CHAPTER 1

THE NATURE OF LAW

AND CONTRACT

INS 536
THE NATURE OF LAW AND RULES

LAW –
- Law comprises of the general rules, which seek
to govern and control the behavior of people in
society.
- The most important feature of any system of
law is its BINDING
THE ROLES OF LEGISLATURE, EXECUTIVE
AND JUDICIARY IN RELATION TO LAW

create Enforcement Dispute settlement

Legislature
The bicameral parliament consists of the lower house, the House of Representatives or
Dewan Rakyat (literally the "Chamber of the People") and the upper house, the Senate or
Dewan Negara (literally the "Chamber of the Nation").
All seventy Senate members sit for three-year terms (to a maximum of two terms); twenty-six
are elected by the thirteen state assemblies, and forty-four are appointed by the king based
on the advice of the Prime Minister.
The 222 members of the Dewan Rakyat are elected from single-member districts by universal
adult suffrage. The parliament follows a multi-party system and the governing body is elected
through a first-past-the-post system.
Parliament has a maximum mandate of five years by law. The king may dissolve parliament at
any time and usually does so upon the advice of the Prime Minister.
Executive
Executive power is vested in the cabinet led by the prime minister; the Malaysian
constitution stipulates that the prime minister must be a member of the Lower House of
parliament who, in the opinion of the Yang di-Pertuan Agong (YDPA), commands a majority in
parliament.
The cabinet is chosen from among members of both houses of Parliament and is responsible
to that body. The Executive branch of the government consists of the Prime Minister as the
head of the government, followed by the various ministers of the Cabinet.
What is the Executive?
IN the federal government, the Executive consists of:
● Conference of Rulers
● Yang di-Pertuan Agong (“YDPA”)
● Prime Minister
● Cabinet
● Public Services
What does the Executive do?
The Executive governs the country according to the laws made by Parliament. Each part of the
Executive has its own role to play.

Judiciary
The highest court in the judicial system is the Federal Court, followed by the Court of Appeal,
and two High Courts, one for Peninsular Malaysia, and one for East Malaysia. The subordinate
courts in each of these jurisdictions include Sessions Courts, Magistrates' Courts.
References: https://en.wikipedia.org/wiki/Government_of_Malaysia
Parliament of Malaysia
State Legislative Assemblies
 LAWS & RULES
LAW RULES
• principles recognized and applied • Rules is a statement of
by the state in the administration of - what can,
justice such as Civil Law and
Criminal Law. - should or
- must be done in a particular
circumstances
• The uses are so widely

• Examples: football rules, school

• The objective is to attain justice in rules or UITM rules (Peraturan
society and also to encourage the Akademik).
doing of what is right or just in a
particular set of circumstances.
• The uses are not widely.
THE DIFFERENCES BETWEEN LAW
AND RULES

LAW

RU
LES

W
LA

RUL
ES
SIMILARITIES BETWEEN LAW
AND RULES
CLASSIFICATION OF LAWS

- The Malaysian legal system is a common law system where

legal principles are developed by judges through case law.
- This system was inherited from England and similar systems
are found in former British colonies.
- Under the common law system, as practiced in Malaysia,
law has been classified into three broad divisions namely
public law, international law and private law.
CLASSIFICATION OF LAWS

1) Public Law
- governs the relationship between individuals and the state. Public law
maybe further subdivided into two categories which are constitutional
law and criminal law.

2) International Law
- Defines as that body of law which composed for its greater part of the
principles and rules of conduct, which states feel themselves bound to
observe and consequently commonly do observe in their relations with
each other.
- International law maybe further subdivided into two categories which
are public international law and private international law.
CLASSIFICATION OF LAWS
3) Private Law
- concerned with matters that affect the right and duties of individuals
amongst themselves.
- The law of contract is the branch of Private law which determines
when promise or a set of promises is legally enforceable.
- The essential elements in a contract are as follows:
• There must be offer
• Acceptance of that offer
• Both party making the contract must have capacity to contract
• There must be no mistake, misrepresentation or undue influence
• The object must be lawful
• Both parties must intend to enter into legal relations
• There must also be consideration
 MAJOR SOURCES OF
MALAYSIAN INSURANCE LAWS

1. Local Legislation

Previously, the primary legislation of Insurance

laws in Malaysia is Insurance Act 1996 and
Contracts Act 1950. However, effective from
30th June 2013, Financial Services Act 2013
(FSA) and Islamic Financial Services Act 2013
IFSA) had repealed both legislations.
 MAJOR SOURCES OF
MALAYSIAN INSURANCE LAWS
1. LOCAL LEGISLATION
- Primary legislation: e.g., Insurance Act 1996, Contracts Act
1950
- Secondary (delegated legislation): e.g., Insurance Regulations
1996 & Workmen’s Compensation (Notice of Accident)
Regulations 1981.

