Clarification By The Singapore Court Of Appeal On The Principles For Imposing Tortious Liability On Directors For Contractual Breaches By A Company – Part 1

Clarification By The Singapore Court Of Appeal On The Principles For Imposing Tortious Liability On Directors For Contractual Breaches By A Company – Part 1

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Part 1: Introduction

The Singapore Court of Appeal decision in PT Sanidpala Arthaputra & Ors v STMicroelectronics Asia Pacific Pte Ltd & Ors establishes the principles concerning the imposition of tortious liability on directors in regard to contractual breaches by their company.

A director who permits authorisation or procures his company to breach contracts would typically not be personally liable for the breaches made by the company. Unless the director acts in breach of his personal duties.

 

Brief Facts

PT Sandipala Arthaputra (“Sandipala”) and Oxel Systems Pte Ltd (“Oxel”) entered a contractual agreement. The contract required Oxel to supply 100 million microchips to Sandipala (“Supply Contract”). The manufacturer of the chips was STMicroelectronics Asia Pacific Pte Ltd (“ST-AP”). The chips were encoded with Oxel’s software called “PAC” for the chips’ operating system (“Oxel chips”). Sandipala purchased the Oxel chips to fulfil its obligations in accordance with a separate tender contract with the Indonesian government for the production of electronic identification cards called electronic-KTP cards (“e-KTP card Project”).

A claim was made by Sandipala that the Oxel chips were not fit to use for producing the e-KTP cards because the PAC was incompatible with the e-KTP system. Sandipala did not accept the chips that were delivered under the Supply Contract and commenced action against Oxel and others for, among other things, breach of express and implied terms of the Supply Contract for the sale of Oxel chips to Sandipala that were deemed unfit for use in the e-KTP card Project or fraudulently representing that the Oxel chips could be used for the e-KTP card Project.

Oxel commenced a counterclaim against Sandipala for breach of contract for failure to pay for and accept delivery of the Oxel chips under the terms of the Supply Contract, and against Sandipala and the directors of Sandipala (“Sandipala’s Directors”) for conspiracy to cause Oxel a loss through the attempt to unlawfully extricate themselves from their contractual obligations as per the Supply Contract without the payment of compensation.

 

Decision of the High Court

The High Court dismissed all the claims that were made by Sandipala and permitted Oxel’s counterclaims against Sandipala for breach of the Supply Contract. The judge found Sandipala and Sandipala’s Directors liable for the tort of conspiracy by unlawful means to cause Oxel economic loss. An appeal against this finding was made against the High Court Judge’s decision by Sandipala and its directors.

Our next article on this matter will feature a case summary which will touch on the Court of Appeal’s judgment on the issue with regard to whether Sandipala’s Directors ought to be held liable for the tort of conspiracy by unlawful means to cause Oxel economic loss.

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