THE COMPANY AND ITS DIRECTORS AS CO-CONSPIRATORS

• Citation: (2009) 21 SAcLJ 409
• Published date: 01 December 2009
• Date: 01 December 2009

In Nagase Singapore Pte Ltd v Ching Kai Huat and Lim Leong Huat v Chip Hup Hup Kee Construction Pte Ltd, the High Court of Singapore affirmed the proposition that a company may, like a natural person, conspire with its director to inflict harm on a third person even if the latter is its “directing mind and will”. In both cases, the courts’ focus was directed at a conceptual enquiry, ie, whether a company, whose “mind” is the same as that of its director, could properly be said to have “combined” or “agreed” to conspire. This article argues, however, that this focus is misplaced. By focusing on the corporate form, the courts have inadvertently overlooked the policy concerns underlying the enquiry. In each case, the real issue before the court was whether there were grounds for imposing tortious liability on a director for what was essentially the company’s wrongdoing (ie, breach of contract). For this purpose, the relevant legal principle is found in the leading decision of Said v Butt, which lays down the presumptive rule that a director acting on the company’s behalf does not incur tortious liability if he has acted bona fide within the scope of his authority. Its primary concern is to enable directors and officers to discharge their duties without the burden of having to defend ill-founded suits.

I. Introduction

1 Every law student is taught in the introductory company law class that a company is a legal entity with its own personality. From this fundamental premise springs a wealth of consequences. A company may own property, sue and be sued in its own name, enter into contracts, and generally assume responsibilities independently of its owners and controllers. Given the myriad ways in which a company asserts its separate personhood, it seems only a short and entirely logical step to conclude that a company may, like a natural person, conspire with

another to inflict harm on a third person. This, indeed, was unequivocally affirmed by two recent decisions of the High Court of Singapore, viz, Nagase Singapore Pte Ltd v Ching Kai Huat1 (“Nagase”) and Lim Leong Huat v Chip Hup Hup Kee Construction Pte Ltd2 (“Lim Leong Huat”).

2 But in neither decision was this considered a straightforward conclusion. The complication lay in a unique feature shared by both cases, ie, that the alleged conspiracy was perpetrated by the company and a director who was also its alter ego. This gave rise to a conceptual conundrum: since the tort of conspiracy3 requires proof of an agreement or combination, can this element realistically be established when the mind of the company is really that of its alter ego or its “directing mind and will”?4 Or more simply, can two legal persons who share one and the same mind conspire? In Nagase, the High Court held that these questions presented no insuperable difficulty because the possibility of such complicity had already been implicitly accepted by the Singapore Court of Appeal in an earlier decision.5 And in Lim Leong Huat, it was emphasised that the separate legal personality of the company amply justified this conclusion.6

3 This article contends that both Nagase and Lim Leong Huat took too narrow an approach in focusing on the tort of conspiracy. Although both decisions were right in rejecting the conceptual impediment to such liability, they did not, with respect, sufficiently address the reasons that would justify the imposition of tortious liability on the director. It is important to note that the conspiracies alleged in both Nagase and Lim Leong Huat related to the company’s breach of contract.7 This being

the case, the company’s own liability was not in issue. Since the company contracted in its own name, the primary liability for breach resides with the company,8 not the agent who authorised or procured it. Instead, the main issue in each case was whether there were grounds for imposing tortious liability on a director for what was essentially the company’s wrongdoing. To hold that it is conceptually permissible for a company to conspire with its director does not explain why a director should be so liable. Some constraining principle must necessarily be at work. If it were otherwise, a director is potentially liable for tortious conspiracy every time he makes a decision on the company’s behalf that results in damage to a third party. That surely cannot be right.

