Wong Kok Chin v Singapore Society of Accountants

• Jurisdiction: Singapore
• Judge: Yong Pung How J
• Judgment Date: 07 December 1989
• Neutral Citation: [1989] SGHC 103
• Date: 07 December 1989
• Subject Matter: Disciplinary committee's misinterpretation of its role in conduct of inquiry,Professions,s 21 Accountants Act 1987,,'Grave impropriety',Words and Phrases,Rules of natural justice,Standard of skill and care,Disciplinary proceedings,Charges against accountant,Administrative Law,s 207 Companies Act (Cap 50),'Discreditable act'- s 34(1)(b) Accountants Act (Cap 212, 1970 Ed),ss 21 & 33 Accountants Act (Cap 2),'Gross neglect'- s 34(1)(b) Accountants Act (Cap 212, 1970 Ed),Standard of conduct expected from auditor,Meaning of 'grave impropriety', 'gross neglect', and 'discreditable act'- s 34(1)(b), s4 (7) & 35(2) Accountants Act (Cap 212, 1970 Ed),s34(1)(6) Accountants Act (Cap 212, 1970 Ed),Duty of skill and care,Accountants
• Docket Number: District Court Appeal No 3 of 1988
• Published date: 19 September 2003
• Defendant Counsel: Harbajan Singh (Lee & Partners)
• Court: High Court (Singapore)
• Plaintiff Counsel: M Karthigesu (Tan Rajah & Cheah)

Cur Adv Vult

The appellant is a public accountant registered under the provisions of the Accountants Acts. In 1981, by which time he had been practising in Singapore for some 15 years, he was practising in partnership under the firm name of Wong & Teo, David Teo and Associates (the firm). The firm had two other partners: David Teo, described as the secretarial and tax partner, and also a Madam Poh Lay Eng, described as an audit and tax partner.

On 30 March 1981, the appellant was introduced by Loh Shak Mow (Loh), who was the owner of one of the firm`s clients, State Carriers & Transportation Pte Ltd to Lee Kwong Fai (Lee). Lee was a gold trader who ran a Hong Kong company, Broadview Finance Ltd, which carried on trading in gold and other commodities in Hong Kong. Lee and Loh were proposing to set up a similar business in Singapore through a new Singapore company. The firm was asked to incorporate the new company and on or about 6 April 1981, the firm was paid $5,000 as a deposit to account of incorporation expenses. The new company, Broadview Commodities Pte Ltd (Broadview Commodities), was duly incorporated in Singapore on 20 April 1981 as a private company limited by shares. The incorporation was not done by the firm, however, but by a law firm, Lee & Lee.

The minutes book of Broadview Commodities recorded that the first directors` meeting was held on 27 April 1981. The meeting was not actually held, but was only a `paper` meeting, and the minutes were prepared by the firm`s secretarial section after the appellant was requested by a telephone call to help the new company put up the minutes for the first directors` meeting. The minutes of that meeting recorded that it was resolved, among other things, that the appellant be appointed the company`s financial consultant; that the firm be appointed the company`s auditors; that Loh and Lee as subscribers be registered as members in respect of the two subscribers` shares of $1 each; and that the allotment of 1,999,998 shares of $1 each equally to Lee and Loh for a cash consideration be approved.

The appellant was the president of the Asean Federation of Accountants in 1981, and on 29 April 1981, he left Singapore for the Philippines to attend a council meeting of the federation. Meanwhile, Broadview Commodities had applied to the Gold Exchange of Singapore Pte Ltd (GES) for registration as a local associate member. For this purpose, the GES required Broadview Commodities to provide confirmation from its auditors that the company had at least $ 1m in paid-up capital. Probably on 30 April 1981, but after the appellant had left Singapore for the Philippines, the Broadview Commodities directors saw David Teo to get the firm to provide the necessary confirmation to the GES. They showed him documents purporting to show that Broadview Commodities had $2m paid-up capital. This included payments that Lee had made to Broadview Finance Limited in Hong Kong for and on behalf of Broadview Commodities of sums amounting to HK$3.6m, equivalent to some $1.44m. They were said to be margin deposits which were paid in preparation for gold trading by Broadview Commodities with Broadview Finance Ltd. These payments were evidenced by five margin receipts issued by Broadview Finance Ltd to Broadview Commodities which were then held in Hong Kong. A letter providing the required confirmation was prepared in readiness by the firm and predated 30 April 1981; but, as Broadview Commodities was a client which was not looked after by him, but by the appellant, David Teo held back the release of the letter to the GES until he could get clearance from the appellant to do so. In particular, he wanted the appellant to check on the five margin receipts held in Hong Kong.

