Chaly Chee Kheong Mah v The Liquidators of Baring Futures: Contractual Indemnity & Auditors' Liability

In Chaly Chee Kheong Mah and Others v The Liquidators of Baring Futures (Singapore) Pte Ltd, the Singapore Court of Appeal addressed whether Article 110 of Baring Futures (Singapore) Pte Ltd's Articles of Association was incorporated into the contract between BFS and Deloitte & Touche (D&T), its appointed auditors, and whether an indemnity extended to costs incurred in defending actions. The court dismissed D&T's appeal, ruling that while Article 110 was incorporated into the contract, the indemnity did not cover the costs incurred by D&T in defending the negligence action brought by BFS. The court ordered D&T to pay 2/3 of the costs.

1. Case Overview

1.1 Court

Court of Appeal of the Republic of Singapore

1.2 Outcome

Appeal dismissed with costs to the respondents (liquidators of Baring Futures (Singapore) Pte Ltd), with appellants (Deloitte & Touche) to pay 2/3 of the costs.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Accounting firm D&T sought indemnity for defending negligence claims by BFS liquidators. The court addressed incorporation of indemnity terms and priority of costs.

1.7 Decision Date

6 July 2003

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Chaly Chee Kheong Mah	Appellant	Individual	Appeal Dismissed	Lost	Haridass Ajaib of Haridass Ho & Partners Randhir Ram Chandra of Haridass Ho & Partners Serena Yogalingam of Haridass Ho & Partners
The Liquidators of Baring Futures (Singapore) Pte Ltd	Respondent	Corporation	Appeal Upheld in Part	Partial	Lee Eng Beng of Rajah & Tann V K Rajah of Rajah & Tann

3. Judges

Judge Name	Title	Delivered Judgment
Chao Hick Tin	Justice of the Court of Appeal	Yes
Tan Lee Meng	Judge	No
Yong Pung How	Chief Justice	No

4. Counsels

Counsel Name	Organization
Haridass Ajaib	Haridass Ho & Partners
Randhir Ram Chandra	Haridass Ho & Partners
Serena Yogalingam	Haridass Ho & Partners
Lee Eng Beng	Rajah & Tann
V K Rajah	Rajah & Tann

4. Facts

D&T was appointed as auditors of BFS in 1986 and ceased to be auditors in 1994.
BFS incurred massive losses due to the fraudulent activities of a rogue trader.
Liquidators of BFS, PLC, and BL instituted proceedings in London against D&T and C&L for negligence.
A settlement was reached with C&L, setting aside £24 million to continue proceedings against D&T.
The Singapore Public Accountancy Board initiated an inquiry against Mr. Mah of D&T but ruled he was not guilty of misconduct.
D&T sought reliefs concerning the incorporation of Article 110 and the extent and priority of indemnity costs.

5. Formal Citations

Chaly Chee Kheong Mah and Others v The Liquidators of Baring Futures (Singapore) Pte Ltd, CA 145/2002, [2003] SGCA 28

6. Timeline

Date	Event
1986-09-17	Baring Futures (Singapore) Pte Ltd incorporated
1986-10-06	BFS's solicitors sent a letter to D&T to appoint them as auditors
1986-10-15	Board of Directors of BFS passed a resolution to appoint D&T as auditors
1994-01-01	D&T ceased to be the auditors of BFS and Coopers & Lybrand, Singapore was appointed
1995-01-01	Massive losses incurred due to fraudulent activities, leading to the collapse of the Barings group
2001-11-16	Singapore Public Accountancy Board ruled that Mr. Mah had not been guilty of any professional misconduct
2003-07-07	Court of Appeal decision

7. Legal Issues

Incorporation of Contractual Terms
- Outcome: The court held that Article 110 of the Articles of Association of BFS was incorporated into the contract between BFS and D&T.
- Category: Substantive
- Sub-Issues:
  - Implied terms
  - Construction of contract
- Related Cases:
  - [1925] CH 407
  - [1892] 2 CH 158
  - [2002] 1 WLR 953
Scope of Indemnity
- Outcome: The court held that the indemnity provided in Article 110 did not extend to costs incurred by D&T in defending the BFS action.
- Category: Substantive
- Sub-Issues:
  - Interpretation of indemnity clauses
  - Extent of liability
- Related Cases:
  - [1999] Lloyd’s Rep 86
  - (1935) SC 1
Priority of Indemnity Costs in Winding Up
- Outcome: The court held that the indemnity element of any costs awarded to D&T pursuant to Article 110 would not be entitled to priority under the Estate Costs Rule.
- Category: Procedural
- Sub-Issues:
  - Estate Costs Rule
  - Liquidation expense principle
  - Pari passu principle
- Related Cases:
  - (1880) 14 Ch D 167
  - [2002] 1WLR 671
  - [1970] 1 WLR 702
  - (1975) 31 P&CR 249
  - [1974] 1 WLR 1460
  - 4 De GJ&S 377
  - LR 6 Ch App 462
  - [1992] CH 505

