Richard Talalla J:

[1] The plaintiffs were the owners of the Asia Hotel, Batu Pahat and had insured their hotel with the defendants against fire and consequential loss as evidenced by 2 policies both dated 25 February 1985, one a fire policy and the other a consequential loss policy as they were popularly known. On 11 May 1985 the hotel was damaged by fire. The plaintiffs claimed indemnity under both policies. The defendants repudiated liability and refused to pay contending that both policies were obtained by misrepresentation, non-disclosure and concealment of a material fact, in that, the plaintiffs failed to disclose that one Dragon Nite Club (the Nite Club) of which one Mr Lim Ah Kow, the plaintiffs' managing director (the managing director), was the managing or active partner, had lodged a fire claim with one Safety Life & General Insurance Sdn Bhd, as effectively pleaded in para 12 of the statement of defence.

[2] It is common ground that each policy, being a contract between the plaintiffs and the defendants, was issued on the basis of a proposal, which was in the defendants' standard form, executed by the plaintiffs by hand of the managing director, that in each proposal the plaintiffs were warned pursuant to Insurance Act 1963, ss 16 (the Act) that it was to disclose in the proposal form fully and faithfully all the facts which the plaintiffs knew or ought to have known, otherwise the policy issued thereunder might be void. As to the fire policy the plaintiffs having made certain statements and provided certain particulars in the proposal thereafter declared and warranted that those statements and particulars were true and agreed that declaration was to be promissory and form the basis of the contract between the parties. As to the consequential loss policy, the plaintiffs agreed that the proposal should be the basis of the contract between the defendants and the plaintiffs.

[3] In the proposal for the fire policy the defendants asked the question, "Have you ever suffered a loss by fire? If so, was any claim made upon an insurance company? Please give details." To that question the plaintiffs answered, "No". In the consequential loss policy, the defendants posed the question, "Have you ever claimed on any company or insurer for loss by fire, lightning or explosion, in respect of any property now or formerly owned or occupied by you or for loss of profits? If so, give full particulars." To that question also the plaintiffs answered in the negative.

[4] The managing director gave evidence in support of the plaintiffs' claim. It is clear from the evidence that, as far back as mid-1977 he was the sole proprietor of a hotel business known as Asia Hotel, that in 1978 he incorporated that business into the plaintiffs and became and remained the plaintiffs' managing director until he resigned from that office in 1986. He was also the sole proprietor of the Nite Club which he started also in mid-1977. In mid-1978 he took in a number of partners to the Nite Club. On 8 January 1979 Safety Insurance issued a fire policy in favour of the Nite Club. On 9 January 1979 the Nite Club caught fire, a claim was made under the policy and Safety Insurance met the claim.

[5] The managing director testified that the 2 proposal forms were filled by an insurance agent, Lee Boon Keng (the agent), and that he, the managing director, signed them on behalf of the plaintiffs. He added that he answered the 2 questions above stated in the negative because he was signing on behalf of the plaintiffs and that he answered so because the plaintiffs had never before made any claim. With reference to the word "you" in each of the questions, the managing director said he took the word to mean the plaintiffs and added that, he did discuss this matter with the agent who advised him to do the same.

[6] The managing director said in evidence that the plaintiffs had no interest whatsoever in the Nite Club. In the proposal form relative to the consequential los