Hyflux Ltd (in compulsory liquidation) and others v KPMG LLP [2024] SGHC 176

This brief judgment captures my decision and reasoning on this application, which is published primarily because of the defendant’s references to remarks made by Justice Choo Han Teck on the pleadings in his decision, reported in Hyflux Ltd (in compulsory liquidation) and others v KPMG LLP [2023] SGHC 270 (“Hyflux”), which concerned an appeal of an application for further and better particulars.

The plaintiffs are pursuing claims against the defendant, in tort and contract, for breach of obligations relating to the previous preparation of accounts and financial statements of the plaintiffs.

Summary of arguments

The defendant applied to strike out, under O 18 r 19(1)(a) of the Rules of Court (2014 Rev Ed), parts of the Statement of Claim as failing to disclose a reasonable cause of action. The defendant argues that the Statement of Claim failed to set out the material facts relating to the alleged breach of contract, not even identifying the contract nor the terms. The pleadings are vague, leaving the defendant to guess what the heads of claim are. The plaintiffs, the defendant says, have refused to amend their pleadings despite being given the opportunity to do so after the judgment was issued by Choo J and on the defendant’s requests. The defendant relied on criticisms made by Choo J in hearing the particularisation application appeal, characterising those remarks as showing up the inadequacies of the Statement of Claim and that the plaintiffs had failed to sufficiently plead a breach of contract.

The plaintiffs argue that the high threshold for striking out has not been met. According to the plaintiffs, they have, as required, pleaded the contracts, terms, breach of the terms and that damages have been suffered. The Statement of Claim has sufficiently particularised the contractual relationship created by way of the engagement letters between the parties, the express terms in those letters and the implication of a term for business efficacy or under operation of law that there was a contractual duty to exercise reasonable skill and care in the defendant’s audit work. Breach was also sufficiently particularised. Furthermore, the defendant, having filed a substantial defence, knows the case to be met.

Decision

As succinctly and pithily summarised by Professor Pinsler in Jeffrey Pinsler SC, Singapore Court Practice 2017 vol 1 (LexisNexis, 2017) (“Singapore Court Practice 2017”) at para 18/7/1, the pleadings must summarise briefly the material facts relied upon for the claim:

Striking out

The application before me is for the striking out under O 18 r 19(1)(a) of offending parts of the Statement of Claim as not disclosing any reasonable cause of action.

Order 18 r 19(1)(a) reads:

The law was not in dispute. Pleadings are to be struck out only in plain and obvious cases: Gabriel Peter & Partners (suing as a firm) v Wee Chong Jin and others [1997] 3 SLR(R) 649 at [18]. A failure to plead the contract, the contractual terms alleged to have been breached, the nature of the breach and damages would be an inadequate claim in contract, and would not disclose a reasonable cause of action: see Kalzip Asia Pte Ltd v BFG International Ltd [2018] SGHC 152 at [106]; Singapore Court Practice 2017 at para 18/7/3.

The crux of the parties’ dispute was whether the plaintiffs had adequately pleaded these in its Statement of Claim.

The plaintiffs cited a decision by Lee Seiu Kin JC in Keppel Tatlee Bank Limited v Bandung Shipping Pte Ltd [2002] SGHC 47 (“Keppel”), to support the adequacy of their pleadings. They contend that it is not necessary to go to the extent of laying matters out extensively. In Keppel, all that was pleaded were the bills of lading, failure to deliver cargo against the presentation of the bills, and that damages were suffered. What that case illustrates is that the adequacy of what is pleaded has to be measured by the specific claim made in a particular case. I would hesitate to conclude, nor would I think that that was the judge’s intention in Keppel, that the assessment of the pleadings there necessarily helps in any other case. The plaintiffs’ pleadings must stand or fall within the four corners of their claim here.

On the analysis of the pleadings within the context of the claim here, I am satisfied that there is a reasonable cause of action, and that the defendant’s striking out application must fail.

The contract

Here the plaintiffs point to the following parts of the Statement of Claim. Paragraphs 12, 13 and 14 refer to the retaining of the defendant under various letters of engagement:

These, the plaintiffs say, constituted the contractual relationship between the parties. However, the engagement letters have not been expressly defined as the contract(s), which the plaintiffs rely on for their breach of contract claim, in the Statement of Claim.

The defendants say that it is unclear what the contract between the parties is, and that the door has been left open for the plaintiffs to vacillate and assert some other contact as the basis of the relationship.

