Lo Hock Ling and Co v Syarikat Wen Ken Drug Sdn Bhd and Others

CourtDistrict Court (Singapore)
JudgeTan Boon Khai
Judgment Date04 March 2005
Neutral Citation[2005] SGDC 52
Citation[2005] SGDC 52
Published date24 March 2005
Plaintiff CounselChan Kia Pheng / Chem Heng Wee (Khattar Wong and Partners)
Defendant CounselVincent Yeoh (Vincent Yeoh and Co)

4 March 2005

District Judge Tan Boon Khai:

Introduction

1 For more than 10 years, the Plaintiffs, an accounting firm in Singapore, performed a variety of accounting, audit and tax services for the First, Second, Third and Fourth Defendants. Unfortunately, sometime towards the end of the 1990s, following various disagreements between parties, this professional-client relationship broke down.

2 In these proceedings, the Plaintiffs claimed against the First, Second, Third and Fourth Defendants for monies owed pursuant to various invoices issued by them for services rendered. The Defendants (including the Fifth Defendants) denied the Plaintiffs’ claim, and counterclaimed for breach of an oral agreement between parties (“the agreement”) limiting the amount that the Plaintiffs were entitled to claim against them for these services. The Defendants’ case was that the agreement limited the Plaintiffs’ fees to not more than $3,000.00 per annum for not less than 10 years, and such services encompassed the Defendants’ audit, tax and corporate secretarial work (“the package fee”). It was the Defendants’ assertion that this agreement was agreed between parties at the Second Defendants’ Annual General Meeting (“the Second Defendants’ AGM”) on 21 August 1999.

3 The Plaintiffs and Defendants’ claim and counterclaim were opposite sides of the same coin. Finding for the Defendants necessitated dismissing the Plaintiffs’ claim. Conversely, dismissing the Defendants’ claim meant that the Plaintiffs’ claim succeeded. It was not in dispute that the Plaintiffs had rendered professional services to the First, Second, Third and Fourth Defendants, and that invoices were issued by the Plaintiffs to these Defendants for payment of their services.

4 At the conclusion of the trial, having considered parties’ respective closing submissions, I gave judgment to the Plaintiffs and dismissed the Defendants’ counterclaim after reserving my judgment, on the basis that the Defendants could not show on a balance of probabilities that the agreement was concluded between parties.

5 The Defendants have filed an appeal against my judgment. I now give my written reasons for my decision.

Parties in these proceedings

6 Before setting out the parties’ respective case in this trial, it is useful to have a brief overview of the relationship between the Plaintiffs and the Defendants.

a. The Defendants’ auditors and tax agents

7 The First, Third, Fourth and Fifth Defendants are subsidiaries of the Second Defendants, a company incorporated and located in Singapore. Together with several other related companies that are not involved in these proceedings, they specialize in an array of products, including health and medical products under the Wen Ken brand name. These products are sold and distributed in, inter alia, Singapore and Malaysia.

8 Like the Second Defendants, the Third and Fourth Defendants are companies incorporated and located in Singapore, but the First and Fifth Defendants are companies incorporated in Malaysia.

9 Sometime in 1983, the Plaintiffs were appointed as the statutory auditors and tax agents of the Second Defendants. Following this appointment, on 1 August 1995, the Plaintiffs were further appointed as auditors and tax agents of the Third and Fourth Defendants. Under the terms of engagement between the Plaintiffs and these Defendants (pursuant to the Plaintiff’s respective engagement letters with them), it was agreed that the Plaintiff’s fees would be time-cost based, and would be as follows:

[The Plaintiffs’ fees], which may be billed as work progresses, are based on the time required by the individuals assigned to the engagement plus direct out-of-pocket expenses and are payable on presentation of the bill. Individual hourly rates vary according to the degree of responsibility and the experience and skill required.”

10 Over the years, the Plaintiffs had issued several engagement letters to the Second, Third and Fourth Defendants spelling out the terms of their engagement, all of which were similar in nature. It was not disputed by parties that, until the agreement was purportedly concluded, the Plaintiffs’ fees were generally on the terms as stated above, and were effective until terminated, amended or superseded by parties’ agreement.

11 As for the First Defendant, it was not in dispute by the Plaintiffs that they were not their appointed auditors, and they did not have a formal letter of engagement with them. They were however their tax agents, and had, on occasion, helped the First Defendants in some tax matters. At the same time, possibly because of the mutual goodwill between parties built up over the years, as well as a tie-in arrangement with the First Defendants’ appointed auditors, one Syarikat KW Feng (“KW Feng”), an auditing firm in Malaysia, the Plaintiffs conceded that they had also assisted KW Feng in some auditing work relating to the First Defendants. In the course of the trial, the Plaintiffs stressed at all times that for any audit work rendered to the First Defendants, it was under the supervision, and subject to the approval, of KW Feng, although this issue was in some dispute between parties.

