KPMG fails to strike out parts of Hyflux’s statement of claim

KPMG has not managed to persuade the High Court to strike out parts of the statement of claim from its former client Hyflux and two of Hyflux’s units, after the auditor’s application in the lead up to trial was dismissed on Wednesday (Jul 10).

Hyflux, Hydrochem and Tuaspring are suing KPMG for breach of obligations and negligence relating to the previous preparation of their accounts and financial statements, seeking compensation of over S$684.6 million based on the statement of claim filed in 2022.

Hyflux’s financial statements were stated to have been prepared in accordance with the Singapore Financial Reporting Standards and showed the group was financially well, the plaintiffs alleged, but they were actually misstated because of failure to recognise or cater for losses or impairment relating to Tuaspring.

The Hyflux firms said that they have specified the required information in the statement of claim, including sufficiently particularising the contractual relationship between them and KPMG, the express terms in the engagement letters, and breach of the terms.

They contended that they have spelt out the losses they have incurred as a result of KPMG’s alleged breaches.

“Furthermore, the defendant, having filed a substantial defence, knows the case to be met,” the Hyflux plaintiffs argued.

But KPMG said there was a lack of details of the material facts relating to the alleged breach of contract, not even identifying the contract nor the terms. “The pleadings are vague, leaving the defendant to guess what the heads of claim are.”

Justice Aedit Abdullah agreed with the plaintiffs: “Examining the statement of claim as a whole, I could not see any other contract referenced, and the submission of the plaintiffs rely only on the engagement letters pleaded (in the statement). The plaintiffs had clearly pleaded the contract.”

The High Court Judge said that the plaintiffs had also “adequately pleaded” KPMG’s alleged breach of contract and duty.

The Hyflux firms said the auditor did not flag that the financial statements for 2014 to 2017 should not have been prepared on a going concern basis, or should have at least disclosed material uncertainties affecting the ability to continue as a going concern.

The beleaguered water treatment company’s civil lawsuits against founder Olivia Lum and KPMG will be tried jointly, after Lum’s application was granted earlier in March.

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Hyflux Ltd (in compulsory liquidation) and others v KPMG LLP [2024] SGHC 176

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