The PSU should be ok, the question is whether it can handle the sudden change in current - have you tried adding an electrolytic capacitor, maybe 200uF or so, across the power input of the SimpleFOC shield? If you have one with “legs” you can just stick it in with the power cables (watch the polarity).
Voltage limits should always be set lower or equal to the PSU voltage. To set them higher makes no sense, and may confuse the algorithm (I have to check the code if we check for it).
But with this motor at 12V, the current should not rise above 1.2A or so… it has 11Ω resistance.
Can you carefully check your cable connections? How about the solder bridges? And the USB connector of the Arduino, it is not touching any of the simpleFOC shield on the bottom?