When a Right of First Refusal Isn’t So Simple: Lessons from a Recent High Court Case

A “right of first refusal” sounds simple enough. One party must first offer an opportunity to the other before dealing with outsiders. In shareholder agreements, this usually means offering shares to existing shareholders first. In tenancy agreements, it means the landlord must offer the property to the tenant before leasing or selling to others.

But when the right appears in an ongoing commercial partnership, things get complicated.

The Case

The Kuala Lumpur High Court recently considered this issue in [2025] 6 CLJ 830; [2025] MLJU 633. The dispute was over the renewal of a bancassurance agreement. The bank ran a competitive tender involving several insurers, including our client the incumbent. The incumbent argued that its contractual right of first refusal had not been properly honoured.

The Court agreed. It held that:

1. A proper offer is required: An “invitation to treat” or an offer that includes new, unagreed scope (in this case, takaful products) is not enough.

   
   

2. Tender participation does not cancel the right: Even if the right-holder joins the tender, the right still entitles them to see and, if they wish, match the winning bid.

   
   

3. Selective disclosure will not do: The grantor must disclose the full terms of the successful bid, not just selected numbers.

On that basis, the Court ordered the full disclosure of the successful bid so the incumbent could decide whether to exercise its right. It has recently been reported that parties have entered into a new bancassurance agreement.

Why It Matters for Businesses

This decision underscores a key point: rights of first refusal are not box-ticking clauses. They can significantly affect renewal negotiations, especially in industries with long-term distribution or partnership agreements.

For businesses, the lessons are clear:

1. Draft with precision: Define how the right operates, especially if tenders or renewals are anticipated.

   
   

2. Expect disclosure obligations: If you grant the right, be prepared to share full commercial terms.

   
   

3. Do not assume participation waives rights: Joining a process does not mean the right disappears.

Takeaway

The High Court has confirmed that a right of first refusal must be given real commercial effect. For companies negotiating shareholder agreements, tenancy agreements or complex commercial partnerships, this case is a timely reminder: what looks like boilerplate wording can determine whether you keep or lose a valuable business relationship.