Examining the Statement of Claim as a whole, I could not see any other contract referenced, and the submission of the plaintiffs rely only on the engagement letters pleaded above. The plaintiffs had clearly pleaded the contract.

The terms

The plaintiffs contend that they have pleaded at paragraph 16 of the Statement of Claim that it was an express term of the engagement letters that the defendant would carry out the audits in accordance with the Singapore Standards on Auditing (“SSAs”), and the relevant clauses have been particularised in the further and better particulars dated 6 December 2022. Paragraph 16 reads:

The plaintiffs further say that it has been pleaded as well that an implied term arose by either business efficacy or operation of law that reasonable skill and care would be employed in the audit. The plaintiffs aver that this is contained in paragraph 17 of the SOC, which reads:

The detailed obligations, the plaintiffs say, are captured in paragraph 18 of the Statement of Claim. This covers various matters including reporting whether the accounts gave a true and fair view of Hyflux’s financial position; whether they were free from material misstatement; and examination of the evidence supporting the various representations and reports covered by the audit.

The defendant instead submits that the plaintiffs have not identified the material terms of the contracts, if any, that have allegedly been breached.

I accept that the material facts of the terms of the contracts have been pleaded. The plaintiffs are not required to plead by quoting the specific clauses. Their assertion is that compliance with the SSAs is an obligation under the contract. It is thus a term.

Breach

The plaintiffs say that breach was established through claims regarding:

The paragraphs relied upon by the plaintiffs state that Hyflux’s financial statements were stated to have been prepared in accordance with the Singapore Financial Reporting Standards (“FRS”), showing good performance, but were actually misstated because of failure to recognise or cater for losses or impairment relating to Tuaspring.

A substantial part of the Statement of Claim elaborated at length on some of these failures.

The Statement of Claim asserted at length that the financial statements should not have been prepared on a going concern basis or should have at least disclosed material uncertainties affecting the ability to continue as a going concern, in compliance with the FRS, or otherwise to provide fair information or to ensure other compliance with the FRS. Negligence, on the basis of a failure to detect the aforementioned misstatements, going concern and disclosure issues, was also alleged. This was at least partly a breach of the SSAs.

Paragraph 50 of the Statement of Claim was the only point at which breach of contract was expressly mentioned:

I find that breach has thus been adequately pleaded. Where the claim may have fallen a little short is in making explicit the relationship between the financial reporting standards which were covered from paragraph 19 onwards, on the one hand, and the SSAs, compliance with which was incorporated as a term of the contract between the parties. However, this failure was not one that would, to my mind, lead to the absence of a reasonable cause of action. The connection between the two is at least implicit, and the absence of an expressly stated connection does not plainly and obviously show a lack of a reasonable cause of action.

Damages

The plaintiffs say that losses were suffered through payment of dividends, financing and interest paid for perpetuals, and other instruments, and other payments.

I find that the Statement of Claim does note the losses suffered, at paragraph 65.

The defence being pleaded at length

The plaintiffs submit that the defendant exhibited no difficulty in filing a substantive defence and thus knows the case against it. The lengthy defence filed would not cure any deficiency in the plaintiffs’ claim. The concern of the court in a striking out application based on an absence of a reasonable cause of action is not with whether the defendant is taken by surprise, or is unsure of the case against it. The focus is purely on the plaintiff’s own claim and whether anything actionable is in fact disclosed.

Whether the contracts pleaded were vague

The defence also raised concerns about the plaintiffs invoking other contracts at trial. To this, it suffices to say that the court’s construction and the plaintiffs’ position on pleadings have been outlined above. The colours have been nailed to the mast; the plaintiffs cannot alter their position without amending their pleadings. The contracts are those in the letters of engagement, and the relevant terms are those incorporating the SSAs.

Justice Choo’s remarks

Reliance was placed by the defendant on Choo J’s remarks criticising the plaintiffs’ pleadings. I note Choo J was primarily concerned with the need for concision and succinctness in pleadings (see Hyflux at [3]); both sides have been prolix and, with respect, fairly unrestrained in their pleadings, though it could be said with some justification that the plaintiffs were the ones who started the ball rolling. Choo J’s remarks are a useful reminder of the objective and ideal of proper pleading. But I do not read Choo J’s remarks as lending any assistance to the defendant’s striking out application: he was concerned with an appeal on particulars.

Conclusion

The defendant’s application has thus failed for the above reasons.