Singapore Court of Appeal finds key executive officer and director of estate agency personally liable for misrepresentations made to customers
27 February 2020
Sim Tee Meng v Haw Wan Sin David & Anor [2019] SGCA 71
The Singapore Court of Appeal in Sim Tee Meng v Haw Wan Sin David & Anor considered the circumstances in which a Key Executive Officer (“KEO”) and director of a limited company in business as an estate agency (“Company”) may be found to be personally liable for misrepresentations made to customers by him where such representations were made in the course of his employment with the company and in order to promote the business of the company.
In upholding the judgment of the High Court, the Court of Appeal found that the KEO was personally liable to two customers (“Customers”), who were husband and wife (“wife”), for negligent misrepresentation in respect of two failed investments in a housing project in New Zealand (“Project”).
Facts
On 7 January 2012, the Company entered into an agreement with a New Zealand developer (“Developer”) and the Developer’s Singapore entity to market the Project. A marketing event was held to sell “Right of First Refusal” (“FRR”) investments in the Project.
At a subsequent meeting with the Customers, the KEO was found to have affirmed misrepresentations made by an Associate Director of the Company during the marketing event (that the owners of the Developers had a good track record, that Phase 1 of the Project was fully sold and Phase 2 was 60% sold, and that investment money would be held in a trust account to which the Developer had limited access) and made the following further misrepresentations:
- The Company, KEO and Associate Director had complied with the Council of Estate Agencies’ strict requirements to perform checks on the ownership and legality of the Project; and
- The Company, KEO and Associate Director had carried out all relevant and necessary due diligence checks on the Developer and details such as title to the Project and approval for marketing, and everything was in order.
Relying on the representations by the KEO, the Customers entered into various agreements with the Developer that same day to obtain the FRR for three units in the Project. In fact, the Developer had neither the title nor the resource consent required to develop the relevant plot of land on which the Project was supposed to be constructed. The Developer subsequently went into liquidation and investigations by liquidators in New Zealand suggested that those who came up with the FRR scheme had siphoned off substantial sums paid by purchasers such as the Customers.
The Customers sought the return of the sums paid comprising the reservation deposit of S$15,000 and the balance FRR price of US$142,656.76 (“Damages”).
The High Court below found that the KEO was jointly and severally liable with the Company to the Customers for the Damages.
Decision of Court of Appeal
The Court of Appeal affirmed the following two findings of the High Court:
- There was sufficient legal proximity between the KEO and the Customers to give rise to a prima facie duty of care on the part of the KEO to the Customers; and
- There was no policy consideration militating against imposing a duty of care on the KEO in this case.
Sufficient legal proximity between KEO and Customers
The Court of Appeal found that there was sufficient legal proximity between the KEO and the Customers as the twin criteria of (i) voluntary assumption of responsibility by the defendant (“Voluntary Assumption Criterion”) and (ii) reliance by the plaintiff (“Reliance Criterion”) had been met.
The Voluntary Assumption Criterion was found to have been fulfilled due to the following factors:
- The KEO knew he would be speaking to the Customers in his capacity as the KEO and that the Customers placed some importance on his role as KEO.
- The KEO chose to meet the Customers and give them the assurance they sought to enter into the FRR investment.
- The KEO’s words carried weight because of the knowledge he could reasonably be assumed to have by virtue of his position. As KEO, he was responsible for the proper administration and overall management of the Company’s business; as salesperson, he was required to conduct his work with due diligence.
- The KEO held himself out as possessing the relevant qualifications, knowledge and skills necessary to discharge the roles of KEO and salesperson, and thus voluntarily assumed the various responsibilities the roles carried.
- No disclaimer of responsibility was made by the KEO.
The court added that the question whether a KEO of an estate agency company, or a director of a company, assumes personal responsibility for representations made on behalf of the company is a fact-specific inquiry.
The court found the Reliance Criterion to have been met as the court noted that the Customers did commit themselves at the marketing event and only entered into the agreements with the Developer on the same day after having met with the KEO.
The reasoning of the Court of Appeal may be contrasted with the reasoning of the first instance judge, who found that (i) the KEO’s representations had been made in his capacity as the Company’s director and not in his personal capacity and (ii) the Customers relied on the representations as coming from the Company and not the KEO as an individual. Accordingly, the first instance judge concluded that the KEO did not owe a personal duty of care to the Customers.
No policy consideration militating against imposing duty of care on KEO
The Court of Appeal found that there was no policy consideration which militated against imposing a duty of care on the KEO in this case.
The KEO argued that he should be protected from personal liability as he had acted properly in discharging his duties to the Company. The Court of Appeal rejected this argument and noted that the tort (i.e. the misrepresentations) was committed by the KEO himself and it was his acts that procured the Company’s tortious conduct. The KEO did not exercise due care in the discharge of his duties to the Company when he made the representations without having made reasonable checks as to the truth of the statements. This led to the Company breaching its duty of care to the Customers and the court stated that the KEO could not deny personal liability by attributing any of the representations he made to the Company.
Conclusion
Accordingly, the Court of Appeal affirmed the High Court’s decision that the KEO owed a personal duty of care to the Customers arising out of his interactions with them, and that the KEO breached this duty of care by failing to make reasonable checks before making the representations. The KEO was thus found to be personally liable to the Customers.
The Court of Appeal noted that the more important the role the director plays in the company, the more weight his words are likely to carry to the representee who is, to the director’s knowledge, aware of the director’s position. This will likely be a significant factor when a court is faced with deciding whether or not there was a personal assumption of responsibility.
Comment
The decision is a timely reminder that employees and directors of a company may be personally liable for any statements made on behalf of the company if,
on the facts, the employees or directors assumed personal responsibility for the statements made in the course of the company’s business.
To avoid personal exposure, employees or directors in such a position should consider whether it would be appropriate to disclaim personal liability when making statements on behalf of the company.
Reference materials
The Court of Appeal judgment is available on the Supreme Court website www.supremecourt.gov.sg or by clicking here.