Introduction
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The Federal Court of Malaysia in Detik Ria Sdn Bhd v. Prudential Corporation Holdings Limited & Anor [2025] CLJU 466 addressed a critical issue concerning the validity and enforceability of contracts contingent on regulatory approval, specifically within the context of the Insurance Act 1996 (“IA 1996”).
The court examined the status of call and put option agreements related to shareholding in an insurer, where the Minister of Finance’s approval was a prerequisite that had not been obtained. The central question was whether these agreements constituted valid conditional or contingent contracts capable of specific performance despite the absence of the Minister of Finance’s consent, or whether they were invalid and unenforceable due to the lack of this consent.
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Background Facts
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• In 2002, Detik Ria Sdn Bhd (“Detik Ria”) and Prudential Assurance entered into a Call/Put Option Agreement (“CPOA”) for shares in Sri Han Suria Sdn. Bhd. (“SHS”) (“Sale Shares”). SHS is a 100% shareholder of Prudential Assurance Malaysia Berhad, a licensed insurer. The CPOA was conditional upon approval of the Minister of Finance, among other conditions. This approval of the Minister of Finance was never obtained.
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• In 2008, Detik Ria exercised its put option for the Sale Shares. A Memorandum of Deposit was executed by the parties providing that Prudential Assurance is entitled at any time, without notice to or consent of Detik Ria, to effect the transfer of the Sale Shares.
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• In 2009, Prudential Assurance and Detik Ria entered into a Supplemental Call/Put Option Agreement (“SCPOA”), amending the CPOA terms. Pursuant to the SCPOA, the completion date of the put option was deferred until Prudential Assurance was able to purchase (or to procure such person(s) acceptable to Bank Negara to purchase) the Sale Shares.
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• In 2013, the Financial Services Act 2013 (“FSA 2013”) came into force and repealed the IA 1996.
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• In 2018, Detik Ria sought to rescind the put option, but Prudential claimed it was valid and irrevocable.
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• The High Court and the Court of Appeal upheld the agreements as valid and specifically enforceable.
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Federal Court’s Findings
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The Federal Court ruled that the CPOA and SCPOA were unenforceable and void due to the failure to obtain the necessary approval from the Minister of Finance as required by the IA 1996. In arriving at its decision, the court considered, among others, the following:
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(1) Is the entry into the CPOA and SCPOA containing a condition precedent that the requisite mandatory approvals be obtained prior to performance of the contract, illegal?
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The court clarified that entering into the CPOA was not a contravention, as the agreement itself has required the approval of the Minister of Finance as a condition precedent prior to performance of the contract. The court held that if parties to a corporate transaction cannot even enter into a conditional contract which sets down the content, object and purpose of the transaction which is intended to be performed or to take place only upon full regulatory approval being obtained, then business and corporations would be adversely affected.
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(2) What is the relevant legislation applicable – the Insurance Act 1996 or the Financial Services Act 2013?
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The applicable legislation was the IA 1996, not the FSA 2013, as the latter expressly states that the FSA 2013 would not apply retrospectively and that any obligation under statute such as the IA 1996 will continue to remain in force.
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(3) Was there performance or effective performance of the agreements by the parties, notwithstanding the lack of regulatory approval as required under the relevant statute?
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In contravention of the IA 1996, the court found that the condition precedent had been breached as the CPOA and SCPOA were effectively performed in substance without the regulatory approval, save for the actual transfer of legal title to the shares, as evidenced by:
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• Payment of RM109 million (99.5% of the full purchase price).
• Detik Ria being prohibited from dealing with the Sale Shares.
• Prudential’s admission that the option shares were held in trust by Detik Ria for the benefit of Prudential.
• The letter dated 24 September 2018 from Bank Negara to Prudential, where Prudential held out to Bank Negara that Prudential had shares in excess of 70% in Prudential Assurance. This could only occur if they included part of the 49% belonging to Detik as belonging to themselves.
• The provisions in the Memorandum of Deposit required Detik to vote as directed by Prudential so as not to prejudice the interests of Prudential.
• The acknowledgment that Prudential was entitled to sell the Sale Shares at its discretion.
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(4) What is the effect of the substantive or material performance of the CPOA and SCPOA?
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The effect of performance of the CPOA and SCPOA amounts to performing an acquisition and disposal of more than 5% shareholding in an insurer without the consent of the Minister of Finance. This means Prudential, a foreign entity, would ultimately control the insurer through its ownership of SHS.
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The effect of performance is that the CPOA and SCPOA was completed, such that the consent of the Minister of the Finance could no longer be obtained as the ownership of the shares had effectively passed to Prudential, save in title. The Minister could not give consent for agreements that had already been performed.
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As this is in contravention of a fundamental aspect of the statute, it cannot be waived as a mere technical irregularity. Having considered the construction of the IA 1996, the court found that such a contravention renders the CPOA and the SCPOA unenforceable.
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(5) What are the remedies available to the parties?
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Since the agreements are unenforceable and void, Section 66 of the Contracts Act 1950 applies, requiring parties to restore any advantage received. Parties are at liberty to apply to the High Court in the event of any dispute regarding the advantage/benefit to be restored.
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Key Legal Principles
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The case clarifies that contracts requiring regulatory approval as a condition precedent are not void ab initio, but they become unenforceable if the necessary approval is not obtained before substantive or material performance of the contract, thus contravening the statute. Substantive or material performance of the contract will be assessed based on the facts.
A substantive or material performance carried out without obtaining mandatory consent alters a contract’s classification. Initially, it might be considered a conditional or contingent contract—valid and enforceable only upon obtaining such consent. However, performing the contract without the requisite mandatory consent shifts it into a category of contracts prohibited by statute, rendering it unenforceable and void.”
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About the author
Shaun Lee Zhen Wei
Senior Associate
Capital Markets
Halim Hong & Quek
shaun.lee@hhq.com.my
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