27 September 2018
Bumi Armada Offshore Holdings Ltd v Tozzi Srl  SGCA(I) 05
In Bumi Armada Offshore Holdings Ltd v Tozzi Srl, the Singapore Court of Appeal set out the requirements for the tort of inducing breach of contract where a parent company is alleged to have induced the breach of its subsidiary’s contract. The case also discusses the principles relating to “subject to contract” clauses, and the burden of proof where the facts are especially within the knowledge of a person.
The dispute arose from the project for the supply of facilities and services in connection with the development of a gas field in Indonesia (“Project”). To prepare its bid for the Project, Bumi Armada Offshore Holdings Limited (“BAOHL”) engaged Tozzi Srl (“Tozzi”) to provide engineering, procurement and construction services for three out of seven topside process modules (“TI Packages”) which comprised the gas processing facilities. BAOHL was a wholly-owned subsidiary of Bumi Armada Berhad (“BAB”) (BAB and BAOHL collectively referred to as “Bumi”).
After BAOHL was awarded the Project, representatives from Bumi and Tozzi met on 31 July 2014 (“31 July Meeting”). On 1 August 2014, Bumi prepared the minutes of the 31 July Meeting which was signed by both Tozzi and BAOHL (“MOM”). Paragraph 5 of the MOM provided that BAOHL agreed to grant Tozzi a right of first refusal for all seven modules. The last sentence of the MOM provided that the MOM constituted “an understanding of the discussions” which took place on 31 July 2014 and that the MOM was “subject always to successful negotiation and mutual agreement and execution of a formal contract”.
On 5 November 2014, Bumi issued a Request for Quote (“RFQ”) inviting proposals for the supply of all seven modules. Tozzi’s director Mr Schiavo objected to the RFQ on the basis that it was inconsistent with Tozzi’s right of first refusal. Later that month, Bumi informed Tozzi that it had decided to subcontract only the supply of the TI Packages (i.e. three instead of seven modules). Eventually, BAOHL awarded the subcontract for the supply of the TI Packages to another company, VME, without Tozzi first being given the opportunity to exercise a right of first refusal (i.e. to match VME’s bid). These events led Tozzi to commence proceedings in the Singapore International Commercial Court (“SICC”).
The SICC ruled in favour of Tozzi. It held that a binding agreement had been reached at the 31 July Meeting that Tozzi would be granted a right of first refusal. It further found that Tozzi’s right extended to, and was infringed in respect of, the supply of all seven modules. BAB was also found liable to Tozzi for inducing BAOHL to breach its contract to grant Tozzi the right of first refusal.
BAOHL and BAB appealed against the whole of the SICC’s decision.
Decision of the Court of Appeal
BAOHL had granted Tozzi a legally enforceable right of first refusal
The Court of Appeal upheld the SICC’s conclusion that BAOHL had granted Tozzi a legally enforceable right of first refusal in respect of all seven modules during the 31 July Meeting. The Court of Appeal found that the last sentence of the MOM was a classic “subject to contract” clause, and expressed the view that a court should be very cautious before holding that an arrangement which is clearly and unambiguously expressed to be “subject to contract” nonetheless gives rise to a binding contract. Nonetheless, the MOM was not the only evidence of what had transpired at the 31 July Meeting. The SICC had found Mr Schiavo firm and clear in his evidence that an unqualified binding agreement had been reached at the 31 July Meeting that BAOHL would grant a right of first refusal to Tozzi on the terms set out in paragraph 5 of the MOM. Mr Schiavo’s evidence was not contradicted by any witness. As such, the MOM effectively became irrelevant, and there was therefore no need to consider the effect of the “subject to contract” clause.
No breach of right of first refusal for the remaining four modules
Next, the Court of Appeal found that the SICC was wrong to conclude that BAOHL was also liable to Tozzi in respect of the four modules other than the TI Packages. It was common ground that if BAOHL had supplied a module itself (as opposed to subcontracting its supply to a third party), it would not have been in breach. However, there was no evidence whether BAOHL had subcontracted the supply of the four modules to third parties or supplied the modules itself. The Court of Appeal rejected Tozzi’s argument that BAOHL had the burden to prove who had supplied the four modules by virtue of section 108 of the Evidence Act, which provides that the burden of proving any fact which is especially within the knowledge of any person is upon that person. It held that this provision would only apply if the plaintiff first establishes a prima facie case against the defendant. In this case, there was no evidence which raised enough of an implication or presumption that BAOHL had subcontracted the supply of the four modules to third parties.
BAB not liable for inducing breach of contract
Finally, the Court of Appeal overturned the SICC’s conclusion that BAB was liable for inducing BAOHL’s breach of contract. The Court of Appeal ruled that where it is alleged that a parent company is liable for inducing a breach of contract by its subsidiary, rather than simply focusing on the knowledge and intentions of individuals involved, the court should consider two additional issues: (1) whether those individuals were acting for the subsidiary and/or the parent, and (2) if they were acting for the parent, whether the circumstances are such that the parent can properly be held liable for inducing its subsidiary’s breach of contract.
The Court of Appeal also held that an owner or shareholder of a company cannot be found liable for inducing a breach of contract by that company if the actions said to give rise to its liability merely involved the owner or shareholder pursuing in good faith its own interest in its capacity as the owner of, or shareholder in, that company. To find a parent company liable for inducing a breach of contract by its subsidiary, some factor over and above an actual act of inducement would be needed. This could include a parent pursuing an interest unrelated to (or in addition to) its capacity as owner of the shares in the subsidiary, or acting with a lack of good faith.
In this case, while the individuals who failed to honour Tozzi’s right of first refusal were employees of BAB (BAOHL had no employees), this did not prevent them from acting for BAOHL rather than BAB. After all, it was BAOHL which: (1) owed the obligation to Tozzi to offer a right of first refusal, (2) was the main contractor under the Project and was therefore in a position to comply with this obligation, and (3) deprived Tozzi of the opportunity for which it had contracted by subcontracting with VME.
Even if those individuals had been acting for BAB, there was no evidence to show that they were doing anything other than pursuing BAB’s bona fide interests as the owner of all the shares in BAOHL.