On 6 March 2025, the Federal Court delivered its grounds of judgment in Detik Ria Sdn Bhd v Prudential Corporation Holdings Limited & Anor [2025] MLJU 575, an appeal between the Appellant, Detik Ria Sdn Bhd (“Detik Ria”) and the Respondents, Prudential Assurance Company Limited (“Prudential Assurance”) and Prudential Corporation Holdings Limited (“Prudential Corporation”) (collectively “Respondents”) concerning a Call/Put Option Agreement (“CPOA”).
 
The Federal Court overturned the decisions of the High Court and Court of Appeal and allowed Detik Ria's appeal. Consequently, by section 66 of the Contracts Act 1950, the parties were required to restore any advantage that they had received from each other, i.e. Detik Ria is to return the sum of RM109,205,290.57 (amounting to 99.5% of the purchase price) that has been paid thus far, and the Respondents are to restore all advantage/benefit that they received under the CPOA including dividends, if any, due to Detik Ria.
 
Brief Facts
 
Prudential Assurance and Detik Ria held 51% and 49% respectively of the shares in Sri Han Suria Sdn Bhd (“SHS”) which in turn, held all the issued shares in Prudential Assurance Malaysia Berhad (“PAMB”), a licensed insurer under the Insurance Act 1996 and thereafter, the Financial Services Act 2013 upon the repeal of the former. Prudential Corporation is a related company of Prudential Assurance.
 
Prudential Assurance and Detik Ria entered into the CPOA on 27 February 2002. Under the CPOA, Detik Ria agreed to grant a call option to Prudential Assurance and Prudential Assurance agreed to grant a put option to Detik Ria in respect of Detik Ria’s 49% shareholding in SHS. Upon the exercise of the option, Detik Ria's shares in SHS would be sold to Prudential Assurance, making it the sole shareholder of SHS. The CPOA was conditional upon obtaining the approval of, inter alia, the Minister of Finance, as stipulated in clause 2.1.
 
On 15 December 2008, Detik Ria issued a notice to Prudential Assurance to exercise the put option. On 9 September 2009, Prudential Assurance and Detik Ria entered into a Supplemental Call/Put Option Agreement (“SCPOA”) where they agreed, inter alia, that the completion date of the put option would be deferred "until such date or dates without limit in point of time", namely until Prudential Assurance was able to purchase (or procure other persons acceptable to Bank Negara to purchase) the option shares.
 
Between 2009 and 2019, Detik Ria received a total of RM109,205,290.50 by way of the purchase price from Prudential Assurance. Between 2009 and 2018, Prudential Assurance as the sole holder of "A" preference shares in SHS received dividends totalling RM4.2 billion while Detik Ria received no dividends.
 
Nearly 10 years later, Detik Ria wrote a letter dated 30 April 2018 to Prudential Corporation Asia (the regional head office in Asia for the Prudential plc group of companies) seeking to rescind the put option and retain its 49% shareholding in SHS. Prudential Corporation Asia asserted in its reply dated 16 May 2018 that the put option was valid, irrevocable, with no grounds for its rescission, and that the Respondents intended to complete the acquisition of the option shares once the requisite regulatory approvals were obtained. Detik Ria did not respond to this letter.
 
In April 2018, Prudential Corporation applied for Bank Negara’s approval to acquire Detik Ria's 49% effective interest in shares in PAMB. Based on Prudential Corporation’s representations, Bank Negara conveyed its approval in principle to Prudential Corporation in May 2018.
 
On 28 April 2023 and 17 August 2023, Detik Ria wrote to the Ministry of Finance to inquire whether the Minister of Finance had granted prior written approval for the acquisition of its 49% effective interest in PAMB based on the CPOA. The Ministry of Finance replied on 18 August 2023, confirming that it had no records of granting prior written approval to Prudential Assurance for the said acquisition.
 
Judgment of the High Court and the Court of Appeal
 
The High Court held that the CPOA was not illegal and upheld its validity by reason that the CPOA was a conditional contract where the obligations of the parties would only be legally enforceable upon obtaining approval from Bank Negara as required under the Insurance Act 1996.
 
Upon the appeal by Detik Ria, the Court of Appeal unanimously affirmed the High Court decision. The Court of Appeal agreed that the applicable law was the Insurance Act 1996 and that the conditional contract remained valid as long as the acquisition or disposal of shares did not occur before the fulfilment of the conditions, i.e. the obtaining of approval from Bank Negara. The prior written approval from Bank Negara need not be obtained at the time the CPOA was entered into.
 
That being said, it is apparent from the decisions of the High Court and the Court of Appeal that their focus was on whether the failure to obtain Bank Negara's approval prior to entering into the CPOA rendered the agreement illegal. Both the High Court and the Court of Appeal have equated approval from Bank Negara with that from the Minister of Finance, although these entities are two different and separate authorities, despite their finding that the Insurance Act 1996 was the applicable law.
 
