Holding company's liability for inducing its subsidiary's contractual breach

• Main Author: KOH, Pearlie M. C.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Contracts; Organizations Law
• Online Access: https://ink.library.smu.edu.sg/sol_research/3046; https://ink.library.smu.edu.sg/context/sol_research/article/5004/viewcontent/HoldingCompanyLiability__1___1_.pdf
• Institution: Singapore Management University

A decision by a company to breach a contract is necessarily made on its behalf by one or more natural persons. Although the relevant decision-makers may be said to have “procured” the company’s breach of contract, there is authority, albeit not without detractors (see Welsh Development Agency v Export Finance Co Ltd [1992] B.C.L.C. 148; [1992] B.C.C. 270), for the proposition that these individuals are not to be made liable in the tort of inducing breach of contract, provided they had acted in good faith and within the scope of their authority (Said v Butt [1920] 3 K.B. 497). As decisions to breach contracts are mostly commercial in nature, the tort is usually considered in the context of decisions by the company’s directors. The issue before the Singapore Court of Appeal in Bumi Armada Offshore Holdings Ltd v Tozzi Srl (formerly known as Tozzi Industries SpA) [2018] SGCA(I) 5; [2019] 1 S.L.R. 10, a rare appeal from the Singapore International Commercial Court (“SICC”), concerns, in contrast, a controlling shareholder, specifically the parent company of a corporate group, which was alleged to have induced its subsidiary’s breach of contract. In a judgment delivered by Lord Neuberger I.J., the Singapore court recognised that there are basic differences between directors and shareholders, notwithstanding their common position as constitutional organs of the company, and established a modified test for the parent company’s liability. Although alert to the potential for the Lumley v Guy (1853) 2 El. & Bl. 216; 118 E.R. 749 tort to provide redress for creditors of an insolvent company against its solvent holding company, the court remained acutely conscious that, unless suitably confined in the context of corporate groups, a successful claim in tort would effectively outflank the Salomon principle. This was an eventuality the court was not, at present, prepared to countenance.