8. Remedies Sought

Indemnity for costs incurred in defending actions
Priority of indemnity costs against other claims in winding up

9. Cause of Actions

Negligence
Breach of Contract

10. Practice Areas

Commercial Litigation
Insolvency Litigation

11. Industries

Accounting
Finance

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
In re City Equitable Fire Insurance Company	High Court	Yes	[1925] CH 407	England and Wales	Discusses the incorporation of articles of association into a contract with auditors in the absence of special terms of engagement.
Isaacs’ Case	High Court	Yes	[1892] 2 CH 158	England and Wales	Inferred an agreement between a director and the company based on the articles of association regarding qualification shares.
John & Ors v Price Waterhouse (a firm) and Anor	High Court	Yes	[2002] 1 WLR 953	England and Wales	Discusses the incorporation of articles of association into a contract with auditors regarding indemnity costs.
Gomba Holdings (UK) Ltd v Minorities Finance Ltd (No. 2)	Court of Appeal	Yes	[1993] CH 171	England and Wales	Addressed the issue of claiming costs on an indemnity basis pursuant to contractual rights after orders were made for costs on the standard basis.
In re New British Iron Company ex parte Beckwith	High Court	Yes	[1898] 1 CH 324	England and Wales	Directors accepted their appointment on the footing of the articles.
Hickman v Kent Or Romney Marsh Sheep-Breeders’ Association	High Court	Yes	[1915] 1 CH 881	England and Wales	Articles of association constitute a contract between a company and its members and they do not bind third parties.
David John Rowland & Ors v Gulfpac Limited	High Court	Yes	[1999] Lloyd’s Rep 86	England and Wales	Interpreted an indemnity clause in articles of association regarding costs incurred in defending actions.
Tomlinson v Adamson	Court of Session	Yes	(1935) SC 1	Scotland	Addressed whether costs of successfully defending a prosecution for fraud fall within an indemnity clause.
In re Famatina Development Corporation Limited	Court of Appeal	Yes	[1914] 2 CH 271	England and Wales	Discusses the common law principle that an agent is entitled to be indemnified by his principal.
Re Home Investment Society	High Court	Yes	(1880) 14 Ch D 167	England and Wales	Rationale for the Estate Costs Rule.
In re Toshoku Finance UK plc	House of Lords	Yes	[2002] 1WLR 671	England and Wales	Clarified that the liability to pay rent had been incurred by the company before the winding up for the whole term of the lease.
In re ABC Coupler and Engineering Co Ltd (No 3)	High Court	Yes	[1970] 1 WLR 702	England and Wales	Illustrates the restrictive application of the principle.
In re HH Realisations Ltd	High Court	Yes	(1975) 31 P&CR 249	England and Wales	Illustrates the restrictive application of the principle.
In re Downer Enterprises Ltd	High Court	Yes	[1974] 1 WLR 1460	England and Wales	Illustrates the restrictive application of the principle.
Exhall Coal Mining Co Ltd	Court of Appeal in Chancery	Yes	4 De GJ&S 377	England and Wales	Principle evolved from this case.
Lundy Granite Co	Court of Appeal in Chancery	Yes	LR 6 Ch App 462	England and Wales	Principle evolved from this case.
Re Atlantic Computers System plc	Court of Appeal	Yes	[1992] CH 505	England and Wales	The principle applies also to continuing obligations under existing contracts such as leases which the liquidator chooses to continue for the benefit of the winding up.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Companies Act	Singapore
s 172(1) of the Companies Act	Singapore
s 172(2) of the Companies Act	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Articles of Association
Indemnity
Auditors
Liquidation
Estate Costs Rule
Liquidation expense principle
Pari passu principle
Incorporation of terms
Professional misconduct

15.2 Keywords

Contractual indemnity
Auditor liability
Incorporation of terms
Winding up
Priority of costs
Negligence claim

17. Areas of Law

Area Name	Relevance Score
Contract Law	75
Insolvency Law	70
Winding Up	70
Auditing	50
Company Law	40
Accounting	40
Evidence	30
Arbitration	10

16. Subjects

Contract Law
Company Law
Insolvency Law
Auditing