Introduction

Recent decisions by the Malaysian Federal Court have raised concerns about the enforcement of financial transactions, particularly in cases involving gambling debts, moneylending, and legitimate commercial arrangements like put option agreements.

While these decisions clarify key legal principles, they also risk unfairly impacting genuine transactions if misapplied. This article explores these legal developments and provides practical steps for businesses to safeguard their interests.

Clarifying Gambling Debts and Moneylending Transactions

Dato' Ting Ching Lee v. Ting Siu Hua [2025] CLJU 361

In this case, the Federal Court ruled that credit facilities extended for gambling purposes are unenforceable, regardless of how they are structured. The court emphasised the importance of looking at the substance of the transaction rather than its form, aligning with the Singaporean approach in Star City Pty Ltd (formerly known as Sydney Harbour Casino Pty Ltd) v. Tan Hong Woon [2002] 1 SLR (R)). This decision reinforces Malaysia’s strong public policy stance against gambling debts.

However, this ruling raises legitimate concerns about fairness — particularly in cases where a lender has acted in good faith, only to be left without any legal means of recovery. This could inadvertently push some creditors towards informal or even unlawful recovery methods, which is a serious concern for the financial and business community.

Triple Zest Trading v. Applied Business Technologies [2023] 2 MLJ 374

In this case, the Court of Appeal limited recovery on a “friendly loan” where excessive interest disguised as “agreed profit” was deemed unenforceable. The Court of Appeal emphasised that financial arrangements must comply with the Moneylenders Act 1951.

Put Option Agreements and Our Experience

In Butterfly Capital Management Co Ltd v. Wang Hsiu Ying & Anor [2024] CLJU 2647, the High Court considered whether a put option agreement was a disguised moneylending transaction. We represented Butterfly in this case, where the defendant alleged that the put option agreement masked an illegal lending arrangement with excessive interest.

Despite clear precedents recognising the validity of put option agreements, such as:

the High Court in the Butterfly case rejected the put option agreement despite these precedents.

This decision is troubling because it relies on Triple Zest and places genuine commercial arrangements at risk of being mischaracterised as unlawful. Despite the eventual resolution of the dispute at the Court of Appeal, the High Court ruling remains on record, creating uncertainty for businesses that rely on put option agreements as legitimate financial tools.

A Practical Approach Forward

Given these developments, businesses and lenders must take proactive steps to protect their interests:

Conclusion

The recent court rulings demonstrate Malaysia’s firm stance against illegal lending and gambling debts. However, they also risk harming legitimate financial arrangements if misinterpreted. The Butterfly case shows how a valid commercial deal can still be challenged, despite established precedents supporting put option agreements. Moving forward, businesses must ensure their transactions are well-structured, transparent, and properly documented to avoid unnecessary disputes. Clear intent and commercial logic must shine through, allowing courts to differentiate genuine business arrangements from disguised lending transactions.

Our Managing Partner and Head of Dispute Resolution, Kho Sze Jia, acted for Butterfly. He was assisted by Wong Poh Yee. Our team can be reached at [email protected]