The appellant was placed in judicial management and then in compulsory liquidation. The respondent company was the appellant’s external auditor from a least 2003 to September 2020. The respondent audited the appellant’s financial statements for the financial years 31 October 2014 to 31 October 2019.
The respondent’s auditing engagement was set out in separate engagement letters for each financial year (FY). The engagement letters between the appellant and respondent contained varying dispute resolution provisions: (i) the engagement letters for FY2008 to FY2015 did not contain express dispute resolution provisions; (ii) the engagement letters for FY2016 and FY2017 contained an exclusive jurisdiction clause in favour of the Singapore courts (Exclusive Jurisdiction Clause); (iii) the engagement letter for FY2018 contained the Exclusive Jurisdiction Clause and also a tiered dispute resolution clause culminating in a Singapore-seated SIAC arbitration (Tiered Arbitration Clause); and (iv) the last engagement letter, for FY2019, only contained the Tiered Arbitration Clause.
In April 2020, the appellant’s former managing director admitted to various irregularities in the appellant’s affairs including material misstatements in its financial statements, and the respondent withdrew its audit report for FY2019.
Prior to the commencement of the court proceedings, the respondent proposed that all claims relating to the audits for FY2014 to FY2019 be referred to arbitration. The appellant disagreed and commenced proceedings in the Singapore High Court. The appellant alleged that by failing to detect material misstatements in the audited financial statements for FY2014 to FY2019, the respondent had breached its contractual duties to audit the financial statements with reasonable care and skill and, further or alternatively, breached its tortious duty of care.
High Court decision
The respondent applied to stay the court proceedings relating to the dispute over the audits for FY2018 and FY2019 (FY2018 and FY2019 Dispute) in favour of arbitration, and an order that the dispute over the audits for FY2014 to FY2017 (FY2014 to FY2017 Dispute) be stayed pending the completion of steps in the Tiered Arbitration Clause.
The High Court judge ordered (i) a stay of the FY2018 and FY2019 Dispute in favour of arbitration, and (ii) for the FY2014 to FY2017 Dispute to be stayed, but on case management grounds pending the resolution of the putative arbitration.