PT Sandipala Arthaputra and others v STMicroelectronics Asia Pacific Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 06 April 2018
• Neutral Citation: [2018] SGCA 17
• Plaintiff Counsel: Prem Gurbani, Govintharasah s/o Ramanathan and Shafkat Fahmid Sifat (Gurbani & Co LLC)
• Date: 06 April 2018
• Docket Number: Civil Appeal No 106 of 2017
• Hearing Date: 05 February 2018
• Subject Matter: Breach,Tort,Contract,Directors' liability,Conspiracy
• Published date: 11 April 2018
• Defendant Counsel: Davinder Singh SC, Jaikanth Shankar, Timothy Lin, Jaspreet Singh, Tan Ruo Yu and Low Wu Yang (Drew and Napier LLC),Ong Tun Wei Danny, Yam Wern Jhien, Danitza Hon Cai Xia, Gan Eng Tong and Teo Li Ping, Annabelle (Rajah & Tann Singapore LLP)
• Court: Court of Appeal (Singapore)
• Citation: [2018] SGCA 17
• Year: 2018

Steven Chong JA (delivering the judgment of the court):

This appeal has its origin in a dispute between two contracting parties, the appellant, PT Sandipala Arthaputra (“Sandipala”), and the second respondent, Oxel Systems Pte Ltd (“Oxel”), for the supply of 100 million microchips (“the Supply Contract”) for use in an electronic identification card project in Indonesia (“the Project”). The microchips were however not compatible for use with the electronic identification cards to be used for the Project and Sandipala commenced this action against Oxel and others for, inter alia, breach of express and implied terms of the Supply Contract.

In response, Oxel brought a counterclaim against Sandipala for breach of the Supply Contract in failing to take delivery of the microchips and for non-payment. In addition, Oxel also claimed against Sandipala and its directors, Mr Paulus Tannos and Ms Catherine Tannos (collectively “the Tannoses”) for conspiracy to cause Oxel loss in seeking to unlawfully extricate Sandipala from its contractual obligations under the Supply Contract.

The High Court Judge (“the Judge”) dismissed Sandipala’s claims and allowed Oxel’s claims against Sandipala for breach of the Supply Contract. He further found Sandipala and the Tannoses liable for the tort of conspiracy by unlawful means to cause Oxel economic loss.

The principles engaged for the determination of the contractual dispute are fairly settled. The interesting issue arising from this appeal concerns the counterclaim for the tort of conspiracy by unlawful means against Sandipala and the Tannoses for what was essentially a contractual breach by Sandipala. As a leading academic astutely observed, “can two legal persons who share one and the same mind conspire?” (Lee Pey Woan, “The Company and Its Directors as Co-conspirators” (2009) 21 SAcLJ at 409 (“Company and Its Directors as Co-conspirators”))¹ In that regard, it is no longer controversial that a company can conspire with its director to cause harm to a third party even if the director is its alter ego. That said, most breaches by companies would entail the involvement of its directors. After all, a company typically acts on the direction of its directors and it would be odd to speak of a breach of contract by a company as a legal person divorced from the reality that the breach would often occur with the knowledge and/or active participation of its directors. It is, therefore, clear that liability cannot be imposed on directors merely because they had some involvement in causing the breach. To hold otherwise might cause, in the dramatic words of McCardie J in Said v Butt [1920] 2 KB 497 at 504 (“Said v Butt”),² “the gravest and widest consequences” to ensue.

This appeal provides a useful opportunity for this court to examine the proper legal basis to justify the imposition of tortious liability on directors in respect of contractual breaches by the company. In identifying the legal basis, we must be mindful of the need to ensure that directors are free to make decisions on behalf of the company without fear of attracting unwarranted legal actions against themselves.

Facts

The full facts are set out in the Judge’s decision, published as PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd and others [2017] SGHC 102 (“the Judgment”) at [10]–[48]. We only briefly canvass the relevant events.

We start with the parties involved and how their trades interrelate. The first appellant and the plaintiff in the suit below, Sandipala, produces personalised electronic identification cards. The second and third appellants, Mr and Ms Tannos, are father and daughter and are Sandipala’s directors. They are responsible for most, if not all, of the decisions involving Sandipala. The first to third respondents were the defendants in the suit below. The first respondent, STMicroelectronics Asia Pacific Pte Ltd (“ST-AP”), sells microchips, which we will refer to simply as “chips” below for convenience. These chips can be used by companies like Sandipala to produce electronic identification cards. The third respondent, Mr Vincent Pierre, Luc, Cousin (“Mr Cousin”), is ST-AP’s country manager in Indonesia. The second respondent, Oxel, also supplies and sells chips for use in electronic identification cards. Unlike ST-AP, which produces the hardware, ie, the physical chip, Oxel supplies the software for the chip, ie, its operating system. The chip produced by ST-AP is encoded with Oxel’s software. When the chip is produced and encoded, Sandipala uses the completed chip to produce the physical electronic identification cards.

