What is the Spandeck test applied in this case?

The Spandeck test is a two-stage framework: first, whether there is factual proximity (including foreseeability and closeness) sufficient to give rise to a prima facie duty of care; second, whether policy considerations negate that duty.

Do auditors owe a duty of care to everyone who reads their audit reports?

No. The Court of Appeal held that auditors do not owe an automatic duty to all third parties. There must be sufficient proximity, often requiring the auditor's knowledge of the third party's identity and the specific transaction or purpose for which reliance is placed.

Why is this case important for professional negligence in Singapore?

It illustrates how Singapore courts apply the Spandeck framework to claims for pure economic loss against professionals, balancing the need to protect reliance interests against the risk of indeterminate liability and providing clarity on when auditors can be held liable to non-clients.

Court of Appeal· 2014

Anwar Patrick Adrian v Ng Chong & Hue LLC

[2014] 3 SLR 761

Tort

Auditors owe duty of care to third parties only where proximity and policy permit.

At a glance

Anwar Patrick Adrian v Ng Chong & Hue LLC is a 2014 Court of Appeal decision that clarified the scope of an auditor's duty of care in tort for pure economic loss. The case is significant because it applied the Spandeck two-stage test to determine when auditors owe a duty of care to third parties who rely on audited financial statements, reinforcing the need for factual proximity and policy considerations to limit liability.

Material facts

The appellant claimed that the respondent auditing firm was negligent in auditing financial statements, which the appellant allegedly relied upon to his economic detriment. The case turned on whether the auditor owed a duty of care in tort to the appellant as a third party who was not the audit client.

Issues

Whether an auditor owes a duty of care in tort to a third party who suffers pure economic loss through reliance on negligently audited financial statements.

Held

The Court of Appeal held that an auditor does not automatically owe a duty of care to all third parties who might rely on audited accounts; proximity and policy considerations under the Spandeck test must be satisfied.

Ratio decidendi

A duty of care in tort for pure economic loss arising from negligent misstatement by auditors is established only if the Spandeck test is satisfied: there must be sufficient factual proximity (including reasonable foreseeability and closeness of relationship) and no policy considerations negating the duty.

Reasoning

The Court applied the Spandeck framework, emphasizing that foreseeability alone is insufficient to ground a duty of care for pure economic loss. The relationship between the auditor and the third party must exhibit sufficient proximity, often requiring evidence that the auditor knew or ought to have known the identity of the third party and the specific purpose for which reliance was placed. Policy factors such as indeterminate liability and the availability of alternative remedies also weighed against imposing an open-ended duty.

Significance

This case is a key authority on auditors' liability for negligent misstatement in Singapore, illustrating the careful application of Spandeck to professional negligence claims involving pure economic loss. Students study it to understand the limits of third-party reliance claims against professionals and the policy rationale for restricting liability.