An autochthonous approach to the law of negligence in Singapore; Auditor liability for trading losses

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

An Autochthonous Approach to the Law of Negligence in Singapore; Auditor Liability for Trading Losses

In a landmark judgment, a five-member coram of the Singapore Court of Appeal (CA) struck out a US$2.6

billion claim for trading losses brought by the liquidators of Hin Leong Trading (Pte) Ltd against its former auditor. The CA revisited the foundational principles of negligence, departed from aspects of overseas authority and set out a distinctly Singaporean framework for analysing negligence claims: Deloitte & Touche

LLP v Hin Leong Trading (Pte) Ltd (in compulsory liquidation) [2026] SGCA 33.

In summary, the CA:

●

Articulated a six-part framework for negligence claims comprising (a) actionable damage; (b) a duty of care; (c) breach of duty; (d) factual causation; (e) legal responsibility; and (f) the absence of any defence. The CA cautioned against unnecessary proliferation of further doctrines, holding that outcomes should be rationalised in terms of existing established doctrines.

●

Reconceptualised the SAAMCo scope of duty principle as an application of contractual remoteness principles. The CA declined to follow the English approach of treating the principle as a distinct element in negligence.

●

Emphasised the distinction between duty and breach: A duty of care is a general duty to exercise reasonable skill and care whereas any alleged failure to take a specific step is a question of breach.

●

Delineated the limits of a statutory auditor’s liability by holding that a statutory auditor is not liable for losses incurred from its client company’s continued trades, as such losses are too remote.

Our Senior Consultant Tan Cheng Han SC, Deputy Head of Commercial & Corporate Disputes

Wendy Lin, Partner Monica Chong Wan Yee, and Associates Brandon Wong and Matthew Tan Ju

Wei successfully represented the auditor before the CA.

Decision

Deloitte & Touche LLP (Deloitte) was the statutory auditor of Hin Leong Trading (Pte) Ltd (HLT), formerly one of Asia’s largest oil traders and controlled by Mr Lim Oon Kuin and his family (Lim Family).

Deloitte issued unqualified audit opinions for the financial years ended 31 October 2014 to 31 October 2019.

In April 2020, extensive fraud within HLT came to light, revealing that the Lim Family had materially misstated HLT’s financial statements – including by recording fictitious profits and overstating accounts receivable and inventory – to conceal the staggering losses the company had accumulated over the years.

HLT was estimated to be insolvent from as early as 2012.

Negligence

© WongPartnership LLP

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

The liquidators of HLT brought claims against Deloitte for negligence (Negligence Claim) and for a breach of duty to report fraud or irregularities likely to cause material loss to HLT to government authorities and/or third parties (Reporting Duty Claim).

The liquidators claimed, among other losses, US$2.6 billion in losses incurred from HLT continuing to trade between November 2015 and mid-April 2020, which it alleged would have been avoided had Deloitte discharged its duties and HLT entered liquidation earlier (Trading Losses).

The CA proceedings arose from Deloitte’s application to strike out HLT’s claims, which had been dismissed by both an Assistant Registrar and a Judge in the General Division of the High Court. The CA proceeded on the basis that the appeal involved the summary determination of two questions of law: (a) whether Deloitte’s duty of care included a duty to have regard to the interests of HLT’s creditors assuming HLT was insolvent at the time of the audits (Creditor Duty Question); and (b) whether the Trading Losses were recoverable in law from Deloitte (Trading Losses Question).

The CA allowed the appeal in part and struck out HLT’s claim for Trading Losses. However, it declined to answer the Creditor Duty Question, finding it “academic” and, in any event, not appropriate for summary determination.

Framework for Negligence Claims

The CA identified six broad requirements for liability in negligence:

(a)

the subject matter of the complaint must be of a type actionable in negligence;

(b)

the defendant must have owed the claimant a duty of care;

(c)

the defendant’s conduct constituted a breach of that duty;

(d)

the breach was a factual cause of the injury;

(e)

the loss must fall within the scope of the defendant’s legal responsibility; and

(f)

the absence of any operative defences, such as illegality or contributory negligence.

The CA cautioned against unnecessary proliferation of further doctrines, which would generate uncertainty and undermine consistency in reasoning and outcomes. Instead, legal outcomes should be rationalised by reference to existing established doctrine.