The dispute centres on the Supply Contract concluded on 9 November 2011 between Sandipala and Oxel. It is a one-page signed acceptance of Oxel’s quotation and a one-page purchase order reflecting the same terms.³ Sandipala ordered a “committed quantity” of 100m chips at a price of US$0.60/unit (a total price of US$60m), to be delivered in four batches quarterly. These chips were manufactured by ST-AP (namely the ST23YR12 chips, which will be referred to as the “ST chip”) and encoded with Oxel’s software known as “PAC” for the chips’ operating system (“the Oxel chips”). The Oxel chips are thus ST chips encoded with Oxel’s operating system. Sandipala was to make a 20% down payment of the price of the chips to be delivered per quarter. It accordingly paid US$1.2m as down payment for the first batch on 14 November 2011.

The Oxel chips were purchased by Sandipala for the purpose of fulfilling its obligations under a separate tender contract with the Indonesian government for the production of electronic identification cards called electronic-KTP cards (“e-KTP cards”) for all its citizens (“the Tender”). The Tender was launched in February 2011 and set out requirements for the chips and its operating systems.⁴ Sandipala is the only party in the present appeal who directly participated in the Tender. It joined an existing consortium led by Perusahaan Umum (Perum) Percetakan Negara (“PNRI” and “the Consortium”) to bid for the Tender.⁵ Among the five companies in the Consortium, PNRI and Sandipala were responsible for producing the e-KTP cards. The other members were responsible for other segments of the Project, including conducting training seminars or installing other systems (eg, the government database).

After Sandipala joined the Consortium, the Consortium submitted its tender proposal to the Indonesian government. As part of the tender process, each applicant had to submit two chips for evaluation, and the operating system masked onto each chip had to be an “open operating system”, ie, it could be put into the two types of chips specified.⁶ In the proposal, the Consortium specified two chips made by different manufacturers, namely the NXP P308G0P3 chip (“the NXP chip”) and the ST chip manufactured by ST-AP.⁷

After the proposal stage, the Indonesian government carried out proof of concept testing in May and June 2011. Bidders had to demonstrate how they would carry out the population data collection, production and personalisation of the e-KTP cards to the Indonesian government. This included the use of a sample set of the proposed chips (the NXP chip and ST chip) encoded with the proposed software and operating system. The Judge found that the evidence only established one test carried out at Sandipala’s factory on 20 May 2011 (“the tender evaluation”).⁸ In the court below, the parties disputed the type of chips that were tested during the tender evaluation. Sandipala claimed that the ST chip (with a compatible operating system) was successfully tested, and ST-AP and/or Oxel had promised that chips identical to those that were successfully tested would be supplied under the Supply Contract. Sandipala argued that the ST chip for the tender evaluation was supplied under a contract between Softorb (a subcontractor of one of the companies in the Consortium) and ST-AP for 100,000 chips (the “Tender Evaluation Chips”).⁹ The respondents, ST-AP, Oxel and Mr Cousin, claim that only the NXP chip, and not the ST chip, was tested because the ST chip was not ready for testing as of May 2011. They could not have promised Sandipala that they would supply the same ST chips as those tested during the tender evaluation because no such chips were tested. For reasons we will describe later (see [19] below), the Judge preferred the respondents’ version.

A month later on 21 June 2011, the Indonesian government awarded the Tender to the Consortium.¹⁰ Its award approved the use of both the NXP chip and the ST chip. No operating system was specified. Shortly before or after the Tender was awarded, Sandipala purchased 14 personalisation machines from Datacard (to personalise the cards) that were configured to work with the NXP chips.¹¹ A month later, it purchased the NXP chips from two distributors.¹² During the four months which followed, it received or obtained quotations from other entities (including Oxel and ST-AP) for chips that could be used to produce the e-KTP cards.¹³ Some of these quotations were for chips encoded with an operating system that would not be compatible with the existing e-KTP system.

Sandipala eventually ordered chips from Oxel in November 2011 under the Supply Contract (see [8] above), with the first batch of 10m chips to be delivered in the last quarter of 2011 or the first quarter of 2012.¹⁴

The first batch of the Oxel chips were accordingly delivered in December 2011. These were accepted by Sandipala. A few days earlier, the Consortium had decided to reduce Sandipala’s allocation of card production from about 103m chips to 60m chips.¹⁵ Sandipala claims that it only realised two months later, in January 2012, that the Oxel chips could not be used to produce the e-KTP cards. (Oxel and the other respondents conversely claim that Sandipala knew of the incompatibility the moment it entered into the Supply Contract.)...