Ikumene Singapore Pte Ltd and Another v Leong Chee Leng (practising under the style of Elizabeth Leong & Co)

CourtCourt of Three Judges (Singapore)
JudgeChao Hick Tin J
Judgment Date16 July 1993
Neutral Citation[1993] SGCA 50
Citation[1993] SGCA 50
Subject MatterAuditor's duty of care,Purpose of auditor's report,Whether auditor owed duty of care to company guarantor,Tort,Auditor's report,Whether losses of company caused by auditor's negligence,Negligence,ss 201 & 207(1) Companies Act (Cap 50, 1990 Ed),Duty of care,Causation,Proximity of relationship
Docket NumberCivil Appeal No 104 of 1992
Date16 July 1993
Defendant CounselRonnie Quek (Allen & Gledhill)
Published date19 September 2003
Plaintiff CounselLim Chor Pee and Loy Wee Sun (Chor Pee & Co)

Cur Adv Vult

This is an appeal by the plaintiffs against a decision of the High Court dismissing their claim for damages on account of professional negligence on the part of the defendant, the respondent.

The first plaintiff was incorporated on 29 December 1978 to trade in medical and surgical equipment. The second plaintiff was at all material times a substantial shareholder (holding 94%) of the first plaintiffs. Credit facilities were granted by the Far Eastern Bank Ltd (`the bank`) to the first plaintiff. The second plaintiff stood as guarantor for those credit facilities and had charged his personal fixed deposit of $200,000 with the bank as security thereof.

We will first give a brief account how the second plaintiff came to be involved in the setting up of the first plaintiff (hereinafter referred to as `Ikumene`) and what gave rise to this action. The second plaintiff was formerly the managing director of certain Singapore companies. He returned to UK in retirement in 1973. One of his former colleagues and subordinates was one James Kwok. Sometime prior to December 1978 the second plaintiff was sought by three persons, James Kwok, Raymond Heng and Foo Huat Kim, to join them in setting up a company to trade in medical and surgical equipment. The second plaintiff agreed and invested $47,000 in Ikumene, the first plaintiff, holding 47,000 shares out of a total issued shares of 50,000. One thousand shares each were held by the other three persons. It was clear that the second plaintiff had confidence and trust in James Kwok who was, not long after the formation of the company (September 1979), given the primary task of managing Ikumene, as he was appointed its managing director. Before that Foo Huat Kim was in charge. The second plaintiff knew James Kwok very well. One Leong Chee Cheong, the brother of the defendant, was appointed the bookkeeper.

The defendant was formally appointed the auditor of Ikumene on 19 October 1981. However, it was obvious that the defendant was given the assignment sometime before then as the audited accounts of Ikumene for the year ended 31 December 1979 were prepared and reported on by the defendant on 20 October 1981, the day after her formal appointment. The accounts for the year ended 31 December 1980 were audited and completed on 12 February 1982 and for the year ended 31 December 1981 on 4 November 1982.

The 1979 audited accounts showed a loss of $10,371.00. This was subsequently in the 1980 accounts adjusted upwards to $25,850. The 1980 accounts showed a loss of $28,788 resulting in an accumulated loss of $54,638. For 1981 the accounts showed a profit of $20,332, thus reducing the accumulated loss to $34,306. The second plaintiff said he was pleased with the 1981 accounts as he thought the company had turned around.

In respect of those three sets of accounts, the defendant reported that the accounts were properly drawn up in accordance with the provisions of the Companies Act, that they gave a true and fair view of the state of affairs of Ikumene for those years and that the accounting and other records of Ikumene had been properly kept.

On 18 August 1983, the second plaintiff received a copy of a letter of demand from the bank addressed to the first plaintiff asking for the payment of $193,623.98 within 14 days, failing which the same would be set off against the second plaintiff`s fixed deposit charged to the bank.

On 8 February 1984, the second plaintiff received a letter of demand as guarantor from the bank asking for payment of the amount of $198,215.12 owing by Ikumene. On 5 March 1984, the bank exercised its rights under the charge and set off the debt of Ikumene amounting to $201,338.61 against the fixed deposit (with accrued interest) of the second plaintiff.

The plaintiffs alleged that the defendant had failed in her duty of care to the plaintiffs when she gave an unqualified audit opinion in respect of each of the years 1979, 1980 and 1981 and when she ought to have known that the balance sheet and profit and loss account for each of the years in question did not give a true and fair view of the state of affairs of Ikumene.

The plaintiffs further alleged that had the defendant discharged her duties as an auditor faithfully, Ikumene and/or the second plaintiff as the majority shareholder, would not have continued to allow James Kwok to manage Ikumene and would have `at an early stage taken such proper or reasonable steps as might have been called for to investigate into or improve the financial position of the first plaintiff or minimize the losses of the first plaintiff.`

In the meantime upon receipt of the bank`s letter of 18 August 1983, the second plaintiff appointed M/s Kwan Wong Tan & Hong (M/s Kwan Wong), a firm of professional accountants, to investigate the accounts of Ikumene. A report was submitted by M/s Kwan Wong on 20 March 1986 in respect of the three years ended December 1979, 1980 and 1981. The report highlighted the accounting records of Ikumene which were missing. In their opinion the 1979 accounts did not give a true and fair view.

At the trial the plaintiffs called one Andrew Hoa Hing (of M/s Kwan Wong) who investigated the accounts of Ikumene, to explain their report. The plaintiffs also called an expert, one John Curran, to testify as to the inadequate manner in which the defendant must have gone about undertaking the audit of the accounts in respect of those three years. John Curran said that in view of the fact that proper accounting records had not been kept by Ikumene, it was not possible for the auditor to say whether the accounts gave a true and fair view.

However, the defendant elected not to call any evidence to rebut the case of the plaintiffs. She submitted that on the evidence adduced by the plaintiffs, the plaintiffs had not made out a claim against her. The learned trial judge found that the defendant was negligent in the audit of the accounts of Ikumene but held that the...

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2 books & journal articles
  • Contract Law
    • Singapore
    • Singapore Academy of Law Annual Review Nbr. 2021, December 2021
    • 1 December 2021
    ...see JSI Shipping (S) Pte Ltd v Teofoongwongcloong [2007] 4 SLR(R) 460 at [148] and Ikumene Singapore Pte Ltd v Leong Chee Leng [1993] 2 SLR(R) 480 at [34]. This rule is discussed in The Law of Contract in Singapore (Andrew Phang Boon Leong gen ed) (Singapore: Academy Publishing, 2nd Ed, 202......
  • Singapore: Barings Revisited — Auditors and the Detection of Corporate Fraud
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    • Journal of Financial Crime Nbr. 5-2, April 1997
    • 1 April 1997
    ...Issues and Developments in Audit-ing', Addison-Wesley, Singapore, pp. 1-19, at p. 3. (20) The Ikumene case is reported in [1993] 3 Singapore Law Reports 24. (21) [1990] 2 WLR 358. (22) See Tabalujan, B. S. (1994) 'Caparo Comes to Singapore: The Case of Ikumene — the Guarantor v the Auditor'......

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