Detik Ria’s application for leave to appeal to the Federal Court on various questions of law was allowed by the apex court.
 
Judgment of the Federal Court
 
In arriving at the decision, the Federal Court, inter alia, considered the following issues:
 
First Issue: What is the relevant legislation applicable - section 67 of the Insurance Act 1996 or section 87 of the Financial Services Act 2013?
 
Detik Ria contended that the law applicable to the agreement was the Insurance Act 1996 as it was the law in force at the time of the entry into the CPOA (Requirement: prior written approval of Minister of Finance). On the other hand, the Respondents argued that the agreement was only performed after the Financial Services Act 2013 came into force (Requirement: prior written approval of Bank Negara).
 
The Federal Court confirmed the Court of Appeal’s reasoning that the applicable law is the Insurance Act 1996, and the provisions of the Financial Services Act 2013 do not apply retrospectively. It is trite that the rights and obligations of parties to an agreement are to be decided by the prevailing statutory regime at the time the agreement was entered into by the parties.
 
As such, it was mandatory for the Respondents to obtain the prior written approval of the Minister of Finance under section 67 of the Insurance Act 1996, and not of Bank Negara Malaysia under Section 87 of the Financial Services Act 2013, before the CPOA could be performed or carried out. However, this did not preclude the parties from entering into a “conditional contract” as was done under the CPOA, as discussed below.
 
Second Issue: How is Section 67 of the Insurance Act 1996 to be construed?
 
Section 67 of the Insurance Act 1996 expressly provided that the approval of the Minister of Finance shall be obtained prior to entry into an agreement “to acquire or dispose of any interest in shares … which results in (a person or his associates holding) an aggregate interest in shares exceeding five per cent of the shares of that licensee or of its controller”. It is evident in this case that the Minister of Finance did not grant approval before the CPOA was entered into by the parties.
 
Nevertheless, the Federal Court confirmed the decision of the High Court and the Court of Appeal that it was expressly stated as a condition precedent of the CPOA that parties should obtain the Minister of Finance’s approval before the CPOA could be performed or carried out. The necessity to obtain the Minister of Finance’s approval under section 67 of the Insurance Act 1996 was recognised and given effect in the CPOA. The condition precedent in the CPOA meant that the contract for the actual dealing in shares did not come into existence until the condition precedent was satisfied and thus, the entry into the CPOA in itself did not amount to a disposal or acquisition by Detik Ria or the Respondents.
 
Therefore, the Federal Court concluded that the entering into the CPOA was not illegal or void or invalid despite the absence of the Minister of Finance's approval.
 
In arriving at its conclusion, the Federal Court also recognised the practical reality that if parties to a corporate transaction are precluded from even entering into a conditional contract which sets down the content, object and purpose of the transaction which is intended to be performed only upon full regulatory approval being obtained, then business and corporations would be adversely affected by reason that the lengthy process of obtaining approval could result in the parties changing their minds or other parties intervening to preclude the transaction from proceeding.
 
Third Issue: What is the effect of a contravention of section 67 of the Insurance Act 1996, i.e. if there is a failure to obtain the Minister of Finance's approval?
 
In answering the third issue, the Federal Court first explained that not every breach of a statutory prohibition would result in an agreement being illegal or void. It is imperative to consider (i) the nature of the provision contravened in the context of the object and purpose of the statute and (ii) the transaction in question, the parties' intent and their act of contravention.
 
Section 24 of the Contracts Act 1950 speaks of an unlawful “object” and envisages situations where the purpose of the agreement is to commit an illegal act or to circumvent the law. In this case, there is no evidence of an illegal object or purpose. The parties had entered a commercial agreement for the acquisition and sale of shares with the intention of obtaining the necessary approval from the relevant regulatory authorities. Therefore, the CPOA was not void ab initio.
 
The Federal Court added that there is an alternative scenario whereby a valid contract can become void and unenforceable if its performance involves an illegal act or contravenes the statute.
 
If there had been no performance of the contract (no acquisition of shares) and the condition precedent remained intact, the CPOA and the SCPOA would remain conditional contracts that only come into force after the Minister of Finance's approval had been obtained. Conversely, if there was performance or substantial performance of the contract in relation to the acquisition of shares, then that would mean that the contract had already come into existence despite the absence of the Minister of Finance's approval, in contravention of section 67 of the Insurance Act 1996.
 
After examining the factual matrix of this case, the Federal Court held that the CPOA had been substantially performed for, among others, the following reasons: (a) about 99.5% of the full purchase price had been paid; (b) Detik Ria was prohibited from dealing with the SHS shares; (c) the admission by the Respondents that the SHS shares were held by Detik Ria for the benefit of the Respondents; (d) the Respondents’ representation in a letter dated 24 September 2018 to Bank Negara that they had shares in excess of 70% in PAMB, which could only occur if the Respondents included part of the 49% shareholding belonging to Detik Ria as belonging to themselves; (e) the provisions in a Memorandum of Deposit required Detik Ria to vote in such manner as may be directed by the Respondents and so as not to prejudice the Respondents’ interests; and (f) the acknowledgment that the Respondents were entitled to sell the shares at their behest.
 