◦ Insurance Act 1996,

repealed the Insurance Act 1963
existence on 1st January 1997.
The role of Director General Insurance remains with Bank
Negara Malaysia
 MAJOR SOURCES OF
MALAYSIAN INSURANCE LAWS

2. LOCAL COMMON LAW (CASE LAW)

◦ Rules derived from local court decision.

◦ Based on judgment of precedents similar cases
◦ The principle of binding precedents are Ratio
Decidendi and Obiter Dictum
 RATIO DECIDENDI
Means the exact reason or the reason for the decision
given by judges in a particular case.
In arriving at a decision of a case, a judge is not allowed to
decide arbitrarily but is obliged to follow or apply a legal
principles laid down in earlier case.
It is BINDING in similar case which may subsequently be
tried by a lower court (defines as material facts of a case +
the decision thereon)
Case = Donoghue v Stevenson (1932)
 Donoghue v Stevenson (1932)
Donoghue v. Stevenson, also known as the ‘snail in the bottle case’,
is a significant case in Western law. The House of Lords’ ruling in this
case established the civil law tort of negligence and obliged
manufacturers to observe a duty of care towards their customers.
The events of the case took place in Paisley, Scotland in 1928. While
attending a store, Ms May Donoghue was given a bottle of ginger
beer, which had purchased for her by a friend.
The bottle was later discovered to contain a decomposing snail.
Since the bottle was not made of clear glass, Donoghue had
consumed most of its contents before she became aware of the
snail. She later fell ill and a physician diagnosed her with
gastroenteritis. Donoghue subsequently took legal action against Mr
David Stevenson, the manufacturer of the ginger beer. She lodged a
writ in the Court of Sessions, Scotland’s highest civil court, seeking
£500 damages.
Donoghue could not sue Stevenson for breach of contract, because
a friend had purchased the drink for her. Instead, her lawyers
claimed that Stevenson had breached a duty of care to his
consumers and had caused injury through negligence – an area of
civil law which at the time was largely untested. Stevenson’s lawyers
challenged Donoghue’s action, on the basis that no precedents
existed for such a claim. They referred to an earlier action by
Donoghue’s lawyer, Mullen v. AG Barr, where a dead mouse was
found in a bottle of soft drink; judges in this case dismissed it
because of a lack of precedent.
Donoghue’s initial action failed, however she was granted leave to
appeal to the House of Lords, which at the time still had the judicial
authority to hear appellate cases. The leading judgement, delivered
by Lord Atkin in 1932, established that Stevenson should be
responsible for the well-being of individuals who consume his
products, given that they could not be inspected. The case was
returned to the original court; Stevenson died before the case was
finalised and Donoghue was awarded a reduced amount of damages
from his estate.
The outcomes of Donoghue v. Stevenson established
several legal principles and precedents:

Negligence. Firstly, the House of Lords ruling affirmed that

negligence is a tort. A plaintiff can take civil action against
a respondent, if the respondent’s negligence causes the
plaintiff injury or loss of property. Previously the plaintiff
had to demonstrate some contractual arrangement for
negligence to be proven, such as the sale of an item or an
agreement to provide a service. Since Donoghue had not
purchased the drink, she could prove no contractual
arrangement with Stevenson – yet Lord Atkin’s judgement
established that Stevenson was still responsible for the
integrity of his product.
Duty of care. Secondly, the case established that manufacturers have a duty
of care to the end consumers or users of their products. According to Lord
Atkin’s ratio decendi, “a manufacturer of products, which he sells… to reach
the ultimate consumer in the form in which they left him… owes a duty to
the consumer to take reasonable care”. This precedent has evolved and now
forms the basis of laws that protect consumers from contaminated or faulty
goods. These protections began as common law but many have since been
codified in legislation, such as the Trade Practices Act (Commonwealth,
1974).
Neighbour principle. Thirdly, the Donoghue v. Stevenson case produced Lord
Atkin’s controversial ‘neighbour principle’, which extended the tort of
negligence beyond the tortfeasor and the immediate party. It raised the
question of exactly which people might be affected by negligent actions. In
Donoghue’s case she had not purchased the ginger beer but had received it
as a gift; she was a neighbour rather than a party to the contract. Atkin said
of this principle: “You must take reasonable care to avoid acts or omissions
which you can reasonably foresee would be likely to injure your neighbour.
Who, then, in law, is my neighbour? The answer seems to be persons who
are so closely and directly affected by my act that I ought to have them in
[mind] when I am [considering these] acts or omissions.”
 OBITER DICTUM
Means a saying or opinion of a judge during the
hearing of a case.
When a judges put comments in opinions that are
extraneous to the case of reasoning that leads to
the decision in the case, the comments are said to
be Obiter Dictum.
Comments such as this are not binding authority
 RATIO DECIDENDI
A couple leave their dog in their car while they pop out to a shop. For a reason that
cannot later be discovered, the dog gets excited and starts jumping around. There
is no issue that the dog was suffering from dehydration or being overheated. The
dog paws the rear glass window. It shatters and a shard of glass flies off and,
unfortunately, into the eye of a passer-by, who later has to have his eye removed.
Are the couple liable to pay compensation for the man's eye? The court said no.
People should take care to guard against ‘realistic possibilities’.
They should only be liable, the court said, if they caused others harm by doing
something that could be reasonably foreseen as likely to cause harm. We are not
liable if we fail to guard against ‘fantastic possibilities’ that happen to occur. The
accident in this case, the judges ruled, was just such a ‘fantastic possibility’. The
couple therefore did not have to pay compensation. The reason for the decision in
this case, the ratio decidendi, can therefore be expressed simply as: where harm
was caused to a pedestrian by a dog smashing the window of the car that it was in,
and where this sort of incident was unforeseeable, the defendants were not liable.
 OBITER DICTUM
In the case above about the dog and the man injured by the
shard of glass, one judge said that if you knew your dog had an
excitable tendency or went mad in cars, then you would be liable
if it caused someone harm in a predictable way (not in the
freakish broken window scenario) and would have to pay
compensation.
The judge did not need to rule on that in the dog-and-the-car-
window case, because the couple did not have a dog with a
known excitable temperament. His observations were, therefore,
made ‘by the way’ and thus can be referred to as an obiter
dictum. In a future case involving a dog known by its owners to
be excitable, a lawyer for an injured claimant could refer back to
the judge's obiter dictum in the car window case and use it as
‘persuasive’ but not ‘binding’ authority.
 MAJOR SOURCES OF
MALAYSIAN INSURANCE LAWS
3. English legislation (Sections 3 & 5, Civil Law Act 1956)
◦ It is made possible by Virtue of Section 3 and Section 5 of Civil Law
Act 1965.
◦ Laws passed by the English parliament.
◦ The most significant of an English statutes is the Marine Insurance
Act 1906 & Life Insurance Act 1774 that applies in Malaysia.
4. English common law (Section 3 & 5, Civil Law Act 1956)
◦ Rules derived from English court judgments.
◦ A decision of the highest appeal Court in England and Wales, the
Supreme Court of the UK, is binding on every other court in
hierarchy.
◦ E.g. : Carter v Boehm, Dalby v India & London Life Assurance.
SECTION 3 OF CIVIL LAW ACT 1956
Application of UK common law, rules of equity and certain
statues.
Save so far as other provision has been made or may
hereafter be made by any written law in force in Malaysia,
the court shall:-
◦ In west Malaysia or any part thereof, apply the common law of
England and rules of equity as administered in England on the 7 th day
of April, 1956.
◦ In Sabah, apply the common law of England and rules of equity
together with statutes of general application, as administered in
England on the 1st day of December 1951
◦ In Sarawak, apply the common law of England and rules of equity
together with statutes of general application, as administered in
England on the 12th day of December 1949.
SECTION 5 OF CIVIL LAW ACT 1956
Application of English law in commercial matters
(1) In all questions or issues which arise or which have to be
decided in the States of West Malaysia other than Malacca and
Penang with respect to the law of…marine insurance, average,
life and fire insurance and with respect to merchantile law
generally, the law to be administered shall be the same as would
be administered in England in the like case at the date of the
coming into force of this Act.
(2) In all questions or issues which arise or which have to be
decided in the states of Malacca, Penang, Sabah and Sarawak
with respect to the law concerning any of the matters referred to
in subsection (1), the law to be administere shall be the same as
would be administered in England in the like case at the
corresponding period…
 MALAYSIAN
COURT
SYSTEM