Distinguishing factual causation from legal responsibility

The CA observed that the fourth and fifth elements (factual causation and legal responsibility) have not always been clearly defined or distinguished in the authorities. It therefore endeavoured to “disentangle” the two inquiries as follows:

(a)

Factual causation is a question of historical fact: whether the claimant’s loss would not have occurred but for the defendant’s wrongful conduct; and

© WongPartnership LLP

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

(b)

Legal responsibility, by contrast, is a normative question as to whether the defendant should be responsible for the loss.

The element of legal responsibility encompasses two broad categories. The first concerns the attribution of responsibility where the claimant’s damage has multiple causes, engaging principles such as novus actus interveniens and mitigation. The second concerns whether the type of damage suffered was sufficiently foreseeable under the doctrine of remoteness. These doctrines governing legal responsibility operate as control mechanisms that limit the consequences for which a defendant may be held liable.

Distinguishing duty from breach

The CA cautioned against conflating the existence of a duty of care with the question of breach. A duty of care is a general duty to take such care as is reasonable in the circumstances as opposed to a specific obligation to do or not do any specific acts.

The distinction matters for two reasons. First, whether a duty of care exists is a question of law, whereas breach is a fact-sensitive inquiry generally unsuitable for summary determination and one on which an appellate court will be slow to disturb the trial judge’s findings. Second, framing a duty by reference to specific acts makes an a priori assumption that a failure to do that thing is invariably a failure to act with reasonable care, creating the misleading impression that liability is strict rather than tested on a standard of reasonableness.

Distinguishing duty from remoteness

The CA also cautioned against conflating duty of care with remoteness by defining the duty by reference to particular forms or risks of damage. Whether a defendant should be liable for a specific type of loss is properly addressed under remoteness, whereas the duty of care is a broader obligation to take reasonable care to avoid harm generally. The two inquiries address different forms of indeterminacy: duty limits the class of persons to whom liability may be owed, while remoteness limits the extent of recoverable loss suffered by that class.

SAAMCo principle is an application of contractual remoteness

The SAAMCo principle, derived from the House of Lords decision in South Australia Asset Management

Corporation v York Montague Ltd [1997] AC 191, has commonly been understood as excluding losses falling outside the scope of the defendant’s duty of care.

The CA held that the SAAMCo principle is better rationalised as an application of orthodox contractual remoteness principles, under which a defendant is liable only for damage for which it may be taken to have assumed responsibility because it was within the parties’ contemplation at the time of contracting (per

Hadley v Baxendale (1854) 9 Exch 341). The CA declined to adopt the English courts’ treatment of

SAAMCo as a distinct doctrine confined principally to professional negligence cases, observing that such a limitation appeared “rather arbitrary”.

© WongPartnership LLP

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

The Creditor Duty Question

An academic question

The CA declined to answer the Creditor Duty Question, taking the view that: (a) that question was an argument as to the breach of Deloitte’s duty of care (since it boiled down to Deloitte having acted or failed to act in a particular way) and therefore was a factual issue that was not appropriate for summary determination; and (b) resolving that question would not result in any part of HLT’s pleadings being struck out.

The CA’s comments on HLT’s arguments on the Creditor Duty Question

The CA nevertheless went on to opine on the conceptual difficulties underlying the Creditor Duty argument.

It firmly rejected HLT’s analogy with directors’ duties to creditors, emphasising that auditors perform a fundamentally different role and are uninvolved in a company’s decision-making. The CA also rejected

HLT’s reliance on Stone & Rolls Ltd v Moore Stephens [2009] 1 AC 1391, finding that its discussion of auditors’ duties had been taken out of context. Stone & Rolls concerned the illegality defence, an issue in which the purpose of an auditor’s duty may be relevant to whether attributing fraud to the company would defeat that duty. Contrary to HLT’s contention, the case did not suggest that auditors are subject to any specific obligation to act, or to give subjective consideration to creditors’ interests.

The Trading Losses Question

The Trading Losses are too remote

The CA characterised the Trading Losses Question as one of remoteness governed by the rule in Hadley v

Baxendale. In doing so, it departed from authorities in Australia and the United Kingdom that had analysed similar claims through the concepts of causation or scope of duty.

The CA found Trading Losses too remote for the following main reasons:

(a)

First, Deloitte had no involvement in or control over HLT’s trading activities, which depended on market movements and management decisions.

(b)

Second, the statutory context for liability for insolvent trading formed part of the background against which the parties contracted. Under sections 339(3) and 340 of the Companies Act (Cap 50, 2006

Rev Ed) (as then in force), liability for wrongful or fraudulent trading requires actual knowledge, and it is unlikely that Deloitte would have assumed responsibility for HLT’s losses based on a lower degree of knowledge than that which was fixed by statute.