While the appellant was in the Philippines, he received a message about this, and on 2 May 1981, which was a Saturday, he flew from the Philippines to Hong Kong, where he was met by Lee and Loh, and was looked after by them. On the next day, Sunday, 3 May 1981, the appellant visited the offices of Broadview Finance Ltd. He was shown the five margin receipts, and also the relevant entries from 21 to 25 April 1981 in respect of these payments in the customer margin receipt register kept by Broadview Finance Ltd. He accepted the five margin receipts as evidence of part payment by Lee towards the $2m paid-up capital of Broadview Commodities. He thereupon confirmed to David Teo that checks had been made on these five margin receipts, and David Teo then released the letter dated 30 April 1981 to the GES. By this letter, the firm certified to the GES that, according to records produced to it, the authorized share capital of Broadview Commodities was $20m and its issued and fully paid share was $2m. The GES replied on 24 June 1981 that the application of Broadview Commodities for local associate membership had been approved.

Although a resolution had been recorded for the first directors` meeting of Broadview Commodities, appointing the firm as the auditors of the company, nothing more appears to have been done to confirm or activate this relationship until the accounts of Broadview Commodities for the first year of operations were completed in 1982. In August of 1982, the firm accepted the appointment as auditors by a letter dated 23 August 1982 and then carried out the first annual audit of Broadview Commodities for the period from 20 April 1981 to 30 April 1982.

In 1982, the Singapore government authorities investigated the activities of several companies which were trading in spot gold, gold futures and other commodities. One of them was Broadview Commodities, and the investigations resulted in prosecutions against two Broadview Commodities officers, Alan Wong, the chairman, and Loh, which are reported in Loh Shak Mow v PP [1987] 1 MLJ 362 . After an eight-week trial, Loh was convicted on six charges of abetment of cheating, by conspiring with others to cheat clients of Broadview Commodities of various sums of money totalling $1.9m. He was also convicted on 14 charges of criminal breach of trust of moneys totalling $1.7m. He was sentenced to terms of imprisonment totalling six years. His appeal against conviction was dismissed, but the sentences were reduced to a total of four years` imprisonment. Alan Wong was convicted on three charges of criminal breach of trust as an agent of various sums of money totalling $93,340 and on one charge of dishonestly retaining stolen property, to wit, moneys amounting to $169,713.17. He was sentenced to terms of imprisonment totalling 12 months. On appeal, the convictions and sentences were quashed.

Arising out of the investigations of Broadview Commodities, a letter of complaint dated 5 June 1986 was sent by the Commercial Crime Division of the Criminal Investigation Department to the Singapore Society of Accountants (the society). It summarized the investigations into Broadview Commodities and referred to what it described as the `deep involvement` of the appellant with Broadview Commodities. It finally expressed the view that in his involvement, he `had failed to take reasonable care and skill` and `could not have maintained a position of independence required of an auditor, in order to be objective in forming and expressing his opinion on the accounts of Broadview Commodities`. The complaint was laid before the society`s investigation committee, which in turn referred it to the disciplinary committee, which then held an inquiry.

Before the disciplinary committee (the committee), the appellant faced seven charges under s 34(i)(b) of the Accountants Act (Cap 212, 1970 Ed) (later renumbered s 33(1)(b) of the Accountants Act (Cap 2) as follows:

First charge:

On or about 2 May 1981, as the auditor of Broadview Commodities Pte Ltd, in the office of Broadview Finance Ltd, Hong Kong, you did accept five margin receipts dated 21, 22, 23, 24 and 25 April 1981 issued by Broadview Finance Ltd to Broadview Commodities Pte Ltd amounting to $1.44m alleged to be a sum paid by one Lee Kwong Fai, a Hong Kong national, to Broadview Finance Ltd on behalf of Broadview Commodities Pte Ltd as a margin deposit for commodity futures trading and also as evidence of part payment by the said Lee Kwong Fai as a shareholder of Broadview Commodities Pte Ltd towards the $2m paid-up share capital of Broadview Commodities Pte Ltd without inquiring further into the circumstances surrounding the purported payments when the following circumstances warranted that a further inquiry was necessary, namely:

(a) the payments were made before the first directors` meeting of Broadview Commodities Pte Ltd on 27 April 1981;

(b) you and the said Kwong Fai attended the first directors` meeting of Broadview Commodities Pte Ltd on 27 April 1981. Lee Kwong Fai did not then disclose such payments having been made by him on behalf of Broadview Commodities Pte Ltd;

(c) the payments were made before the board of directors of Broadview Commodities Pte Ltd resolved on 28 April 1981 to open trading accounts with Broadview Finance Ltd; before the trading agreement was signed on 28 April 1981, and before actual trading began on 18 May 1981;

(d) the payments of $1.44m by the said Lee Kwong Fai would represent 72% of the paid-up share capital of Broadview Commodities Pte Ltd as against Lee Kwong Fai`s 50% shareholding in Broadview Commodities Pte Ltd;

(e) the said Lee Kwong Fai had failed to declare to Broadview Commodities Pte Ltd his interest in Broadview Finance Ltd in accordance with s 156(1) of the Companies Act (Cap 50);

and you have thereby committed an act amounting to gross neglect in the performance of your professional duties within the meaning of s 34(1)(b) of the Accountants Act (Cap 212, 1970 Ed).

Second charge:

On or about May 1981, as the auditor of both Broadview Commodities Pte Ltd and State Carriers & Transportation Pte Ltd, you allowed Broadview Commodities Pte Ltd to take over assets of...