One For The Books – Singapore Court Of Appeal Clarifies The Limits Of Auditor Liability

Summary

In Deloitte & Touche LLP v Hin Leong Trading (Pte) Ltd [2026] SGCA 33, the Singapore Court of Appeal struck out a US$2.6 billion claim for trading losses brought by Hin Leong Trading (Pte) Ltd (in compulsory liquidation) ("HLT") against its former auditor, Deloitte & Touche LLP ("Deloitte"). 

In a landmark decision by a 5-judge coram, the Court held that even assuming HLT’s pleaded case that Deloitte had negligently failed to detect the fraud and material misstatements in HLT’s financial statements, the trading losses HLT sustained while insolvent were too remote to be recoverable.

The Court of Appeal also took the opportunity to restate the conceptual structure of professional negligence liability — delineating the separation of duty, breach, and remoteness — and made a definitive ruling that the controversial SAAMCo principle (established in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191) does not apply in Singapore, its purpose being already served by orthodox Hadley v Baxendale remoteness rules.

For claimants, the decision reinforces that a duty of care does not make a professional an insurer of the client's business. The limits of a professional’s liability will very much depend on the purpose of their engagement and the responsibility assumed in that regard — the professional is not exposed to the full chain of "but for" consequences of any negligent act (even if such was proved) in the course of their engagement.

Background

Deloitte was engaged as HLT's external auditor from at least 2003 until September 2020 and issued unqualified opinions for at least FY2014 through FY2019. At all material times, control of HLT was concentrated in the hands of Mr OK Lim and his family members, who were HLT's sole directors and shareholders.

Following HLT's collapse in April 2020, liquidators uncovered that HLT's audited financial statements from FY2014 to FY2019 contained material misstatements, including the recording of fictitious profits and the overstatement of accounts receivable and inventory. It appears that HLT had been insolvent from as early as 2012. The overstatement of HLT’s financial position enabled HLT to continue to obtain loans, continue trading and further incur losses until it entered insolvency proceedings in 2020.

The liquidators brought proceedings against Deloitte claiming damages for professional negligence. The most significant head of loss was a claim for US$2.6 billion in trading losses incurred between November 2015 and mid-April 2020. This was the period during which HLT continued to trade while Deloitte issued unqualified audit opinions on financial statements that did not reflect HLT's true financial position. HLT’s case was that, but for Deloitte's negligence in failing to detect and report the misstatements, HLT would have been put into liquidation at an earlier point in time and would not have continued to incur further losses that deepened its insolvency.

Deloitte applied to strike out HLT's claim for trading losses. A key plank of its arguments was that even if Deloitte had uncovered the misstatements, it would have made no difference as the perpetrators of the fraud were the same directors and management in control of HLT. Both the Assistant Registrar and the High Court Judge found in favour of HLT. Deloitte obtained permission to appeal to the Court of Appeal, which directed that the appeal proceed as a summary determination of two questions of law.

The Court of Appeal's decision

The appeal raised two issues:

• First, whether Deloitte's duty of care included a duty to have regard to the interests of HLT's creditors, assuming HLT was insolvent at the time of the audits (the "Creditor Duty Question").
• Second, whether HLT's trading losses were recoverable in law from Deloitte in the event that breach of duty was established (the "Trading Losses Question").

The Creditor Duty Question

The Court of Appeal declined to answer the Creditor Duty Question, holding that it was academic. The Court of Appeal observed that the "Creditor Duty" label was a misnomer in the context of auditors. Unlike directors, who exercise fiduciary powers and discretion over the company's dealings and affairs, auditors have no involvement in decision-making or operations of the company. The formula that an auditor has a duty to "have regard to the interests of creditors" was therefore held to be ‘unintelligible’ in the auditor context, and the analogy to directors' duties inapposite.