(c)

Third, even if Deloitte’s negligence had enabled HLT to continue trading by obtaining financing using its misstated financial statements, the obtaining of financing did not itself cause HLT any loss, as the increase in HLT’s liabilities was matched by a corresponding increase in its assets. The

Trading Losses arose from how HLT put the financing to use in trading by management, which was outside Deloitte’s knowledge.

© WongPartnership LLP

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

Illegality Defence Left Open

The CA also observed that the Lim Family’s fraud raised the possibility that HLT’s claim might be barred by illegality. Although the CA observed that the present case was “on all fours” with Stone & Rolls, in which an auditor was permitted to rely on the controller’s fraud against the company as a complete defence, the CA noted that the decision remained controversial, and the precise basis of the majority’s decision itself has proven elusive. However, as the issue of the illegality defence was not before the CA, it left this difficult issue open for future determination.

Key Takeaways

The judgment provides important guidance on the proper analysis of negligence claims in Singapore.

First, the CA’s six-part framework promotes analytical discipline by requiring parties and courts to identify precisely which element of negligence is engaged, while cautioning against the conflation of conceptually distinct inquiries such as duty, breach and remoteness.

Second, the judgment locates doctrines of remoteness, mitigation and novus actus interveniens within the broader inquiry into the extent of a defendant’s legal responsibility.

Third, the CA departed from overseas authorities that treat the SAAMCo principle as an independent ‘scope of duty’ doctrine. It instead rationalised the principle as an application of orthodox contractual remoteness.

Finally, the decision marks an important limit on auditor liability. A company cannot look to its auditor for compensation for losses incurred through continued trading while insolvent, in circumstances where the auditor neither participated in the company’s trading decisions nor assumed responsibility for the risks arising from those activities.

If you would like information and/or assistance on the above or any other area of law, you may wish to contact the Partner at WongPartnership whom you normally work with or any of the following:

Professor TAN Cheng Han,

Senior Counsel

Senior Consultant

Wendy LIN

Head – Asset Recovery & International Enforcement

Deputy Head – Commercial & Corporate Disputes

Partner – International Arbitration

Monica CHONG Wan Yee

Partner – Commercial & Corporate

Disputes and International Arbitration

WPG MEMBERS AND OFFICES

- contactus@wongpartnership.com

SINGAPORE

-

WongPartnership LLP

12 Marina Boulevard Level 28

Marina Bay Financial Centre Tower 3

Singapore 018982

t +65 6416 8000

f +65 6532 5711/5722

CHINA

-

WongPartnership LLP

Shanghai Representative Office

Unit 1015 Link Square 1 222 Hubin Road

Shanghai 200021, PRC t +86 21 6340 3131

f +86 21 6340 3315

INDONESIA

-

Makes & Partners Law Firm

Menara Batavia, 7th Floor

Jl. KH. Mas Mansyur Kav.

Jakarta 10220, Indonesia t +62 21 574 7181

f +62 21 574 7180

w makeslaw.com

MALAYSIA

-

Cheang & Ariff

Advocates & Solicitors

Loke Mansion 273A, Jalan Medan Tuanku 50300 Kuala Lumpur t +60 3 2691 0803

f +60 3 2693 4475

w cheangariff.com

-

Foong & Partners

Advocates & Solicitors 13-1, Menara 1MK, Kompleks 1 Mont' Kiara

No 1 Jalan Kiara, Mont' Kiara 50480 Kuala Lumpur, Malaysia t +60 3 6419 0822

f +60 3 6419 0823

w foongpartners.com

MIDDLE EAST

-

Al Aidarous Advocates and Legal Consultants

Abdullah Al Mulla Building, Mezzanine Suite 02 39 Hameem Street (side street of Al Murroor Street)

Al Nahyan Camp Area

P.O. Box No. 71284

Abu Dhabi, UAE t +971 2 6439 222

f +971 2 6349 229

w aidarous.com

-

Al Aidarous Advocates and Legal Consultants

Oberoi Centre, 13th Floor, Marasi Drive, Business Bay

P.O. Box No. 33299

Dubai, UAE t +971 4 2828 000

f +971 4 2828 011

PHILIPPINES

-

Gruba Law 27/F 88 Corporate Center 141 Valero St., Salcedo Village

Makati City 1227, Philippines t +63 2 889 6060

f +63 2 889 6066

w grubalaw.com wongpartnership.com