Subordinates courts Superior courts

Superior courts
There are three courts with different jurisdiction within what is known as the Superior
Court. They are the Federal Court: the highest court in the land, the Appeal Court, the
High Court of Malaya and the High Court of Sabah and Sarawak. Each is head by a
federal judge called the Chief Justice of the Federal Court, President of the Appeal
Court and Chief Judge of the High Courts of Malaya and Sabah and Sarawak
respectively.
Federal Court
The Federal Court is the highest court in Malaysia. The Federal Court may hear appeals
of civil decisions of the Court of Appeal where the Federal Court grants leave to do so.
The Federal Court also hears criminal appeals from the Court of Appeal, but only in
respect of matters heard by the High Court in its original jurisdiction (i.e. where the
case has not been appealed from the Subordinate Courts).
Court of Appeal
The Court of Appeal generally hears all civil appeals against decisions of the High
Courts except where against judgment or orders made by consent. In cases where the
claim is less than RM250,000, the judgment or order relates to costs only, and the
appeal is against a decision of a judge in chambers on an interpleader summons on
undisputed facts, the leave of the Court of Appeal must first be obtained. The Court of
Appeal also hears appeals of criminal decisions of the High Court. It is the court of final
jurisdiction for cases which began in any subordinate courts.
High Courts

The two High Courts in Malaysia have general supervisory and revisionary jurisdiction over all the
Subordinate Courts, and jurisdiction to hear appeals from the Subordinate Courts in civil and criminal
matters.

The High Courts have unlimited civil jurisdiction, and generally hear actions where the claim exceeds
RM1,000,000, other than actions involving motor vehicle accidents, landlord and tenant disputes and
distress. The High Courts hear all matters relating to:

- the validity or dissolution of marriage (divorce) and matrimonial causes,

- bankruptcy and matters relating to the winding-up of companies,

- guardianship or custody of children,

- grants of probate, wills and letters of administration of estates,

- injunctions, specific performance or rescissions of contracts,

- legitimacy of persons.

The High Courts have unlimited jurisdiction in all criminal matters other than matters involving Islamic law.
The High Courts have original jurisdiction in criminal cases punishable by death.

Cases are heard by a single judge in the High Court, or by a judicial commissioner. While High Court judges
enjoy security of tenure, judicial commissioners are appointed for a term of two years, and do not enjoy
similar protection under the Constitution. An application for a judicial review is applied in this court.
Subordinate courts
The Magistrates' Courts and Sessions Courts in Malaysia have the
power in control the both criminal and civil matters

Sessions Courts
Somewhat like the former Quarter Sessions in England, but does
not exceed RM1,000,000 as per ss 65(1)(b), 73(b), 93(1) of the
Subordinate Courts Act 1948 (SCA). The exception however is in
matters relating to motor vehicle accidents, landlord and tenant and
distress, where the Sessions Courts have unlimited jurisdiction
pursuant to s 65(1)(a)SCA. Also, by virtue of s 65(3) SCA, the parties
to a legal action may enter into an agreement in writing to grant
jurisdiction to the Sessions Court to try an action beyond its
prescribed monetary jurisdiction aforesaid.
Magistrates Courts
Magistrates are divided into First Class and Second Class Magistrates, the former being
legally qualified and having greater powers. Second Class Magistrates are now not normally
appointed.
In criminal matters, First Class Magistrates' Courts generally have power to try all offences
of which the maximum term of imprisonment does not exceed 10 years or which are
punishable with fine only, but may pass sentences of not more than five years
imprisonment, a fine of up to RM10,000, and/or up to twelve strokes of the cane under
section 87 (1) Subordinate Court Act 1948. The Magistrates Courts hear all civil matters with
less than RM100,000 in dispute. The Magistrates' Courts also hear appeals from the
Penghulu's Courts.

