https://www.businesstimes.com.sg/companies-markets/goh-jin-hian-judgement-clarifies-scope-directors-duties-notes-observers-ruling-says-directors-should
Observers say judgment offers practical guidance by narrowing the scope of when a director should be held liable for inaction
[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”.
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.
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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.
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