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2013 MarsdenLR 946
COURT OF APPEAL PUTRAJAYA
MACKT LOGISTICS (M) SDN BHD – Appellant
Versus
MALAYSIAN AIRLINE SYSTEM BERHAD – Respondent
[Civil Appeal No: W-02-2925-11-2011]
The court reaffirmed that a company and its shareholders are separate legal entities, and a conditional guarantee is enforceable only upon the debtor's breach of obligation, not for third-party debts.
Headnote:(A) Companies Act 1965 - Section 16(5) - Legal entities and conditional guarantees - Conditional bank guarantee provided for obligations under sales agency agreement. The defendant's call on the guarantee was based on obligations from a third party, not the plaintiff, thus invalidating the demand. (Paras 33, 73, 76)
(B) Corporate Veil - The court must not lift the veil of incorporation absent fraud or special circumstances. The defendant's failure to establish claims owed by the plaintiff led to a judicial error in the High Court. (Paras 41, 44, 60)
(C) Judicial Evidence Appreciation - The trial judge failed to critically evaluate evidence presented, which necessitated appellate intervention. (Paras 77, 80)
Key Points: - (!) - (!) - (!) - (!) - (!) - (!) - (!) - (!) - (!) - (!)
What is the staying power of the Salomon principle in lifting the corporate veil in this case?
What constitutes a valid call on a conditional bank guarantee when the claimed indebtedness arises from a third party and not the principal debtor?
What are the proper pleadings and evidentiary requirements to pierce the corporate veil or to challenge a bank guarantee demand in this context?
| Table of Content |
|---|
| 1. identification of parties and procedural history. (Para 1 , 2) |
| 2. details of the bank guarantee and context of the relationship. (Para 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12) |
| 3. clarification of third-party liabilities related to bank guarantee. (Para 13 , 14 , 15) |
| 4. high court's dismissal of the plaintiff's claim. (Para 16 , 17) |
| 5. explaining the peel of incorporation and the salomon principle. (Para 18 , 19 , 20 , 21 , 22 , 23) |
| 6. the salomon principle in malaysian law and exceptions to corporate veil. (Para 24 , 25 , 26 , 27 , 28) |
| 7. judicial discretion to pierce corporate veil under certain conditions. (Para 29 , 30 , 31 , 32 , 33) |
| 8. statutory conditions under which corporate veil may be lifted. (Para 34 , 35 , 36) |
| 9. discussion on recent case law addressing corporate veil piercing. (Para 37 , 38 , 39 , 40 , 41) |
| 10. pleadings and requirements to assert corporate veil issue. (Para 42 , 43 , 44 , 45) |
| 11. constructing and interpreting the bank guarantee. (Para 46 , 47 , 48 , 49) |
| 12. conditions for liability under conditional guarantees. (Para 50 , 51 , 52 , 53) |
| 13. defendant's failure to prove the claim under bank guarantee. (Para 54 , 55 , 56 , 57 , 58) |
| 14. establishing liabilities owed and accountability. (Para 59 , 60 , 61 , 62 , 63 , 64) |
| 15. final judgment and reasoning for appellate intervention. (Para 65 , 66 , 67) |
| 16. conclusion on defendant's failed demands and orders. (Para 68 , 69 , 70 , 71) |
| 17. conclusion on the invalidity of the defendant's claim. (Para 73) |
[1] The parties will be referred to like what they were referred to before the High Court. Thus, Mackt Logistics (M) Sdn Bhd will be referred to as the plaintiff while Malaysian Airline System Berhad will be referred to as the defendant.
[2] This is the 2nd appeal to this Court from the same trial. The 1st appeal was allowed by another panel of this Court and that panel remitted the case back to the High Court for further consideration and the order of the other panel can be seen at pp 21 to 22 of the Appeal Record at Part "A" and it was dated 13 July 2011. I was a member of that panel that sat on 13 July 2011 and both parties had no objections that I heard this 2nd appeal.
The Salient Facts
[3] The plaintiff carried on the business of air cargo transportation and handling of consignment. In order to carry out the said business, the plaintiff had to deal with various airlines including but not limited to the defendant. In so far as the defendant was concerned, the plaintiff had to use the defendant to transport the plaintiff s cargo. For this purpose, the plaintiff entered into a sales agency agreement dated 5 May 1987 with the defendant. The sales agency agreement can be seen at pp 196 to 199 of the Appeal Record at Parts "B" and "C" and it was marked as exh "P2".
[4] By the sales agency agreement, the defendant required the plaintiff to provide a bank guarantee by way of a security. And the plaintiff provided the bank guarantee vide number BG149G259349 dated 12 December 2001 from Bumiputra-Commerce Bank Berhad ("bank") as reflected at pp 226 to 227 of the Appeal Record at Parts "B" and "C" marked as exh "P3".
[5] The bank guarantee was valid for a period of one year from 1 January 2002 until 31 December 2002.
[6] When asked about the purpose of the bank guarantee, one of the directors of the plaintiff by the name of Abdul Razak bin AS Dawood (PW1) explained that as a sales agent for the defendant, similar to that of a travel agent for passengers, the plaintiff used the air cargo transportation services of the defendant to transport the plaintiff s customers goods. To assist the plaintiff to use the air cargo transportation services of the defendant, the defendant issued blank air waybills to the plaintiff. The plaintiff would then secure bookings from its customers and upon confirmation of the flight availability with the defendant, the air waybills would be filled and submitted to the defendant together with the plaintiff s customers goods. Subsequently, the
