Dr Goh Jin Hian has won his appeal against Inter-Pacific Petroleum Pte Ltd (IPP) after the High Court previously awarded IPP of US$146.1 million.
IPP previously commenced proceedings against Goh for allegedly breaching his duties as a director to act with care, skill and diligence and in the best interests of IPP’s creditors (creditor duty).
Goh was alleged to have failed to discover and stop drawdowns in trade financing between June 2019 and July 2019 to fund alleged non-existent or sham transactions.
At the time, IPP claimed that Goh was an executive director of the company and should’ve been held to a higher standard of care compared to a non-executive director. Either way, Goh should’ve “taken reasonable steps” to guide and monitor the company’s affairs and management.
IPP also alleged Goh breached the duty of care for two main reasons: that he was unaware of the cargo trading business and that he should have acted “with reasonable skill and care” in respect of the three “red flags” that concerned the cargo trading business.
If he had done so, Goh would have enquired into IPP’s financial position, which may have resulted in the sham cargo trades being uncovered.
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The red flags were an audit confirmation request signed by Goh and sent to Mercuria Energy Trading supplying receivables that were due and owing to the latter on Feb 7, 2018; the suspension of IPP’s bunker craft operator licence on June 27, 2019; and three confirmations of indebtedness signed by Goh on July 17 and July 24 in 2019, which was sent to Maybank shortly before IPP applied to be placed under judicial management.
In his defence, Goh said he intentionally transitioned to the role of a non-executive director of IPP from July 2015 and as such, he was subject to a lower standard of care, especially “in relation to the monitoring and supervision of IPP’s affairs”.
He added that he was not aware of IPP’s cargo trading business and that the so-called three red flags were insufficient to put him on a train of inquiry. Finally, Goh said he was unlikely to have discovered the sham cargo trades and prevented the loss arising from the cargo drawdowns even if he were to discharge his duty of care.
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Having considered both submissions, the High Court has “allowed the appeal” and that the three “red flags” were not red flags that would have put Goh on a train of inquiry.
“We are therefore of the view that Dr Goh did not breach the care duty by reason of his conduct in relation to the red flags,” reads the statement. “In the round, we agree with the judge to the extent that Dr Goh breached the care duty because he was not aware of the cargo trading business. However, we depart from the judge’s finding that Dr Goh breached the care duty as regards the red flags.”
Furthermore, Goh was not “equipped” to make the requisite enquiries a director is under a duty to make given he did not know what to ask and “could not act as a sentinel because he did not even know what he was guarding”.
In conclusion, the judges presiding over the appeal said Goh had breached the duty of care due to ignorance of the cargo trading business, but IPP failed to show that the breach caused the loss in question. Goh could also not be blamed for not doing his duty with regard to the purported red flags. He should not be blamed for breaching the creditor duty in relation to the cargo drawdowns.
Goh, the son of former Prime Minister Goh Chok Tong, was a director of IPP between June 28, 2011 and Aug 12, 2019, when he resigned. IPP was incorporated in Singapore on June 28, 2011. It was placed under judicial management on Sept 4, 2019, and in compulsory liquidation on March 25, 2021. The company had two businesses - the cargo trading business, which involved the back-to-back purchase and sale of fuel oil, as well as the bunker trading business which buys and delivers fuel by IPP ex-wharf in bulk.
The Singapore Institute of Directors (SID) said the decision provided “much welcome” clarity on the true scope of directors’ duties in a private company.
The body added that the lower court’s earlier decision was “alarming” to the general director community as it suggested that all directors can be held personally liable for losses caused by fraud by other directors.
However, the appeal judgement was also “sobering” since it recognised that Goh did breach his duties as a director.
“There are many lessons for practising directors in this lengthy judgement, and the Singapore Institute of Directors will be spending some time studying it to break down the practical impact and consequences for directors in Singapore,” concludes the statement.
