Offshore & Marine Engineering Sdn Bhd (in liquidation) (supra); Messrs Roland Cheng & Co v Konkamaju Sdn Bhd (supra).

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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