Lord Scarman:

In this appeal from the Federal Court of Malaysia the issue is which of two insurance companies is liable under s. 80 of the Road Traffic Ordinance (No. 49 of 1958) to satisfy a judgment obtained by a third party in respect of a road traffic accident. At the conclusion of the hearing their Lordships indicated that they would report their opinion to His Majesty the Yang di-Pertuan Agong that the appeal ought to be allowed with costs before the Board and below and that they would give their reasons later.

On 15 June 1969 Abdul Hafidz and Mohamediah bin Jali ("the third parties") suffered personal injuries in a road accident. They were run into and knocked down by a motor vehicle owned by Kwang and driven with his consent by Ko Beng Lai. They sued Ko, the driver, and on 28 July 1981 obtained judgment against him for a total sum of RM44,098 and interest from date of judgment at 8% per annum. The judgment was and remains unsatisfied.

Ko was insured under a policy of insurance issued to him by the National Insurance Co. Ltd., respondent to this appeal. Their Lordships will refer to this company as "the driver's insurers". The policy was in respect of a vehicle other than the one involved in the accident and contained an extension of cover in these terms:

The company will indemnify ...

... the insured whilst personally driving a private motor car ... not belonging to him and not hired to him under a hire purchase agreement.

Ko was driving at the time of the accident a private motor vehicle which belonged not to him but to Kwang. Kwang was insured with the Bankers and Traders Insurance Co. Ltd., the appellant, to whom their Lordships will refer as "the owner's insurers". His policy was issued to him in respect of the car which Ko was driving, and it provided, inter alia, that:

The company will indemnify

(a) an authorised driver who is driving the motor vehicle provided that such authorised driver

...

...

... is not entitled to indemnity under any other policy.

Ko was the authorised driver: but he was entitled to an indemnity under his own policy. He was, therefore, not covered by Kwang's policy.

Section 80 of the Ordinance imposes a duty upon insurers to satisfy judgments against persons insured in respect of third party risks. Uncertain as to which company was on risk, the third parties issued a writ against both companies on 14 November 1976. The ensuing litigation has been between the two insurance companies, the ultimate question being which of the two companies must satisfy the judgment obtained against the driver.

The case was heard in the High Court of Malaya by Mr. Justice Mohamed Yusoff. The two issues for the Court's decision were defined as follows:

(a) Whether the policy of the first defendants or the second defendants were on risk at the material time of the accident; and

(b) Whichever defendants are found to be liable to satisfy the judgment sum and costs, could they call for contribution from the other for 50 per cent in view of the condition 7 of the policy of insurance.

The Judge held that the driver's policy provided him with cover and that upon the true construction of the Ordinance his insurers were liable to satisfy the judgment against Ko. This being the Judge's decision on the first issue, the second did not arise.

On appeal the Federal Court took a different view. Like the trial Judge they thought the case to be one of double insurance. They differed, however, from the Judge in construing the Ordinance as being primarily concerned with the insurance of the car and only secondarily, if the car was not insured, with the insurance of the driver. They put their view thus:

As this car was insured with the second defendants, (the owner's insurers who are the appellants in this appeal) it is their policy which was on risk,

and again:-

The decisive factor which is the subject matter of the insurance is the specified motorcar. It is because of the use of the motorcar that an insurance is required