PlanAssure PAC v Gaelic Inns: Auditor Negligence & Duty to Detect Fraud
PlanAssure PAC (formerly Patrick Lee PAC) appealed a High Court decision awarding Gaelic Inns Pte Ltd damages for negligence in audits performed by PlanAssure. The Court of Appeal of Singapore, comprising Chan Sek Keong CJ, Andrew Phang Boon Leong JA, and V K Rajah JA, heard the appeal on 30 August 2007. The primary legal issue was whether PlanAssure, as auditors, had a duty to detect fraud and whether they breached that duty, causing financial loss to Gaelic Inns. The Court of Appeal allowed the appeal in part, finding PlanAssure negligent but also holding Gaelic Inns contributorily negligent, reducing the damages awarded.
1. Case Overview
1.1 Court
Court of Appeal1.2 Outcome
Appeal Allowed in Part
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
PlanAssure PAC appealed a judgment finding them negligent in auditing Gaelic Inns, failing to detect fraud. The Court of Appeal allowed the appeal in part.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| PlanAssure PAC (formerly known as Patrick Lee PAC) | Appellant | Corporation | Appeal allowed in part | Partial | Ang Cheng Hock, Kenneth Lim Tao Chung |
| Gaelic Inns Pte Ltd | Respondent | Corporation | Damages awarded | Partial | Philip Fong, Navin Joseph Lobo, Bernice Tan |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Chan Sek Keong | Chief Justice | No |
| Andrew Phang Boon Leong | Justice of the Court of Appeal | No |
| V K Rajah | Justice of the Court of Appeal | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Ang Cheng Hock | Allen & Gledhill |
| Kenneth Lim Tao Chung | Allen & Gledhill |
| Philip Fong | Harry Elias Partnership |
| Navin Joseph Lobo | Harry Elias Partnership |
| Bernice Tan | Harry Elias Partnership |
4. Facts
- PlanAssure PAC was engaged as Gaelic Inns Pte Ltd's statutory auditors for financial years 2001, 2002, and 2003.
- Denise Ang, Gaelic Inns' former group finance manager, misappropriated funds between 2001 and 2004 using a 'teeming and lading' scheme.
- Ang delayed banking in cash sales and used the cash for personal benefit, covering the shortfall with later sales.
- Ang's misappropriation was detected in May 2004; the total misappropriated was $1,006,115.12.
- The December 2003 bank reconciliation statement showed substantial unlodged cash deposits of $672,253.94.
- Phong Wai Lee, an audit manager at PlanAssure, saw the December 2003 bank reconciliation statement but did not investigate the unlodged deposits immediately.
- Gaelic Inns sued PlanAssure for negligence, alleging failure to detect Ang's misappropriations during the audits.
5. Formal Citations
- PlanAssure PAC (formerly known as Patrick Lee PAC) v Gaelic Inns Pte Ltd, CA 2/2007, [2007] SGCA 41
6. Timeline
| Date | Event |
|---|---|
| Patrick Lee & Co. established | |
| Engagement letter between PlanAssure PAC and Gaelic Inns Pte Ltd | |
| Audit for financial year 2001 | |
| Audit for financial year 2002 | |
| Patrick Lee & Co. converted to PlanAssure PAC | |
| Audit for financial year 2003 | |
| Start of period for which Ang was charged with misappropriation | |
| Phong Wai Lee saw the bank reconciliation statement for December 2003 | |
| Court of Appeal determined PlanAssure PAC breached duty of care | |
| End of period for which Ang was charged with misappropriation | |
| Maggie Seah detected Ang’s misappropriation of funds | |
| Gaelic Inns Pte Ltd lodged a police report | |
| Ang's employment with Gaelic Inns Pte Ltd terminated | |
| Ang was arrested | |
| Gaelic Inns Pte Ltd commenced suit against PlanAssure PAC | |
| Judgment reserved by Court of Appeal |
7. Legal Issues
- Duty of Care
- Outcome: The court found that the auditor owed a duty of care to the company.
- Category: Substantive
- Sub-Issues:
- Scope of duty
- Breach of duty
- Related Cases:
- [1990] 2 AC 605
- Negligence
- Outcome: The court found the auditor negligent in failing to detect the fraud.
- Category: Substantive
- Sub-Issues:
- Failure to detect fraud
- Breach of duty of care
- Causation
- Causation
- Outcome: The court found that the auditor's negligence caused the company's loss.
- Category: Substantive
- Sub-Issues:
- Effective cause of loss
- Intervening act
- Contributory Negligence
- Outcome: The court found the company contributorily negligent, reducing the damages awarded.
- Category: Substantive
- Sub-Issues:
- Failure to supervise
- Failure to implement internal controls
- Admissibility of Evidence
- Outcome: The court considered the admissibility of evidence from criminal proceedings.