The Trading Losses Question

The Court of Appeal allowed the appeal in part and struck out HLT's claim for trading losses, holding that these were too remote to be recoverable from Deloitte. The Court's reasoning rested on two grounds:

• First, Deloitte had no involvement in HLT's trading activities. It had no oversight over HLT's trading strategies and gave no input on trading methodologies. It was inconceivable that an auditor performing a statutory audit could be taken to have assumed liability for losses whose occurrence depended on market movements and management decisions over which the auditor had no control or input.
• Second, the statutory context was relevant. The statutory framework for wrongful and fraudulent trading under the Companies Act only imposed liability on persons with actual knowledge of the relevant conduct. HLT's negligence claim effectively sought to impose liability for trading losses based on a lower degree of knowledge than that fixed by statute. It was unlikely that Deloitte would have assumed responsibility for such losses on that basis.

Clarification of the SAAMCo principle

In reaching its decision on the Trading Losses Question, the Court of Appeal took the opportunity to clarify the proper analytical framework for determining the scope of a defendant's legal responsibility and sought to separate the conflation of the existence of duty of care, breach, causation and remoteness.

In English jurisprudence, the SAAMCo principle is treated as a doctrine with a distinct identity which applies in the specific context of professional negligence or situations analogous to it. It purports to limit a professional's liability by defining the "scope of duty" as excluding certain losses.

The Court of Appeal found it unnecessary to adopt the SAAMCo principle on the basis that the inherent unfairness of near unlimited liability for losses could be also ameliorated by the orthodox Hadley v Baxendale contractual remoteness rules — which limit recoverable loss to that which was within the defendant's reasonable contemplation at the time of contracting. 

The rejection of SAAMCo as a standalone principle represents a departure from the position in England, where the UK Supreme Court in Manchester Building Society v Grant Thornton UK LLP [2022] AC 783 treated SAAMCo as a doctrine with a distinct identity in the professional negligence context. In this landmark decision, Singapore's Court of Appeal has charted its own course, avoiding an "unnecessary proliferation of novel doctrines and principles".

Key takeaways

For auditors and professional advisers

Auditors and professionals owe a duty of care to their client companies. However, this duty of care does not render a professional an insurer of the client's business. Liability from this duty does not extend to the entire chain of "but for" consequences that may flow from any negligent conduct. The principle of remoteness circumscribes what losses are recoverable, and this depends on, among other things, the purpose of the professional's engagement and the responsibility assumed in that regard. As this case demonstrates, an auditor performing a statutory audit will not be taken to have assumed responsibility for losses arising from the company's trading activities, over which the auditor has no control or involvement.

Further, while the duty to have regard to the interests of creditors when the company is insolvent is well-established in the context of a director’s fiduciary obligations, this concept does not automatically translate to auditors and professionals. Auditors and professionals are not fiduciaries and have no involvement in corporate decision-making or the exercise of discretionary powers. The touchstone of an auditor's liability remains whether its conduct fell below the objective standard of a reasonably skilled and competent auditor, and not whether it gave subjective consideration to the interests of any particular class of stakeholders.

For companies and liquidators

The trading losses represented only one of three heads of loss claimed by HLT. The remaining claims — for wrongful dividends declared by the Lim family (US$90 million) and audit engagement fees paid to Deloitte (S$612,000) — were not struck out and will proceed to trial. Liquidators pursuing auditor negligence claims should therefore monitor the outcome of those proceedings closely.

For claimants seeking to pursue negligence claims

The careful and proper framing of claims is essential. The Court emphasised that litigants in negligence disputes must correctly identify which element of the negligence framework their arguments engage.

Conflating duty of care with breach, or duty of care with remoteness, risks obscuring the true issues and may lead to adverse outcomes. In particular, parties should resist the temptation to formulate specific obligations (e.g., a "duty to report" or a "duty to have regard to creditors' interests") as standalone duties of care, when they are in substance arguments as to the content of the standard of care and whether the defendant's conduct fell short of it.