Case Note REFORMULATING the RULES on DIRECTOR LIABILITY EXCLUSIONS in SAID V BUTT PT Sandipala Arthaputra V Stmicroelectronics Asia Pacific Pte Ltd [2018] 1 SLR 818

(2018) 30 SAcLJ 1110 (Published on e-First 23 October 2018) Case Note REFORMULATING THE RULES ON DIRECTOR LIABILITY EXCLUSIONS IN SAID V BUTT PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd [2018] 1 SLR 818 In PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd [2018] 1 SLR 818, the court reformulated the rules concerning the imposition of personal liability on directors for breaches of contract by their companies. As the law now stands, directors are protected from personal liability for their companies’ breaches of contract in so far as they had acted in their capacity as directors and had not breached any personal legal duties owed to their companies. However, the judgment left the position on personal liability for a company’s tortious acts significantly different. This note argues that the position in tort should be brought in line with that for contract. Jarret HUANG* BA (Law) (Cambridge), LLM (Harvard). I. Introduction 1 The bedrock of much of modern company law is the notion that a company has a separate legal personality distinct from that of its directors and members.1 From this premise stems the ability of the company to hold property, sue or be sued, and enter into legally binding contracts. In the recent case of PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd2 (“Sandipala”), the Singapore Court of Appeal examined the law in this seminal area. Steven Chong JA, giving the judgment of the court, focused on the requirements of the Said v Butt3 rule, under which directors could avoid personal liability for procuring breaches of contract by their companies. * The author wishes to thank Professor Goh Yihan, Mr Harry Francis Millerchip and Ms Jenna Hare for their kind comments on this area of law. All errors in this article are the author’s own. None of the views expressed herein may be taken to be representative of the organisations the author is affiliated with. 1 Tan Cheng Han, Walter Woon on Company Law (Singapore: Sweet & Maxwell, 3rd Ed, 2014). 2 [2018] 1 SLR 818. 3 [1920] 2 KB 497. PT Sandipala Arthaputra v STMicroelectronics (2018) 30 SAcLJ Asia Pacific Pte Ltd 1111 2 Ultimately, affirming the robustness of the company’s separate legal personality, the Court of Appeal held that directors would not be personally liable for breaches of contract by their companies so long as they had acted in their capacity as directors and were not in breach of any personal legal duties owed to their companies.4 However, the court also affirmed existing case law holding that directors whose companies committed tortious acts would not be similarly protected from personal liability. The court, while noting the inconsistency, chose not to definitively pronounce on it. 3 In this context, this note seeks to outline the Court of Appeal’s reasoning and clarification of the law on the personal liability of directors. It also hopes to make some contribution to the debate on personal liability of directors in a tortious context and the inconsistency with the position in contract. It will argue that (a) contractual privity is an inadequate reason for a jurisprudential division between tort and contract in this sphere; (b) on grounds of doctrine, policy and economic efficiency, directors should be in a similar position for tortious acts; and (c) the Sandipala test ought to be applied in tortious situations as well. II. Facts of case 4 PT Sandipala Arthaputra (“Sandipala”), an Indonesian company, entered into a supply contract with Oxel Systems Pte Ltd (“Oxel”), a Singapore company, for Oxel to supply Sandipala with microchips. These microchips were produced by STMicroelectronics Asia Pacific Pte Ltd (“ST-AP”) and encoded with Oxel’s software. Sandipala was to use the completed chips to produce physical electronic “e-KTP” identity cards for the Indonesian government. 5 Oxel’s operating system, which had been encoded onto the chips, turned out to be incompatible with the Indonesian government’s requirements. Sandipala thus refused delivery of around three-quarters of the microchips delivered and only paid for one-sixth of them. Sandipala sued ST-AP and Oxel for breach of contract for the incompatibility, and in tort for fraudulent misrepresentation. Oxel counterclaimed against Sandipala in contract for wrongfully rejecting the microchips, and against Sandipala and its directors, Tannos and his daughter, for conspiracy to cause Oxel loss by attempting to unlawfully extricate themselves from their contractual obligations without paying compensation. 4 PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd [2018] 1 SLR 818 at [65]. 