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New Straits Times
5 days ago
- Business
- New Straits Times
Clarifying independent directors' obligations
Independent directors are not full-time directors like executive directors. Independent directors run the risk of having incomplete and insufficient information. Due to this, their risks are higher. The Singapore appeal case Goh Jin Hian v Inter-Pacific Petroleum (IPP) both lays down and reaffirms some of the principles on independent directors' liability. Decisions made by Commonwealth countries have a persuasive effect on Malaysian court decisions, as Malaysia too is a Commonwealth country. What's more, the other commonwealth country is just across the causeway and once shared the same DNA as Malaysia. One can discern six principles as laid down by the Singapore Appellate Division. Duty of Skill, Care, and Diligence: Scope and Threshold A director must act with reasonable care and skill, considering their position and involvement in the company's affairs. A non-executive director' duty is less onerous than that of executive directors. This makes sense, as executive directors are involved full-time in management compared to non-executive directors, who are not involved in management. The Appellate Division reaffirmed this standard: a director is "a sentinel, but not a forensic investigator or sleuth" unless clear warning signs emerge. Notably, directors cannot be held to detect every fraud—they are not expected to conduct forensic-level scrutiny in the absence of explicit red flags. The duty of care principle's implication is that directors must be reasonably informed but are not investigative by default. Awareness of Business Activities: Directors Must Understand What They Are Guarding A director must be sufficiently informed about a company's significant operations to oversee and fulfil their duties properly. On the facts of the case, the court concluded that the director had breached this duty because Goh was unaware of a major business line used as a fraud vehicle. The High Court described his ignorance as "striking at the very heart of his duty of skill, care, and diligence." The principle of knowledge requirement implies being unaware of key business lines breaches the duty. Sheer honesty, integrity, and intelligence are not substitutes for knowledge of business. Red Flags and Triggering a Duty to Inquire Whether identified events constitute red flags warranting further inquiry or whether these did not amount to clear warning signs of fraud was for the courts to decide. A director's obligation to investigate arises only when distinct and immediate signs point to wrongdoing—not merely when unusual corporate events occur. The red flags principle's implication is that only clear, specific indicators of wrongdoing would trigger the need for further inquiry. Causation: Linking Breach to Loss Is the Claimant's Burden Even where a breach of duty is found (as with a director's ignorance of the business), there must be a causal link to the loss suffered. It must be shown to the courts, on evidence, that the director's awareness—or subsequent actions—would have identified the fraud and averted the loss. An independent director could not be faulted for not acting upon red flags, but more critically, the defendant failed to prove that his breach directly caused the loss. This confirms that in director-duty cases, establishing causation is essential before damages can follow. There must be causation—the breach must be directly linked to the preventable harm for damages to follow. Creditor Duty: When the Company Is Insolvent A director's duty may extend to creditors when the company becomes insolvent or is nearing insolvency. While the High Court initially held that Goh breached his creditor duty by allowing drawdowns during near-insolvency, the Appellate Division rejected this, noting two points. Firstly, IPP failed to prove the fraud would have been discovered or the loss avoided had Goh acted differently. Secondly, though knowledge of cargo trading was lacking, no clear wrongdoing could be attributed to Goh regarding approval of these drawdowns. Thus, without proven causation, even breaches of creditor duty do not automatically give rise to liability. Creditor duty applies in insolvency but still requires causal proof. Practical and Commercial Realities in Director Oversight The court stressed its recognition of practical and commercial limits, acknowledging that directors—especially non-executives—cannot be held liable for deep-seated, well-concealed frauds without tell-tale signs. The Singapore Institute of Directors called the judgement "welcome clarity" on the true scope of directors' duties, reassuring directors that oversight does not require forensic-level diligence in the absence of warning signs. Nonetheless, the decision does not absolve directors from responsibility; ignorance and inattention—in the face of evident wrongdoing—still carry liability. There are practical limits—directors aren't expected to perform audits or detective work when there are no warning signs.