4 The aim of this article is to examine and clarify the basis upon which personal liability could properly be imposed on a director involved in the company’s decision to breach a contract. It argues that the relevant legal principle is found in the leading decision of Said v Butt,9 which lays down the presumptive rule that a director acting on the company’s behalf does not incur tortious liability if he has acted bona fide within the scope of his authority. Its primary concern is to enable directors and officers to discharge their duties without the burden of having to defend ill-founded suits. Its protection is, however, limited to those who have acted in a bona fide manner within the scope of their authority. Further, its application is generally confined to instances where a director has participated in a company’s contractual breach, and is therefore irrelevant where the director is implicated in a company’s tort. In light of that, it is respectfully submitted that the focal points of the reasoning in both Nagase and Lim Leong Huat appear to have been somewhat misplaced. Since both decisions were concerned with a director’s liability for his company’s breach of contract, the rule in Said v Butt should have been the thrust of the legal analysis in each case. Unfortunately, the courts had, by approaching the issue as one pertaining only to legal concepts, bypassed the opportunity to expound the principle in Said v Butt.

II. The principle in Said v Butt

5 At common law, it is well settled that a director who authorises a company’s breach of contract does not thereby incur tortious liability

for the breach unless he has conducted himself otherwise than as the company’s agent. This was established in Said v Butt,10 a case in which the plaintiff alleged that the defendant, the chairman and managing director of a company, had unlawfully procured or induced the breach of a contract between the plaintiff and the company. The plaintiff had twice applied in his own name for a ticket to watch a new play at the theatre owned by the company. The company, however, had refused to sell the ticket to him as he had previously made serious and unfounded charges against the defendant and other officials of the company. As a result, the plaintiff resorted to asking a friend, one P, to buy a ticket on his behalf and P succeeded in doing so. When the plaintiff turned up at the theatre, he was ejected by the theatre’s attendants acting under the defendant’s instructions. On these facts, the court rejected the plaintiff’s claim for wrongful inducement of breach. The ticket sale to P did not constitute a binding contract between the plaintiff and the company because the company was entitled to decide, and did make it plain, that it would not contract with the plaintiff. Nevertheless, McCardie J then went on to consider whether the plaintiff’s claim could be sustained on the assumption that the contract had subsisted. The learned judge held that it could not. The governing principle stated by McCardie J was:11

… that if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken.

6 Although Said v Butt was concerned with a director’s liability for inducing the company’s breach of contract, the same principle has been applied to protect agents or directors from liability for conspiring with the company to breach its contracts.12 Two reasons underpin the rule in Said v Butt. The first may be understood as an application of the “identification doctrine”.13 Under this doctrine, the acts of a person or persons who hold a high level of authority in the company are attributed to the company with the result that the law regards such persons as having acted as the company. That being the case, it is not the

director but the company that has procured its own breach.14 A more explicit endorsement of this line of reasoning is seen in O’Brien v Dawson,15 where the High Court of Australia held, following Said v Butt, that a director who authorised a company’s breach of contract is not, without more, liable as a co-conspirator for the breach. In an oft-cited passage, Starke J observed:16

A company ‘cannot act in its own person for it has no person’… So it must of necessity act by directors, managers and other agents. The company, if it were guilty of a breach of its contract in this case, acted through its director the respondent Doyle, but it is neither ‘law or sense’… to say that Doyle in the exercise of his functions as a director of the company combined with it to do any unlawful act or become a joint tortfeasor. Again, it is equally fallacious to assert that Doyle knowingly procured the company to break its contract. The acts of Doyle were the acts of the company and not his personal acts which involved him in any liability to the plaintiff.

7 This line of reasoning has, however, been criticised. Dillon LJ, for instance, pointed out in Welsh Development Agency v Export Finance Co Ltd17 that the attribution of an agent’s acts to a company did not necessarily have the effect of absolving the agent from his own liability. Neil Campbell and John Armour termed this the “disattribution heresy”— for it improperly assumes that the application of the identification doctrine necessarily leads to the exclusion of the agent’s personal liability.18 In reality, the identification doctrine serves a more limited purpose:

As a...