Owner of S’pore firm not personally liable for failure to deliver Covid-19 kits to Argentina

SINGAPORE – The owner of a Singapore company that failed to deliver Covid-19 test kits to Buenos Aires, the capital city of Argentina, in 2020 is not personally liable for the firm’s breach of contract, the Court of Appeal has ruled.

The three-judge court allowed the appeal of Mr Nicholas Eng Teng Cheng, who had been sued, together with his company, by the government of Buenos Aires, an autonomous city with a population of about 15 million.

Mr Eng was the sole director and shareholder of HN Singapore, which had entered into a contract with the Buenos Aires government in April 2020 to supply China-made test kits to the city.

Both Mr Eng and the company, which has a paid-up capital of $1, were ordered by the High Court to pay about US$238,000 ($320,000) in damages to the city.

He had appealed against the decision to find him personally liable for the company’s failure to deliver the goods.

The appeal centred on whether Singapore law or Argentine law should apply to what is known as the “lifting of the corporate veil”, where the court disregards the separate legal personality of the company and holds its shareholders responsible.

In written grounds of decision issued on May 15, the Court of Appeal said Singapore law should apply because HN Singapore was incorporated in the Republic, and, under Singapore law, there was no legal basis to lift the corporate veil.

HN Singapore was incorporated in 2016 with a paid-up capital of $1 to carry out the business of import and export of goods and to provide consultancy services.

On April 2, 2020, it entered into a contract with the Buenos Aires government to supply 300,000 Covid-19 test kits made in China.

Full payment of about US$1.77 million was made on April 6, 2020.

On April 12, 2020, the number of test kits was reduced to 182,475, but the purchase price remained the same.

HN Singapore failed to deliver any test kit by the agreed date of April 26, 2020, as a result of export bans.

The Buenos Aires government terminated the contract on May 27, 2020.

In June 2020, the company transferred about US$1.5 million back to the government, but said the remaining sum of US$237,619.35 had been spent on “non-refundable” expenses and fees. 

In 2021, the Buenos Aires government sued the company and Mr Eng for breach of contract and misrepresentation. In turn, HN Singapore brought a counterclaim for wrongful termination.

In May 2023, the High Court allowed the claim for breach of contract, but dismissed the misrepresentation claim as well as the counterclaim.

The judge ordered the company and Mr Eng to pay damages of US$237,619.35.

The judge applied Argentine law, which is the governing law of the contract, in lifting the corporate veil.

Under Argentine law, the corporate veil could be lifted if a company was undercapitalised relative to the transaction that it had entered into. 

However, the Court of Appeal said the law of the contract was generally unsuitable to be the governing law for lifting of the corporate veil.

The court said the lifting of the corporate veil, which is connected with the status of a company as a separate legal entity, is not an issue related to the consequences of a breach of contract.

The court added that the nature of a company and its capitalisation should be clear to all the parties before they enter into a contract.

“If a party chooses to contract with a Singapore-incorporated company which is undercapitalised... the contracting party must accept the consequences of contracting with such a company.”

The court said the law of incorporation would generally be the governing law in determining the issue of lifting the corporate veil, although some other more appropriate law may be applied in a case where it was necessary to do so in the interests of justice.

In the current case, the court concluded that HN Singapore was not being used as Mr Eng’s alter ego to conduct business.

The company was not set up for the purpose of contracting with the Buenos Aires government, and Mr Eng did not treat the company’s bank account as his own, said the court.

The court, comprising Chief Justice Sundaresh Menon, Justice Tay Yong Kwang and Justice Steven Chong, also ordered the Buenos Aires government to pay legal costs of $120,000 to Mr Eng.

Mr Eng, who was represented by Mr Tan Jun Hong, had made an offer in October 2023 to settle the case for $150,000, but the government did not respond and neither did its lawyers ask for more time to discuss the matter with it.