Singapore Law Watch
17-06-2025
- Business
- Singapore Law Watch
Goh Jin Hian judgment clarifies scope of directors' duties, notes observers as ruling says directors should be a ‘sentinel', not a ‘sleuth'
Goh Jin Hian judgment clarifies scope of directors' duties, notes observers as ruling says directors should be a 'sentinel', not a 'sleuth' Source: Business Times Article Date: 17 Jun 2025 Author: Ranamita Chakraborty Observers say judgment offers practical guidance by narrowing the scope of when a director should be held liable for inaction. Former Inter-Pacific Petroleum (IPP) non-executive director Goh Jin Hian's recent win in his appeal in the Appellate Division of the High Court has given 'welcome relief' to other company directors with its clarification of the scope of directors' duties. The Appellate Division in a judgment on Jun 5 overturned a previous ruling requiring Goh to pay damages of US$156 million to the insolvent marine fuel supplier after IPP's liquidators had accused him of 'sleepwalking through his time as a director'. 'Welcome relief' Adrian Chan, first vice-chair at the Singapore Institute of Directors (SID) and head of corporate at Lee & Lee, said the successful appeal was a 'welcome relief' as it clarifies the boundaries of a director's responsibilities and what qualifies as actionable 'red flags'. The judgment, he added, offers practical guidance by narrowing the scope of when a director should be held liable for inaction. Had the lower court's judgment stood, Chan believes directors could face liability even when unaware of fraud committed by peers or when financial reports show no warning signs. Kelvin Law, associate professor of accounting at Nanyang Technological University's Nanyang Business School, said that the case demonstrated that correlation does not equal causation – a mere link is insufficient. He said: 'This case is a powerful reminder that a link isn't enough as a plaintiff must prove that the director's specific failure was the direct cause of the financial loss. To obtain damages, (the) plaintiff has to show that there's a causal relationship between negligence and damage.' Boey Swee Siang, partner at law firm RPC, pointed out that while Goh's failure to be aware of the cargo trading business constituted a breach of his duty of care, the court clarified that the 'red flags' identified by the company's liquidators were insufficient to trigger an inquiry into its financials. In Goh's case, he was only required to satisfy himself within reasonable limits regarding the company's financial position. 'The non-executive director is not required to make exhaustive inquiries into individual transactions or events, so long as these transactions or events were not, on their face, of such a nature as would raise immediate concerns,' added Boey. Yee Chia Hsing, an independent director at several Singapore Exchange-listed companies, agreed with the judgment, saying directors cannot be expected to be better than auditors and there is a right to presume no fraud unless clear warning signs exist. 'If (there is a) need to presume fraud, a lot of resources and effort would be wasted across the entire system as directors would need to be commissioning forensic investigations from auditors on a regular basis specifically to detect fraud,' he told BT. The court ruled that although Goh breached his duty of care by failing to stay informed about IPP's cargo trading operations, this breach was not due to ignoring red flags within the company. 'Get their hands dirty' Still, SID's Chan emphasised that directors, including non-executive ones, have a duty to guide and monitor management, going beyond mere compliance. He said: 'They have to ask tough questions, roll up their sleeves and get their hands dirty. Rather than playing the role of a mere sentinel, sleuth, investigator or watchdog... a director should more appropriately look upon himself or herself as an active steward – sometimes being called upon to play all these roles and more, as the circumstances and director duties demand it.' The judgment's reference to '(a) director may be a sentinel, but he is not a forensics investigator or a sleuth' resonated with Chan, who stressed that directors cannot simply stand watch passively. 'There really is no such thing as a 'sleeping director' as a director's duty to act in the best interest of the company is an active one that doesn't ever go to sleep,' he added. RPC's Boey believes this decision serves as a reminder to independent directors of listed companies that 'they do owe a duty of care to their companies, but also sets the standard of care to a reasonable one'. Directors and officers liability insurance Beyond training, Nanyang Business School's Prof Law highlighted the importance of having directors and officers liability insurance. 'It provides the financial resources to defend themselves – which, as this case shows, can be a long and expensive process even if they are ultimately successful,' he added. Chan also advised directors to read 'the fine print, exclusions, coverage, territory, and ensure that the scope and size of the sum assured is appropriate for the size of the business'. He pointed to several high-profile cases involving non-executive directors under investigation or charged for failing to disclose material, price-sensitive information – including Hyflux, Eagle Hospitality Trust, Raffles Education and Cordlife. 'The outcomes of these cases will bring further clarity to the role of directors on listed boards, and will help shape corporate governance in Singapore,' he added. Source: The Business Times © SPH Media Limited. Permission required for reproduction. Print
