Standard Chartered Bank and Another v Coopers & Lybrand (sued as a firm)

JurisdictionSingapore
CourtHigh Court (Singapore)
Judgment Date15 September 1993
Date15 September 1993
Docket NumberSummon in Chambers No 2067 of 1991

[1993] SGHC 215

High Court

Lai Kew Chai J

Summon in Chambers No 2067 of 1991 (Suit No 632 of 1990)

Standard Chartered Bank and another
Plaintiff
and
Coopers & Lybrand (a firm)
Defendant

Peter Goldsmith QC with Lee Han Tiong (Lee & Lee) for the defendants

Colin Ross-Munro QC with Andre Yeap (Allen & Gledhill) for the plaintiffs.

Al Saudi Banque v Clark Pixley (a firm) [1990] Ch 313 (folld)

Candler v Crane Christmas & Co [1951] 2 KB 164; [1951] 1 All ER 426 (refd)

Caparo Industries plc v Dickman [1990] 2 AC 605; [1990] 1 All ER 568 (folld)

Hedley Byrne & Co, Ltd v Heller & Partners, Ltd [1964] AC 465; [1963] 2 All ER 575 (refd)

M'Alister (or Donoghue) (Pauper) v Stevenson [1932] AC 562 (refd)

Morgan Crucible Co plc v Hill Samuel Bank [1991] Ch 295 (distd)

Companies Act (Cap 50) ss 140, 207 (1)

Companies Act (Cap 185, 1979 Reprint) s 174

Companies–Auditors–Duties–Auditors' duty of care in preparing auditors' report–Company's financier relied on auditor's report causing loss–Whether statutory duty to prepare auditor's report owed other than to shareholders–Whether auditor of company owed duty of care to financier of company in preparing auditors' report–Tort–Negligence–Duty of care–Auditors' duty of care in preparing auditors' report–Whether statutory duty to prepare auditor's report owed other than to shareholders–Whether sufficient proximity existed between auditor of company and financier of company

The plaintiff banks sued the defendant firm of accountants for their alleged negligence in preparing and auditing the accounts of Pan-Electric Industries Ltd (“Pan El”). This was in essence a claim to recover economic losses suffered by the plaintiff banks in respect of loans which they had extended to Pan-El, having relied on what they asserted were the negligent mis-statements made by the defendant, as auditors, when the defendant after the audit negligently misrepresented in their auditors' report that the accounts represented a “true and fair” view of the financial position or state of affairs of Pan-El, when in truth and in fact they were not. The defendant applied to strike out the statement of claim as disclosing no reasonable cause of action.

Held, allowing the defendant's application:

(1) Under s 207 (1) of the Companies Act (Cap 50), an auditor had to report to the members on the accounts required to be laid before the company in general meeting and on the company's accounting and other records relating thereto. That statutory duty was owed to the shareholders as a body and not to individual shareholders or to existing and potential lenders: at [33].

(2) As required under the Companies Act, the defendant's auditors' report was addressed to the members of Pan-El and nobody else, and the report was not sent by the defendant to anyone else. The defendant thus could not be made tortiously liable for economic loss arising out of their mis-statement to the financiers of the company: at [13] and [37].

Lai Kew Chai J

1 In this action the plaintiffs, who are bankers and merchant bankers, claimed damages for negligence against the defendants, a firm of accountants, who were alleged to have negligently prepared and audited the accounts of Pan-Electric Industries Ltd (“Pan-El”) and the consolidated accounts of the Pan-El group of companies for the year ended 1983. This was in essence a claim to recover economic losses suffered by the plaintiffs in respect of loans which they had extended having relied on what they asserted were the negligent mis-statements made by the defendants, as auditors, when they after the audit negligently misrepresented in their auditors' report dated 9 April 1984 that the accounts represented a “true and fair” view of the financial position or state of affairs of Pan-El, the borrower company, and of the group, when in truth and in fact they were not.

2 In the light of the ratio of the House of Lords in Caparo Industries plc v Dickman [1990] 1 All ER 568 and particularly the ruling of Millett J in Al Saudi Banque v Clark Pixley (a Firm) [1990] Ch 313, and distinguishing Morgan Crucible Co plc v Hill Samuel Bank [1991] Ch 295, the defendants not unexpectedly applied for an order that the plaintiffs' statement of claim be struck out under O 18 r 19 (1) of the Rules of Supreme Court on the principal ground that it disclosed no reasonable cause of action.