1112 Singapore Academy of Law Journal (2018) 30 SAcLJ 6 In the court below, George Wei J found, as a matter of fact, that Tannos (and by extension Sandipala) “knew at all times that the Oxel chips would not be compatible with the existing e-KTP system”.5 Sandipala had nonetheless ordered the Oxel microchips because Tannos had (wrongly) believed that he would be able to convince the Indonesian government to change their requirements. The learned judge thus dismissed all of Sandipala’s claims and found that it had breached the supply contract by wrongfully declining receipt of the microchips. The judge also found, most pertinently for present purposes, that Sandipala and the Tannoses (in their capacity as directors) had unlawfully conspired to cause loss to Oxel by seeking to extricate Sandipala from the contract without compensating Oxel.6 7 On appeal, Sandipala challenged the findings that (a) it had been aware of the incompatibility from the very beginning; and (b) Oxel had not made fraudulent misrepresentations to it. In relation to Oxel’s counterclaims, the appellants made two arguments: First, they averred that the Tannoses, as directors of Sandipala, were acting bona fide within the scope of their authority when directing Sandipala’s breach of contract, and should thus not be personally liable. Second, they challenged the quantum of damages assessed on grounds of the contractual duty to mitigate. III. Court of Appeal’s decision 8 The Court of Appeal dismissed all of the appellants’ bases of appeal except with regard to the personal liability of the Tannoses as directors. The dismissed claims were fairly straightforward and fact- specific, with secret recordings of Tannos proving instructive in revealing his awareness of the incompatibility from the very beginning.7 The bulk of the court’s reasoning centred on the question of personal liability for directors. A. Personal liability for company’s breaches of contract 9 The court opened its analysis by outlining the three potential causes of action under which directors may be held personally liable for the consequences of their company’s breaches of contract: 5 PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd [2018] 1 SLR 818 at [20] (High Court decision at [2017] SGHC 102). 6 PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd [2017] SGHC 102 at [215]. 7 PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd [2018] 1 SLR 818 at [44]. PT Sandipala Arthaputra v STMicroelectronics (2018) 30 SAcLJ Asia Pacific Pte Ltd 1113 (a) the tort of inducement of breach of contract, where the director induces his company to breach its contract with a third party; (b) the tort of unlawful means conspiracy as between the directors, where the directors conspire to procure their company to breach its contract. In Chong Hon Kuan Ivan v Levy Maurice8 (“Chong Hon Kuan”), the court found that the underlying “unlawful means” in such cases could be the tort of inducement of breach of contract; and (c) the tort of unlawful means conspiracy as between a director and his company, where the director conspires with the company to cause the company to breach the contract. While it might appear odd that a director could in effect conspire with himself (acting as the alter ego of the company), this was affirmed in Nagase Singapore Pte Ltd v Ching Kai Huat9 (“Nagase”), where a director, acting on behalf of the company, fraudulently overcharged the plaintiff in breach of his company’s contract with the plaintiff and the plaintiff brought a successful claim for unlawful means conspiracy against the director and his company. 10 There was a tacit recognition in the court’s approach to Chong Hon Kuan and Nagase that Lee Pey Woan’s broader and contextual approach ought to be adopted in approaching these cases.10 In an article in this journal, Lee suggested that the reasoning of both these cases had been too narrow, focusing overwhelmingly on examining whether liability could arise without an in-depth examination of why it should arise for directors.11 Lee drew attention to this hitherto under-analysed area of the law and called for the introduction of “some constraining principle” to prevent the director from being “potentially liable for tortious conspiracy every time he makes a decision on the company’s behalf that result[s] in damage to a third party”.12 In Sandipala, the court recognised that both Chong Hon Kuan and Nagase had to be assessed in light of the “constraining principle” Lee raised. The crux of the approach to these cases thus subtly shifted from focusing primarily on whether the tort was successfully made out to the broader issue of when personal liability ought to arise. Crucially, in Sandipala, the court, while not 8 [2004] 4 SLR(R) 801. 9 [2008] 1 SLR(R) 80. 10 Lee Pey Woan, “The Company and Its Directors As Co-conspirators” (2009) 21 SAcLJ 409. 11 Lee Pey Woan, “The Company and Its Directors As Co-conspirators” (2009) 21 SAcLJ 409 at 420–421. 12 Lee Pey Woan, “The Company and Its Directors As Co-conspirators” (2009) 21 SAcLJ 409 at 411.

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