Business Times
16-06-2025
- Business
- Business Times
Goh Jin Hian judgment clarifies scope of directors' duties, notes observers as ruling says directors should be a ‘sentinel', not a ‘sleuth'
[SINGAPORE] Former Inter-Pacific Petroleum (IPP) non-executive director Goh Jin Hian's recent win in his appeal in the Appellate Division of the High Court has given 'welcome relief' to other company directors with its clarification of the scope of directors' duties. The High Court in a judgement on Jun 5 overturned a previous ruling requiring Goh to pay damages of US$156 million to the insolvent marine fuel supplier after IPP's liquidators had accused him of 'sleepwalking through his time as a director'. 'Welcome relief' Adrian Chan, first vice-chair at the Singapore Institute of Directors (SID) and head of corporate at Lee & Lee, said the successful appeal was a 'welcome relief' as it clarifies the boundaries of a director's responsibilities and what qualifies as actionable 'red flags'. The judgment, he added, offers practical guidance by narrowing the scope of when a director should be held liable for inaction. Had the lower court's judgment stood, Chan believes directors could face liability even when unaware of fraud committed by peers or when financial reports show no warning signs. Kelvin Law, associate professor of accounting at Nanyang Technological University's Nanyang Business School, said that the case demonstrated that correlation does not equal causation – a mere link is insufficient. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up He said: 'This case is a powerful reminder that a link isn't enough as a plaintiff must prove that the director's specific failure was the direct cause of the financial loss. To obtain damages, (the) plaintiff has to show that there's a causal relationship between negligence and damage.' Boey Swee Siang, partner at law firm RPC, pointed out that while Goh's failure to be aware of the cargo trading business constituted a breach of his duty of care, the court clarified that the 'red flags' identified by the company's liquidators were insufficient to trigger an inquiry into its financials. In Goh's case, he was only required to satisfy himself within reasonable limits regarding the company's financial position. 'The non-executive director is not required to make exhaustive inquiries into individual transactions or events, so long as these transactions or events were not, on their face, of such a nature as would raise immediate concerns,' added Boey. Yee Chia Hsing, an independent director at several SGX-listed companies, agreed with the judgment, saying directors cannot be expected to be better than auditors and there is a right to presume no fraud unless clear warning signs exist. 'If (there is a) need to presume fraud, a lot of resources and effort would be wasted across the entire system as directors would need to be commissioning forensic investigations from auditors on a regular basis specifically to detect fraud,' he told BT. The court ruled that although Goh breached his duty of care by failing to stay informed about IPP's cargo trading operations, this breach was not due to ignoring red flags within the company. 'Get their hands dirty' Still, SID's Chan emphasised that directors, including non-executive ones, have a duty to guide and monitor management, going beyond mere compliance. He said: 'They have to ask tough questions, roll up their sleeves and get their hands dirty. Rather than playing the role of a mere sentinel, sleuth, investigator or watchdog... a director should more appropriately look upon himself or herself as an active steward – sometimes being called upon to play all these roles and more, as the circumstances and director duties demand it.' The judgment's reference to '(a) director may be a sentinel, but he is not a forensics investigator or a sleuth' resonated with Chan, who stressed that directors cannot simply stand watch passively. 'There really is no such thing as a 'sleeping director' as a director's duty to act in the best interest of the company is an active one that doesn't ever go to sleep,' he added. RPC's Boey believes this decision serves as a reminder to independent directors of listed companies that 'they do owe a duty of care to their companies, but also sets the standard of care to a reasonable one'. Directors and officers liability insurance Beyond training, Nanyang Business School's Prof Law highlighted the importance of having directors and officers liability insurance. 'It provides the financial resources to defend themselves – which, as this case shows, can be a long and expensive process even if they are ultimately successful,' he added. Chan also advised directors to read 'the fine print, exclusions, coverage, territory, and ensure that the scope and size of the sum assured is appropriate for the size of the business'. He pointed to several high-profile cases involving non-executive directors under investigation or charged for failing to disclose material, price-sensitive information – including Hyflux, Eagle Hospitality Trust, Raffles Education and Cordlife. 'The outcomes of these cases will bring further clarity to the role of directors on listed boards, and will help shape corporate governance in Singapore,' he added.
