Important Note: This article is for general information and educational purposes only — not legal advice. It draws on the Court of Appeal’s unreported grounds of judgment in Kerajaan Negeri Kedah Darul Aman & Anor v Lee Bak Chui & Ors and other appeals (Court of Appeal Civil Appeal No. K‑01(A)‑430‑07/2024), the background report published by Malay Mail on 12 August 2026, and the Federal Court’s dismissal of the leave application as reported by Bernama and The Edge on 12 August 2026.
For illustration only
What the Federal Court’s refusal of leave confirms about federal supremacy, state licensing power, and the limits of indirect prohibition
In 2021, the Kedah government announced that it would stop renewing premises licences for lottery and pool betting outlets, framing the policy as a measure to curb social ills. The decision left operators who held valid licences under the Pool Betting Act 1967 unable to run their businesses once their local premises licences expired. By 2023, they could no longer open their physical outlets in Kedah — not because their federal approvals had expired, but because their local premises licences were not renewed.
What followed was a constitutional contest about the limits of state power: could Kedah use its local licensing authority to prohibit an activity Parliament had placed under federal control? The High Court said no, and the Court of Appeal agreed by a 2–1 majority. On 12 August 2026, the Federal Court refused the Kedah government’s leave to appeal, leaving the Court of Appeal’s decision as the final word.
Federal Power vs State Power
At the centre of the dispute were two distinct grants of power under the Federal Constitution. The Federal Constitution places betting and lotteries under Parliament’s law‑making authority, while local government — including the licensing of business premises — falls to the states. Kedah’s policy sat at the intersection of these two powers.
The table below shows, side by side, what each level of government is allowed to do.
| Federal Power | State Power |
|---|---|
| Betting & lotteries Federal List, Item 4(l) |
Local government State List, Item 4(a) |
| Pool Betting Act 1967 Finance Minister issues licences and regulates the industry nationwide |
Local Government Act 1976 Local councils issue premises licences for genuine local concerns |
The issue was not the state’s disapproval of gambling, but the means by which it sought to give effect to that disapproval. It was whether the Kedah state government could use its authority over business premises licences to prohibit an activity that Parliament has placed under federal legislative competence. The majority’s answer — left undisturbed by the Federal Court’s refusal of leave — was that it could not: a state may not do indirectly what it cannot do directly, and its executive authority must not be exercised so as to impede or prejudice the executive authority of the Federation.
A Ban by Refusal to Renew
Kedah did not pass a law banning pool betting. Instead, it refused to renew premises licences, thereby prohibiting a federally regulated activity. The flowchart below shows that sequence.
State policy
Kedah decides to stop renewing premises licences for pool betting outlets
Local councils carry out the policy
Councils issue letters refusing premises licences, citing the state policy
Federal licence holders cannot operate
Operators retain valid federal licences but cannot use their physical outlets
A state‑wide prohibition of a federally regulated activity
The local authority letters stated that the Minister of Finance would no longer consider renewing the federal gambling licences for 2023. In fact, the Minister did renew them.
What the High Court decided
In June 2024, the Alor Setar High Court allowed the operators’ judicial review applications. The court held that the Kedah state government’s decision was subject to judicial review, even though it was framed as a matter of state policy. The court found that the decision crossed the constitutional line between regulating premises and prohibiting a federally licensed activity. The decision was quashed, declared unconstitutional, and damages were ordered to be assessed.
What the Court of Appeal decided
Kedah appealed. On 12 December 2025, the Court of Appeal upheld the High Court’s decision by a 2–1 majority. The majority comprised Justices Datuk Faizah Jamaludin and Datuk Dr Lim Hock Leng. Chief Judge of Sabah and Sarawak Datuk Azizah Nawawi dissented.
The majority held that the state government’s decision was not a legitimate exercise of premises licensing. It was an impermissible state‑wide prohibition of a subject matter reserved to the Federation. The court found that betting and lotteries fall under federal legislative competence, while local government — including premises licensing — falls to the states. But the state could not use its licensing power to nullify, impede, or defeat the federal licensing framework. The majority also held that the state had acted contrary to Article 81(b) of the Federal Constitution, which requires state executive authority to be exercised in a way that does not impede or prejudice the executive authority of the Federation.
The dissenting judge took a different view. She held that the decision was a matter of state policy over local government and premises licensing, and that the court should not interfere.
With the Federal Court’s subsequent refusal of leave, the majority’s decision is the final word.
The Federal Court’s refusal of leave
The Kedah government sought leave to appeal to the Federal Court, proposing six questions of law. Under section 96(a) of the Courts of Judicature Act 1964, leave is granted only where the proposed appeal involves a question of general principle decided for the first time, or a question of importance on which further argument and a decision of the Federal Court would be to public advantage. On 12 August 2026, a three-member bench comprising Justices Datuk Rhodzariah Bujang, Datuk Collin Lawrence Sequerah, and Datuk Azmi Ariffin dismissed the application. The court held that the application did not satisfy that threshold. The state government was ordered to pay RM50,000 in costs.
The Federal Court did not decide the merits of the case. Its refusal of leave meant the Court of Appeal’s majority decision remains binding. The policy of not renewing premises licences for pool betting outlets in Kedah remains quashed, and the operators may now apply to the relevant local councils for business premises licences.
Practical Takeaways
- For state governments, the decision confirms that local licensing powers are not a substitute for legislative competence. A state cannot rely on its authority over premises licensing to prohibit a federally licensed activity, even when the policy is framed in terms of public welfare or social concern.
- For local councils, the case highlights the importance of distinguishing genuine premises-based considerations — safety, planning, nuisance, or zoning — from broader policy disapproval of an activity. A blanket refusal based on state policy is likely to attract judicial scrutiny.
- For federally licensed businesses, the decision offers protection against indirect state restrictions. Where a business holds a valid federal licence, state or local action that effectively prevents the licensed activity from being carried on may be vulnerable to judicial review.
A Closing Thought
The dispute was never really about lotteries. It was about the boundary between two levels of government, and whether one level can use its own powers to frustrate the other. Kedah did not pass a law banning pool betting. It did something simpler: it withheld premises licences. The courts saw through the form of the policy to its effect — a state‑wide prohibition of an activity Parliament had chosen to regulate.
That principle now carries appellate weight. States retain the power to regulate local concerns, but they may not exercise that power to nullify federal law. The Federal Court’s refusal of leave leaves that answer undisturbed.
The constitutional division of powers is not determined by labels. It is determined by what a decision actually does.