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Malaysia: Don’t Be Too Overexcited

27th November, 2012

In the case of MMP Communications Sdn. Bhd. v Flyfirefly Sdn Bhd, the High Court of Malaya at Kuala Lumpur rejected MMP Communication’s claim for monetary damages arising as a result of a non-concluded collaborative agreement with Flyfirefly Sdn Bhd.

MMP Communications Sdn Bhd (hereinafter referred to as ‘the Plaintiff’) is in the publication business. Flyfirefly Sdn Bhd (hereinafter referred to as ‘the Defendant’) is a wholly owned subsidiary of Malaysian Airline System Berhad. The Plaintiff and the Defendant entered into an arrangement where the Plaintiff would publish the Kunang-Kunang magazine (the ‘K2 Magazine’) as a standalone magazine for distribution in-flight in the Defendant’s aircrafts. The Defendant appointed the Plaintiff as the publisher of the K2 magazine through a Letter of Appointment in 2008. It was stated that “this appointment shall be further subject to the execution of an agreement specifying the terms of this appointment.” The first draft of a Business Corporate Agreement (the ‘BCA’) was taken out in mid-2009. The terms of the draft were discussed and negotiated until March 2011, when the negotiations were terminated by the Defendant in the light that the parties had not been able to agree on the terms of the BCA. The Plaintiff started with the publication of the K2 magazine in 2010 and had issued around 14 publications by the time the BCA was terminated by the Defendant.

As a result, the Plaintiff appealed claiming damages suffered by taking into account the all the direct costs, such as printing costs, salaries etc. as well as indirect costs such as costs of sales, marketing, promotion etc. The Defendant argued that, in the absence of a concluded BCA, there was not contract consummated upon which the Defendant could be sued based on the draft terms of the BCA. The Defendant further argued that the K2 magazine was not a single purpose magazine; rather the K2 magazine was also sold independently in the market on the rack at selected bookstores to the public at large. The Defendant acknowledged that the K2 magazine was placed in its aircrafts as a complimentary magazine from January 2010 to April 2010. The Defendant further stated that the passengers who were interested could purchase the magazine and any revenue generated from the sale of these magazines was entirely credited and paid over to the Plaintiff. Also, the Defendant averred that it had contributed in generating revenue for the magazine by obtaining advertisements for the Plaintiff from its business partners. The Defendant further stated that the placing of magazines on the Defendant’s aircrafts equated to taking up advertisement space which is chargeable to the publisher of the magazine; however, the Defendant had not derived any financial or tangible benefit from the publication and sale of the K2 magazine.

The High Court stated that an agreement which is made ‘subject to contract’ has no legal effect. The High Court further stated that the parties, by conduct and with the passage of time, could have waived the requirement of a formal contract being executed; however, this was not the case as there were multiple drafts and tracking of the changes.

The first issue of the K2 magazine, in January 2010, was designated as ‘jointly published’ by the Plaintiff and the Defendant; however, in the later issues, the term ‘jointly published’ was replaced by ‘in collaboration with’. Initially the K2 magazine had featured the Defendant in around 6-7 pages of advertisements, advertorials which was reduced to 3-4 pages from March to April 2010. The Defendant argued that the Plaintiff was keen on commencing the publication of K2 even before the BCA had been finalized. The Defendant further argued that the Plaintiff was not averse to the risk of commencing publication as the K2 magazine was not an air-line specific magazine and that it was sold to the public through bookstores and newsstands. The Defendant also noticed a shift from the initial collaborative genre of travel and leisure to more of an entertainment based magazine having an accent on local artists and communicated its displeasure to the Plaintiff. The High Court rejected the Plaintiff’s stand that the collaborative arrangement benefitted the Defendant more than the Plaintiff stating that the collaboration had benefitted both the parties to some extent. The High Court adjudged that the Plaintiff was prepared to proceed with the publication knowing full well that the publication of K2 could be proceeded with or without the association of the Defendant or at least the Plaintiff was prepared to take that risk. Both parties knew that the losses shall lie where it fell if there were no concluded BCA.

The High Court rejected the Plaintiff argument that it could sue based on the termination clauses in the draft BCA stating that to allow the Plaintiff to sue based on the draft BCA would be a tantamount to the court and would be setting a dangerous precedent. The High Court further stated that even assuming for a moment that there had been a concluded BCA, the Plaintiff would still have to prove any claim for damages arising naturally out of a breach of contract; however, the Plaintiff witnesses did nothing to prove the damages and only made a bare statement stating the amount of damages claimed.

On such grounds, the High Court found that the Plaintiff had not proved its claim on the balance of probabilities and therefore rejected the Plaintiff’s appeal with costs.

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