Business Times
16-06-2025
- Business
- Business Times
Goh Jin Hian judgement clarifies scope of directors' duties, notes observers as ruling says directors should be a ‘sentinel', not a ‘sleuth'
[SINGAPORE] Former Inter-Pacific Petroleum (IPP) non-executive director Goh Jin Hian's recent win in his appeal in the Appellate Division of the High Court has given 'welcome relief' to other company directors with its clarification of the scope of directors' duties. The High Court in a judgement on Jun 5 overturned a previous ruling requiring Goh to pay damages of US$156 million to the insolvent marine fuel supplier after IPP's liquidators had accused him of 'sleepwalking through his time as a director'. 'Welcome relief' Adrian Chan, first vice-chair at the Singapore Institute of Directors (SID) and head of corporate at Lee & Lee, said the successful appeal was a 'welcome relief' as it clarifies the boundaries of a director's responsibilities and what qualifies as actionable 'red flags'. The judgment, he added, offers practical guidance by narrowing the scope of when a director should be held liable for inaction. Had the lower court's judgment stood, Chan believes directors could face liability even when unaware of fraud committed by peers or when financial reports show no warning signs. Kelvin Law, associate professor of accounting at Nanyang Technological University's Nanyang Business School, said that the case demonstrated that correlation does not equal causation – a mere link is insufficient. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up He said: 'This case is a powerful reminder that a link isn't enough as a plaintiff must prove that the director's specific failure was the direct cause of the financial loss. To obtain damages, (the) plaintiff has to show that there's a causal relationship between negligence and damage.' Boey Swee Siang, partner at law firm RPC, pointed out that while Goh's failure to be aware of the cargo trading business constituted a breach of his duty of care, the court clarified that the 'red flags' identified by the company's liquidators were insufficient to trigger an inquiry into its financials. In Goh's case, he was only required to satisfy himself within reasonable limits regarding the company's financial position. 'The non-executive director is not required to make exhaustive inquiries into individual transactions or events, so long as these transactions or events were not, on their face, of such a nature as would raise immediate concerns,' added Boey. Yee Chia Hsing, an independent director at several SGX-listed companies, agreed with the judgment, saying directors cannot be expected to be better than auditors and there is a right to presume no fraud unless clear warning signs exist. 'If (there is a) need to presume fraud, a lot of resources and effort would be wasted across the entire system as directors would need to be commissioning forensic investigations from auditors on a regular basis specifically to detect fraud,' he told BT. The court ruled that although Goh breached his duty of care by failing to stay informed about IPP's cargo trading operations, this breach was not due to ignoring red flags within the company. 'Get their hands dirty' Still, SID's Chan emphasised that directors, including non-executive ones, have a duty to guide and monitor management, going beyond mere compliance. He said: 'They have to ask tough questions, roll up their sleeves and get their hands dirty. Rather than playing the role of a mere sentinel, sleuth, investigator or watchdog... a director should more appropriately look upon himself or herself as an active steward – sometimes being called upon to play all these roles and more, as the circumstances and director duties demand it.' The judgment's reference to '(a) director may be a sentinel, but he is not a forensics investigator or a sleuth' resonated with Chan, who stressed that directors cannot simply stand watch passively. 'There really is no such thing as a 'sleeping director' as a director's duty to act in the best interest of the company is an active one that doesn't ever go to sleep,' he added. RPC's Boey believes this decision serves as a reminder to independent directors of listed companies that 'they do owe a duty of care to their companies, but also sets the standard of care to a reasonable one'. Directors and officers liability insurance Beyond training, Nanyang Business School's Prof Law highlighted the importance of having directors and officers liability insurance. 'It provides the financial resources to defend themselves – which, as this case shows, can be a long and expensive process even if they are ultimately successful,' he added. Chan also advised directors to read 'the fine print, exclusions, coverage, territory, and ensure that the scope and size of the sum assured is appropriate for the size of the business'. He pointed to several high-profile cases involving non-executive directors under investigation or charged for failing to disclose material, price-sensitive information – including Hyflux, Eagle Hospitality Trust, Raffles Education and Cordlife. 'The outcomes of these cases will bring further clarity to the role of directors on listed boards, and will help shape corporate governance in Singapore,' he added.
