JSI Shipping v Teofoongwonglcloong: Auditor's Duty & Director Misappropriation
JSI Shipping (S) Pte Ltd sued Teofoongwonglcloong (a firm) in the High Court of Singapore on 6 December 2006, alleging breach of contract and duty of care as auditors for failing to detect misappropriation of company funds by director John Riggs. The plaintiff claimed damages for losses due to the defendant's negligence in the audits for financial years 1999, 2000, and 2001. The court dismissed the action, finding that the defendant had not breached its duty or been negligent in performing the audits.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Action dismissed
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
JSI Shipping sued its auditor, Teofoongwonglcloong, for failing to detect a director's misappropriation of funds. The court dismissed the action, finding no breach of duty by the auditor.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| JSI Shipping (S) Pte Ltd | Plaintiff | Corporation | Claim Dismissed | Dismissed | Alan Loh, Edgar Chin |
| Teofoongwonglcloong (a firm) | Defendant | Partnership | Judgment for Defendant | Won | R Chandra Mohan, Celia Sia, Melvin Lum |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Lee Seiu Kin | Judge | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Alan Loh | Kelvin Chia Partnership |
| Edgar Chin | Kelvin Chia Partnership |
| R Chandra Mohan | Rajah & Tann |
| Celia Sia | Rajah & Tann |
| Melvin Lum | Rajah & Tann |
4. Facts
- The defendant was engaged as the plaintiff's auditor.
- The plaintiff claimed the defendant failed to detect misappropriation of funds by a director, Riggs.
- Riggs misappropriated funds through overpayment of salary and other benefits.
- The defendant verified Riggs' salary information by relying on Riggs' statements.
- The plaintiff alleged the defendant failed to obtain sufficient audit evidence.
- Special audits revealed misappropriations totaling $1,777,224.
- The defendant performed three unqualified audits for FY1999, FY2000, and FY2001.
5. Formal Citations
- JSI Shipping (S) Pte Ltd v Teofoongwonglcloong (a firm), Suit 874/2004, [2006] SGHC 223
6. Timeline
| Date | Event |
|---|---|
| Plaintiff incorporated as Ten-Up International Pte Ltd | |
| Riggs' initial contract provided for a salary of $12,000 per month | |
| Defendant engaged as plaintiff's auditor | |
| Riggs negotiated his salary to $22,000 per month | |
| Riggs obtained additional benefits of between $6,000 and $7,000 per month | |
| Riggs' cheque signing limit increased to $12,000 | |
| Ten-Up Hong Kong incorporated | |
| Riggs' salary was $25,000 per month | |
| Cullen terminated Riggs’ employment | |
| Plaintiff engaged NLA to conduct a special audit | |
| NLA completed the first special audit report | |
| Plaintiff filed the writ in this action | |
| NLA was instructed to carry out a special audit for the period September 1998 to December 2000 | |
| NLA completed the report for the second special audit | |
| Judgment reserved |
7. Legal Issues
- Breach of Contract
- Outcome: The court found no breach of contract by the defendant.
- Category: Substantive
- Negligence
- Outcome: The court found no negligence on the part of the defendant.
- Category: Substantive
- Auditor's Duty of Care
- Outcome: The court determined that the auditor had met its duty of care.
- Category: Substantive
8. Remedies Sought
- Damages
9. Cause of Actions
- Breach of Contract
- Negligence
10. Practice Areas
- Commercial Litigation
11. Industries
- Shipping
- Accounting
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Re Kingston Cotton Mill Co Ltd | Court of Appeal | Yes | [1896] 2 Ch 279 | England and Wales | Cited for the duty of an auditor to bring skill, care, and caution which a reasonably competent, careful, and cautious auditor would use. |
| Re London and General Bank (No. 2) | Court of Appeal | Yes | [1895] 2 Ch 673 | England and Wales | Cited for the duty of an auditor in a statutory audit is not to provide a warranty that the books correctly show the true position of the company’s affairs, but to take reasonable care to ascertain that they are so. |
| Re City Equitable Fire Insurance Co Ltd | Court of Appeal | Yes | [1925] Ch 407 | England and Wales | Cited to define the role of an auditor as one of verification and not detection. |
| Fomento (Sterling Area) Ltd. v Selsdon Fountain Pen Co Ltd | House of Lords | Yes | [1958] 1 All ER11 | England and Wales | Cited for the function of an auditor to take care to see that errors are not made, be they errors of computation, or errors of omission or commission, or downright untruths. |
| United Project Consultants Pte Ltd v Leong Kwok Onn | Court of Appeal | Yes | [2005] 4 SLR 214 | Singapore | Cited with approval the words italicised in Fomento (Sterling Area) Ltd. v Selsdon Fountain Pen Co Ltd |
| Lloyd Chyham v Littlejohn | High Court | Yes | [1987] BCLC 303 | England and Wales | Cited for the test for auditors applied at that for doctors (in Bolam v Friern Hospital Management Committee [1957] 1 WLR 582); therefore there would be no breach of duty if the auditor has acted in accordance with a practice accepted as proper by a body of skilled and responsible auditors. |
| Leeds Estate Building and Investment Co. v Shepherd | High Court of Justice | Yes | (1887) 36 Ch D 787 | England and Wales | Cited for the duty of the auditor is not to confine himself merely to the task of verifying the arithmetical accuracy of the balance-sheet, but to inquire into its substantial accuracy. |
| Deputy Secretary v Das Gupta | Unknown | Yes | [1956] AIR 414 | India | Cited for the proposition that an auditor is not entitled to simply rely on representations of management without independent verification. |
| Pacific Acceptance Corporation Ltd v Forsyth | Supreme Court of New South Wales | Yes | (1970) 92 WN 29 | Australia | Cited as an example of gross acts of negligence. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Sections 205 Companies Act | Singapore |
| Section 207 Companies Act | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Auditor
- Misappropriation
- Audit
- Director's Remuneration
- Breach of Duty
- Negligence
- Financial Statements
- Internal Control
- Audit Evidence
- Unqualified Opinion
15.2 Keywords
- Auditor
- Misappropriation
- Breach of Contract
- Negligence
- JSI Shipping
- Teofoongwonglcloong
- Singapore
- Audit
- Companies Act
16. Subjects
- Auditing
- Corporate Governance
- Financial Mismanagement
17. Areas of Law
- Auditing
- Companies Law
- Contract Law