3 As I was persuaded that no direct and close relationship or proximity in the Caparo sense existed between the plaintiffs and the defendants, I was of the view that the plaintiffs' claims as pleaded were bound to fail. Caparo, which approved Al Saudi Banque, ruled that for a claim for purely economic loss suffered by reason of a negligent mis-statement there must be a sufficient “relationship of proximity” and it must be just and reasonable to impose liability on the potential defendant. I was persuaded by counsel for the plaintiffs that the averments in the statement of claim would establish that it was foreseeable, indeed even highly foreseeable, that the plaintiffs who were in the thick and fury of being engaged in the corporate finance of the Pan-El group would rely on the statements of the defendants as auditors and would suffer loss if the auditors' statements were wrong. But I was equally convinced that such foreseeability by itself was not enough if Caparo and Al Saudi Banque were to be followed and if the frontiers of this subcategory of the tort of negligent mis-statement were not to be unjustifiably extended.

4 In this case, the parties were not in any relevant contractual relationship; there was neither privity between them nor any consideration proceeding from the plaintiffs to the defendants. Nor were they in a relationship analogous to privity or to there being consideration moving from the plaintiffs to the defendants. Therefore the defendants did not owe the plaintiffs any contractual duty or any analogous duty in tort in relation to the audit. The plaintiffs also did not allege any intentional deceit practised on them by the defendants. The plaintiffs based their cause of action on the duty of care equivalent to that which arose in Hedley Byrne & Co, Ltd v Heller & Partners, Ltd [1963] 2 All ER 575. Reading Hedley Byrne, and the powerful dissenting views of Denning MR in Candler v Crane Christmas & Co [1951] 1 All ER 426, and in view of Caparo and Al Saudi Banque, I was not persuaded that the plaintiffs' case, as pleaded, could arguably come within this limited category of auditors' negligent mis-statement as a cause of action. I accepted the submission that the purpose of the auditors' report in this case was in compliance with their statutory duties under the Companies Act and that this critical factor was the main reason why in Caparo it was held that there was no proximity such as would give rise to a duty of care. I accordingly struck out the plaintiffs' statement of claim.

5 Counsel for the plaintiffs almost immediately applied for leave to amend the plaintiffs' statement of claim. After considering the matter, I took the view that the amendments sought did not arguably demonstrate that there could be the relationship of proximity and that therefore a duty of care was owed by the defendants to the plaintiffs. Since the amendments for which leave to amend was sought did not, in my view, take the matter any further, I refused leave to amend in the exercise of my discretion. The reasons for this decision will be further elaborated.

6 For the purposes of the application before me, it was assumed, as was and is the practice in such interlocutory applications, that the averments in the statement of claim were true although there had been no proof of the same in a trial. Indeed, and in fairness to the defendants, it has to be stated quite categorically that the defendants strenuously disputed any allegation of negligence on their part.

7 The plaintiffs are well-known bankers in Singapore and had been bankers of Pan-El since 1965. Mr Northrop was at all material times the Area Credit Controller of the first plaintiffs. Indeed, the first plaintiffs were one of the major bankers of Pan-El which, unfortunately for many in Singapore, went into provisional liquidation on 6 February 1986 and liquidation on 9 October 1986. Both plaintiffs also participated in a syndicated loan of S$40m and US$15m. The loan was granted to Pan-El on or about 16 May 1984 pursuant to a loan agreement dated 9 May 1984. However, negotiations for the syndicated loan had started in Jan 1984, well before the issue of the auditors' report dated 6 April 1984.

8 Pan-El, a public company, was quoted on the Stock Exchange of Singapore and the Kuala Lumpur...

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    ...2 KB 206, CA (refd) Shirlaw v Southern Foundries (1926) Ltd [1940] AC 701, HL (refd) Standard Chartered Bank v Coopers & Lybrand [1993] 3 SLR (R) 29; [1993] 3 SLR 712 (refd) Stilk v Myrick (1809) 2 Camp 317 (refd) Stovin v Wise [1996] AC 923 (refd) Sunrise Crane, The [2004] 4 SLR (R) 715; [......
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    ...see, for example, Ikumene Singapore Pte Ltd v Leong Chee Leng [1993] 3 SLR 24 (“Ikumene”); Standard Chartered Bank v Coopers & Lybrand [1993] 3 SLR 712; Pang Koi Fa v Lim Djoe Phing [1993] 3 SLR 317; Mohd bin Sapri v Soil-Build (Pte) Ltd [1996] 2 SLR 505; D v Kong Sim Guan [2003] 3 SLR 146;......
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