Singapore Law Watch
06-06-2025
- Business
- Singapore Law Watch
Ex-IPP director Goh Jin Hian wins appeal, court says firm failed to prove his breach caused losses
Ex-IPP director Goh Jin Hian wins appeal, court says firm failed to prove his breach caused losses Source: Straits Times Article Date: 06 Jun 2025 Author: Grace Leong The court concluded that this was a case of 'a deep-seated fraud'. The Appellate Division of the High Court has found Goh Jin Hian, a former director of insolvent marine fuel supplier Inter-Pacific Petroleum (IPP), is not liable to pay US$146 million (S$187.9 million) plus interest in compensation for losses suffered by the firm. In overturning a lower court ruling that found Goh was not entitled to relief from liability, the Appellate Division wrote: 'While we agree with the (High Court) judge that Dr Goh had breached the care duty by reason of his ignorance of the cargo trading business, IPP has failed to show... that the breach caused the loss in question.' Goh, the son of former prime minister Goh Chok Tong, served as a director of IPP from June 28, 2011 to Aug 12, 2019. The court clarified that 'it cannot be part of a director's duty of supervision and oversight to pick up fraud unless there are telltale warning signs'. A 63-page ruling delivered on June 5 by Justice Kannan Ramesh, a judge of the Appellate Division, stated: 'A director may be a sentinel, but he is not a forensics investigator or a sleuth, unless there are signs that would put him on inquiry.' The other two judges presiding were justices Tay Yong Kwang and Woo Bih Li. 'It does not follow that where a director has fallen asleep at the wheel, any or all losses occasioned to the company during the slumber should be vested on the director. Where the director has breached the duty of care, skill and diligence, the burden is on the company to prove that the breach has caused the loss suffered by the company,' the court ruled. Senior Counsel Thio Shen Yi of TSMP Law Corporation, who represented Goh, noted that the latest decision is an important clarification on the law of the duties of directors. 'Dr Goh has always maintained that his conduct caused no avoidable loss to IPP, and we believe he has been vindicated. This is an important decision that has practical implications for all directors,' said Mr Thio, who acted for Goh with Ms Nanthini Vijayakumar, a partner of TSMP Law. Deloitte & Touche, IPP's judicial managers turned liquidators, had sued Goh to recover US$156 million in losses, accusing him of 'sleepwalking through his time as a director', and failing to discover and stop drawdowns in trade financing between June and July 2019 to fund alleged non-existent or sham transactions. IPP alleged that Goh failed to act reasonably in the face of three 'red flags' – an audit confirmation request signed by Goh specifying receivables allegedly owed by Mercuria Energy Trading to IPP, the suspension of IPP's bunker craft operator licence, and three confirmations of indebtedness signed by Goh and sent to Maybank. High Court Justice Aedit Abdullah had found that Goh was not entitled to relief from liability because of 'the egregiousness of his breaches of duty, chief among which was his ignorance as to IPP's cargo trading business' – a 'vehicle of fraud' that had 'disastrous consequences' for the company. 'It was through his combination of misfeasance and nonfeasance, in failing to even be aware of IPP's cargo trading business, that the fraudsters were able to use IPP's cargo trading business as a vehicle of fraud in the first place,' Justice Aedit said in his grounds of decision in July 2024. Goh had appealed against the ruling in February 2024 that found him liable for breach of director's duties and statutory duties and losses suffered by IPP. In allowing Goh's appeal, the Appellate Division found that the three purported red flags IPP relied on 'were not in fact red flags that would have put Goh on a train of inquiry leading to the fraud in the cargo trading business being uncovered, and the loss thereby averted'. The court concluded that this was a case of 'a deep-seated fraud'. Although Goh was not aware of the cargo trading business, the court ruled that 'it does not follow that if Goh had been aware of the cargo trading business, he would have discovered the fraud and thereby put a stop to it'. The court ruled: 'There is no suggestion by IPP there were any, apart from the 'red flags', which we have concluded were not in fact red flags. Further, there was no allegation that the auditor and IPP's financial manager alerted Goh of any issues with the accounts, or that the monthly management accounts and financial statements suggested anything untoward. 'Thus, there is nothing to the point that if Goh had been aware of the cargo trading business, he would have exercised oversight in a manner which would have picked up the fraud and averted the loss.' Mr Thio said: 'Directors owe fiduciary obligations and duties of care to a company, but the Appeals Court has crucially recognised the practical and commercial limits to their ability to scrutinise for and detect fraud, especially deep-seated fraud. This acknowledges the complex commercial realities that directors often operate in.' Mr Terence Quek, chief executive of the Singapore Institute of Directors, noted that the High Court's decision 'was alarming to the general director community as it suggested that directors of all stripes can be held personally liable for losses caused by fraud committed by other directors'. 'That is likely to have caused concern to many executive and non-executive directors in MNC (multinational corporation) subsidiaries (and) family-owned companies,' he said. 'This decision provides much welcome clarity on the true scope of directors' duties in a private company. The ruling recognises that while directors must exercise care and diligence, they cannot be held personally liable for every act of misconduct – particularly when committed by others under difficult-to-detect circumstances,' he added. 'But the judgment is also sobering, as it recognised that Goh did breach his director duties.' Source: The Straits Times © SPH Media Limited. Permission required for reproduction. Goh Jin Hian v Inter-Pacific Petroleum Pte Ltd (in liquidation) [2025] SGHC(A) 7 Print