Other courts
The court of a penghulu, or Malay village head, has the power to hear civil matters of which
the claim does not exceed RM50, where the parties are of an Asian race and speak and
understand the Malay language.
The Penghulu Court's criminal jurisdiction is limited to offences of a minor nature charged
against a person of Asian race which is specially enumerated in his warrant, which can be
punished with a fine not exceeding RM50.
However the Penghulu Court has been abolished since 1 March 2013
In Sabah and Sarawak, there are no Penghulus' Courts, but there are instead
Native Courts having jurisdiction on matters of native law and custom.
The Court for Children, previously known as the Juvenile Court, hears cases
involving minors except cases carrying the death penalty, which are heard in High
Courts instead. Cases for children are governed by the Child Act 2001. A child is
defined as any person below the age of 18.
The Special Court was established in 1993 to hear cases of offences or
wrongdoings made by a Ruler. A Ruler includes the Yang di-Pertuan Agong (King),
the sultans of monarchical states in Malaysia, the Yang di-Pertua Negeri, and
the Yang di-Pertuan Besar, i.e.: the head of states of Malaysia and its component
states. Prior to this, a Ruler was immune from any proceedings brought against
them in their personal capacity.

Syariah Courts
There is a parallel system of state Syariah Courts which has limited jurisdiction
over matters of state Islamic (sharia) law. The Syariah Courts have jurisdiction only
over matters involving Muslims, and can generally only pass sentences of not
more than three years imprisonment, a fine of up to RM5,000, and/or up to six
strokes of the cane.
 THE MALAYSIAN COURT SYSTEM
-SUMMARY-
Superior Courts (High Court, Court of Appeal, Federal Court)
High Court
• Two Chief Judges – Chief Judge of Malaya and Chief Judge of Sabah and Sarawak.
• Unlimited subject matter jurisdiction.
• Has original, appellate and supervisory jurisdiction
• Has general supervisory and revisionary jurisdiction.
Court of Appeal
• Members- President of the Court of Appeal and up to ten Court of Appeal judges.
• Hear and determine civil appeals for cases (above RM 250,000.)
• Hear and determine any appeal against any High Court decision on criminal matter
 THE MALAYSIAN COURT SYSTEM
-SUMMARY-
Federal Court
• Members- Chief Justice, the President of the Court of Appeal, Chief Judge of
Malaya, Chief Judge of Sabah and Sarawak and six Federal Court judges.
• Highest court in Malaysia and the final court of appeal.

• Hears civil and criminal appeals from the Court of Appeal.

• Decisions bind all the courts below.

Special Court
• Established under Article 182 of the Federal Constitution,

• Hears any civil or criminal action against the Yang Di- Pertuan Agong or any
of the nine Malay Rulers.
 THE MALAYSIAN COURT SYSTEM
-SUMMARY-
Subordinate Courts (Court for Children, Magistrate Courts, Sessions Courts)
Court for Children
• Hears and determine any charge against a child (under 18 years old)
• Exercises jurisdiction under Child Act 2001 or any other written law.
• Consists of a First Class Magistrate and shall, as the case may require, be assisted by two advisers, one
of whom shall be a woman.
Magistrates’ Courts
Civil matter:
• First Class Magistrates’ Court- try all actions and suit (value not exceeding RM100,000.
• Second Class Magistrates’ Court- try original actions or suits (value not exceeding RM10,000)
Criminal matter:
• First Class Magistrates’ Court- try offences punishable with imprisonment not exceeding 10 years, with
fine only and offences under Sections 392 and 457 Penal Code.
• Second Class Magistrates’ Court- try offences punishable with imprisonment not exceeding 1 year or
punishable with fine only.
 THE MALAYSIAN COURT SYSTEM
-SUMMARY-

Sessions Courts

Civil matter:
• Unlimited jurisdiction to try all actions of a civil matter concerning
motor vehicle accident, landlord and tenant and distress.
• Jurisdiction to try all other actions of a civil nature (not exceed
RM1,000,000.)
Criminal matter:
• Try all offences other than those punishable with death.
• Pass any sentence other than the death sentence.
 REFERENCES
Legal principle (2015), The Malaysian Insurance Institute, 1 st Edition.