12 Insofar as the Fifth Defendants were concerned, their auditors were KW Feng too. They were not parties to the original proceedings commenced by the Plaintiffs, as the Plaintiffs had no claim against them. However, they were added as a party to this suit by the Defendants in their counterclaim, because the counterclaim alleged that the agreement limiting the Plaintiffs’ fees pertained not only to the First, Second, Third and Fourth Defendants, but also to the Fifth Defendants.

13 As far as it was brought to my attention, there appeared no direct or family relationship between the Plaintiffs and KW Feng, although having said that, as I mentioned earlier, the Plaintiffs accepted that they had a tie-in relationship with KW Feng vis-à-vis accounting or tax matters undertaken by them both for the Defendants.

b. The Defendants’ company secretaries

14 By and large, the secretarial work of the Second, Third and Fourth Defendants were undertaken by a professional secretarial company known as Rising Management Services Pte Ltd (“Rising”). This fact warranted mention in this trial because of the allegations by the Defendants of Rising’s “partiality” towards the Plaintiffs. I will deal with this issue in more detail later. Suffice to say at this juncture, it transpired in the evidence of the Plaintiffs and the Defendants that the directors and shareholders of Rising were related to the Plaintiffs, and to some extent, they shared common premises as well as fax numbers until sometime in late-1990.

15 The First and Fifth Defendants had their secretarial work managed by this firm known as YY Corporate Services Sdn Bhd (“YY”). One of the directors and shareholders of YY was a lady called Ms Feng Ying Ying, whom the Plaintiffs implied was related to Mr Feng Kok Wah, the main owner of KW Feng, the auditors of the First and Fifth Defendants. However, the Defendants never conclusively proved this fact, and the Plaintiffs were unable to shed any light on the relationship between Ms Feng Ying Ying and Mr Feng Kok Wah.

Background leading to the dispute between parties

16 Let me now set out the background leading to the dispute between parties. Although this background did not relate directly to parties’ respective claims against each other, and was an issue that did not require a determination by me, it became a hot issue in the course of the proceedings. It was the Defendants’ main contention that the background facts were the reason why the Plaintiffs agreed to be bound by the agreement. As a result, and arising from the background facts, the Defendants also contended that the Plaintiffs’ claim could not succeed.

17 Sometime on 21 August 1999, in the course of the Second Defendants’ AGM, Mr Cheong Wing Kiat (“Cheong”), the Second Defendants’ business development director, alleged that the Plaintiffs had been negligent, thus resulting in loss to the First Defendants. In his Affidavit of Evidence in Chief (“AEIC”), Cheong, the Defendants’ main witness in these proceedings, explained that he brought up the issue of the Plaintiffs’ negligence at the Second Defendants’ AGM because although the loss complained of related to the First Defendants, it was an indirect loss to the Second Defendants, as the Second Defendants were the parent company of the First Defendants.

18 In essence, there were two instances of negligence complained of by Cheong. The first pertained to the overpayment of withholding tax by the First Defendants to the Malaysian income tax authorities, while the second concerned the payment of additional tax to the Malaysian tax authorities following discrepancies highlighted by the said tax authorities of some of the First Defendants’ audit work. Both instances of negligence were stated by Cheong in paragraph 5 of his AEIC, followed by his version of the Plaintiffs’ explanation for the loss thereafter at paragraph 6:

5. At the Annual General Meeting of [the Second Defendants on 21 August 1999]. I mentioned 2 major negligence of [the Plaintiffs] which caused [the First Defendants] (and indirectly [the Second Defendants] being the parent company) significant financial losses:

(1) Overpayment of Malaysian Withholding Tax

I mentioned during this AGM that [the First Defendants] had overpaid withholding tax in Malaysia due to the oversight of [the Plaintiffs] (as tax agents) as follows:

Royalties RM 73,984

Management Fee RM 72,182

Total RM 146,166

(2) Additional Malaysian Tax

I also mentioned during this AGM that additional Malaysian tax of about RM 600,000.00 was paid by [the First Defendants] due to [the Plaintiffs’] fault. I will explain now in more detail what I meant. This additional Malaysian tax has 2 components:

i. Improper audit procedure

Although on record the auditor of [the First Defendants] was Syarikat KW Feng, [the...

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