As the CPOA had been substantially or effectively performed without the Minister of Finance's approval, the Federal Court concluded that section 67 of the Insurance Act 1996 had been contravened and the contracts had become void.
 
The Federal Court highlighted that the High Court and the Court of Appeal had erred in not considering and concluding that the matters set out in paragraphs (a) to (f) above amounted to the CPOA being carried into effect without the Minister of Finance’s approval, contrary to section 67 of the Insurance Act 1996.
 
Fourth Issue: What is the available remedy?
 
Since the agreements were found to have “become void”, the Federal Court considered whether section 66 of the Contracts Act 1950 could be engaged so as to require the parties to restore to each other all benefits they had received under the agreements.
 
The Federal Court undertook a detailed examination of section 66. First, it acknowledged the existence of a line of Malaysian cases which suggests that the parties must not have knowledge of the illegality when the contract was entered into (e.g. Ahmad bin Udoh & Anor v Ng Aik Chong [1970] 1 MLJ 82 (FC), Menaka v Lum Kum Chum [1977] 1 MLJ 91 (PC) and Singma Sawmill Co Sdn Bhd v Asian Holdings (Industrialised Buildings) Sdn Bhd [1980] 1 MLJ 21 (FC)). The Federal Court then proceeded to formulate a guide for determining whether section 66 is to be engaged when a contract is “discovered to be void” or “becomes void”, which entails a consideration of the following: 

The Federal Court emphasised that the factors set out in the guidelines proposed by the Court are non-exhaustive. It added that the factors should not be utilised in a mechanistic and rigid fashion but considered holistically and given weight according to the facts of the particular case.
 
The Federal Court further emphasised that proportionality is not simply a stage in the test but an overarching principle that ensures that all relevant factors are weighed together, preventing any single consideration from dominating the balance in a manner that would lead to unjust outcomes.
 
On the facts of the instant appeal, the Federal Court held that the result would be the same whether the classical illegality doctrine or the broader approach proposed by the Court in this case is applied to the construction of section 66. The former approach requires that there was no knowledge of illegality at the outset, which is the case here. Applying the latter approach, section 66 is available to the parties at the time at which the contract “became” void and therefore does not detract from the application of the section.
 
Accordingly, the Federal Court held that section 66 of the Contracts Act 1950 applies to restore the parties to their original position status quo ante, that is, Detik Ria is to return to the Respondents the purchase price that has been paid thus far, namely RM109,205,290.57, and the Respondents are to restore all advantage/benefits they have received under the CPOA including but not limited to dividends, if any, due to Detik Ria. In this regard, the appeal was remitted to the High Court for the parties to resolve the dispute on the nature and quantum of the dividends.
 
Comments
 
This Federal Court decision is noteworthy in three respects.
 
First, the Federal Court has made it clear that the entry into an agreement for the acquisition or disposal of interest in shares that will result in a person (together with his associates) holding an aggregate interest in shares of more than 5% in a licensed insurer, which is subject to a condition precedent that the performance of the obligations in relation to the sale and purchase of shares is to occur only after the requisite regulatory approval has been obtained, does not contravene section 67 of the Insurance Act 1996.
 
Arising from the above, it is submitted that there are strong grounds to argue that the Federal Court’s reasoning in this respect applies with equal force to an acquisition that results in a person holding an aggregate interest in shares of 5% or more, or exceeding any multiple of 5%, in a licensed insurer, licensed bank or licensed investment bank under sections 87(1)(a) and 87(1)(b)(i) respectively of the Financial Services Act 2013, or in a takaful operator or licensed Islamic bank under sections 99(1)(a) and 99(1)(b)(i) respectively, of the Islamic Financial Services Act 2013. However, it is to be noted that signing such a conditional contract may not be well received by Bank Negara as the Policy Document on Application Procedures for Acquisition of Interest in Shares and to be a Financial Holding Company expressly requires various information and documents, including the draft contracts or agreements that, once finalised and executed, would give effect to the proposed acquisition, to be submitted to Bank Negara as part of the application process for approval.³
 
Second, performance or substantial performance of the contract before the requisite regulatory approval is obtained could result in an agreement, which was originally valid and enforceable, becoming void.
 
Third, the Federal Court has provided helpful guidance on the factors that are to be considered in order to determine whether section 66 of the Contracts Act 1950, which provides for restitution of benefits received under the contract, is to be engaged.
 
Case Note by Loo Peh Fern (Partner) and Tan Yng Yiin (Associate) of the Insurance and Reinsurance Practice of Skrine.
 

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