- Category: Procedural
- Sub-Issues:
- Relevance of admission made in criminal proceedings
8. Remedies Sought
- Monetary Damages
9. Cause of Actions
- Negligence
10. Practice Areas
- Commercial Litigation
- Auditing
- Professional Negligence
11. Industries
- Accounting
- Hospitality
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Gaelic Inns Pte Ltd v Patrick Lee PAC | High Court | No | [2007] 2 SLR 146 | Singapore | The case under appeal; the Court of Appeal is reviewing the High Court's decision. |
| In re Kingston Cotton Mill Company (No 2) | Court of Appeal | No | [1896] 2 Ch 279 | England and Wales | Cited for the principle that an auditor is not bound to be a detective or approach work with suspicion. |
| Dairy Containers Ltd v NZI Bank Ltd | High Court | Yes | [1995] 2 NZLR 30 | New Zealand | Cited to establish that a limitation clause in an engagement letter does not preclude liability for negligence. |
| JSI Shipping (S) Pte Ltd v Teofoongwonglcloong | Court of Appeal | Yes | [2007] SGCA 40 | Singapore | Cited for the factors to consider when assessing the standard of care expected of an auditor. |
| Pacific Acceptance Corporation Ltd v Forsyth | Supreme Court of New South Wales | Yes | [1970] 92 WN (NSW) 29 | Australia | Cited for the principle that an auditor must pay due regard to the possibility of error or fraud. |
| In re London and General Bank (No 2) | Court of Appeal | Yes | [1895] 2 Ch 673 | England and Wales | Cited for the principle that an auditor is duty-bound to ascertain and state the true financial position of the company. |
| Fomento (Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd | House of Lords | Yes | [1958] 1 WLR 45 | United Kingdom | Cited for the principle that an auditor must come to the task with an inquiring mind. |
| International Laboratories Ltd v Dewar | Manitoba Court of Appeal | No | [1933] 3 DLR 665 | Canada | Cited to show that the scope of an auditor's duty is limited by the terms of engagement and remuneration. |
| Sasea Finance Ltd v KPMG | High Court | Yes | [2000] 1 All ER 676 | England and Wales | Cited for the principle that an auditor should clarify whether a fraud has occurred if the possible existence of a fraud is identified. |
| Bolam v Friern Hospital Management Committee | High Court | No | [1957] 1 WLR 582 | England and Wales | Cited in relation to the Bolam test, regarding the standard of care. |
| Bolitho v City and Hackney Health Authority | House of Lords | Yes | [1998] AC 232 | United Kingdom | Cited in relation to the Bolitho addendum, regarding the standard of care. |
| Caparo Industries plc v Dickman | House of Lords | Yes | [1990] 2 AC 605 | United Kingdom | Cited for the principle of the scope of duty doctrine. |
| South Australia Asset Management Corporation v York Montague Ltd | House of Lords | Yes | [1997] AC 191 | United Kingdom | Cited for the principle of the scope of duty doctrine. |
| Sunny Metal & Engineering Pte Ltd v Ng Khim Ming Eric | Court of Appeal | Yes | [2007] SGCA 36 | Singapore | Cited for the application of the two-step test to determine the issue of causation. |
| Flint v Lovell | Court of Appeal | Yes | [1935] 1 KB 354 | England and Wales | Cited as the starting point in an inquiry as to whether an appellate court is justified in interfering with a trial judge’s assessment of damages. |
| Mohamed Hiraz Hassim v PP | High Court | Yes | [2005] 1 SLR 622 | Singapore | Cited for the caution against the blanket acceptance of an admission by an accused where the value of certain goods was in question. |
| Ong Bee Nah v Won Siew Wan | High Court | Yes | [2005] 2 SLR 455 | Singapore | Cited for the principle that a holistic approach should be taken in assessing the precise weight which should be attached to evidence from criminal proceedings. |
| Astley v Austrust Ltd | High Court of Australia | Yes | (1999) 197 CLR 1 | Australia | Cited for the guidelines propounded by the High Court of Australia in assessing whether a deduction should be made for contributory negligence. |
| Vita Health Laboratories Pte Ltd v Pang Seng Meng | High Court | Yes | [2004] 4 SLR 162 | Singapore | Cited for the principle that every director of a company, regardless of whether he has an executive or non-executive designation, has fiduciary duties and legal responsibilities to his company. |
| Re Barings plc (No 5) | Court of Appeal | Yes | [2001] 1 BCLC 523 | England and Wales | Cited for the principles relating to the duties of directors. |
| Re Barings plc | High Court | Yes | [1999] 1 BCLC 433 | England and Wales | Cited for the principles relating to the duties of directors. |
| Barings plc v Coopers & Lybrand | High Court | Yes | [2003] Lloyd’s Rep IR 566 | England and Wales | Cited for the principle that it is the responsibility of a company’s board of directors to manage all aspects of the company’s business. |
| AWA Ltd v Daniels | Supreme Court | Yes | (1992) 7 ACSR 463 | New South Wales, Australia | Cited for the principle that a deduction of 20% for contributory negligence where the plaintiff’s chairman and chief executive had become aware of various matters which should have indicated the existence of irregularities, but had failed to take appropriate action in response to such irregularities. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 1994 Rev Ed) | Singapore |
| Section 207 of the Companies Act | Singapore |
| Penal Code (Cap 224, 1985 Rev Ed) | Singapore |
| Section 408 of the Penal Code | Singapore |
| Evidence Act (Cap 97, 1997 Rev Ed) | Singapore |
| Section 45A of the Evidence Act | Singapore |
| Contributory Negligence and Personal Injuries Act (Cap 54, 2002 Rev Ed) | Singapore |
| Section 3(1) of the Contributory Negligence and Personal Injuries Act (Cap 54, 2002 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Auditor's Negligence
- Duty of Care
- Teeming and Lading
- Misappropriation
- Bank Reconciliation Statement
- Unlodged Cash Deposits
- Contributory Negligence
- Statutory Audit
- Professional Scepticism
- Internal Controls
15.2 Keywords
- auditor negligence
- duty to detect fraud
- contributory negligence
- financial misappropriation
- bank reconciliation
- PlanAssure PAC
- Gaelic Inns
16. Subjects
- Auditing
- Negligence
- Fraud
- Contributory Negligence
- Professional Liability
17. Areas of Law
- Tort
- Negligence
- Accountants and Auditors
- Professions
- Evidence
- Civil Procedure