Goh Jin Hian v Inter-Pacific Petroleum Pte Ltd

Facts

Inter-Pacific Petroleum Pte Ltd (IPP) ran a bunker trading business and a cargo trading business in fuel oil, financed by facilities from Societe Generale and Maybank. Dr Goh Jin Hian was one of its directors from 28 June 2011 until he resigned on 12 August 2019, after being told that IPP could not pay its bank debts. IPP went into judicial management on 4 September 2019 and compulsory liquidation on 25 March 2021. The judicial managers found that in June to August 2019 IPP had drawn US$146,047,099.60 on its facilities for cargo trades (the Cargo Drawdowns) and US$10,508,238.71 for bunker trades, none repaid, and concluded that the cargo receivables and the trades behind them were shams. The cargo drawdowns were not made by Dr Goh.

In Suit No 953 of 2020, IPP sued Dr Goh for breach of his duty of care, skill and diligence (the Care Duty) and his duty to consider creditors' interests (the Creditor Duty). The High Court judge found that he had been ignorant of the cargo trading business, had failed to respond to three red flags (an audit confirmation request to Mercuria signed on or about 7 February 2018, the suspension of IPP's bunker craft operator licence on 27 June 2019, and confirmations of indebtedness to Maybank), and had breached both duties. He awarded US$146,047,099.60 for the Cargo Drawdowns. Dr Goh appealed in Civil Appeal No 19 of 2024.

Issues

1. Whether Dr Goh breached the Care Duty through ignorance of the cargo trading business or by failing to respond to the three alleged red flags.
2. Whether Dr Goh breached the Creditor Duty in respect of drawdowns he did not know of or authorise.
3. Whether IPP proved that the breach of the Care Duty caused the loss from the Cargo Drawdowns.

Holding

The Appellate Division allowed the appeal in part and set aside the judgment below. It upheld the finding that Dr Goh breached the Care Duty by being ignorant of the cargo trading business, but held that the red flags were not red flags, that he did not breach the Creditor Duty, and that IPP failed to prove causation. Costs were to be submitted on if not agreed.

Reasoning

The court saw no basis to disturb the finding that Dr Goh did not know of the cargo trading business. His email to the police on 22 August 2019 showed him learning of it from the banks, his February 2020 interview with the judicial managers drew a clear line between bunker and cargo trading, and his messages with the chief financial officer and after the licence suspension never mentioned cargo trading, which made up about 50% of revenue.

The red flags failed. An audit confirmation request concerns whether a debt exists, not whether it is overdue; it stated the receivables were within the 60-day credit term, the audited accounts showed no impaired receivables, and the auditor and finance manager raised no concern. The auditor herself, using alternative checks, did not uncover the fraud, so there was no reason to infer Dr Goh would have. The suspension concerned the bunker business, and the Maybank confirmations would at most have revealed the cargo business, not the fraud.

On the Creditor Duty, following Foo Kian Beng, the test is the director's good faith when exercising discretion over a transaction, so the duty is engaged only where the director authorised it; Dr Goh had not. The court added that IPP was in fact in the category where insolvency was inevitable.

On causation, IPP bore the burden of proving the counterfactual: the specific steps Dr Goh would have taken had he known of the cargo business and how they would have uncovered the fraud and averted the loss. IPP pleaded no such steps and relied on bare assertion and common sense. A director is a sentinel, not a forensic investigator, absent warning signs, and this was a deep-seated fraud in which a paper trail could easily be constructed.

From the judgment