Directors' reliance and responsibility to supervise and auditors' duty of care: Planassurance PAC formerly known as Patrick Lee Pac V Gaelic Inns Pte Ltd

• Main Author: Mohd. Sulaiman, Aiman @ Nariman
• Format: Article
• Language: English
• Published: LexisNexis 2009
• Subjects: K Law (General)
• Online Access: http://irep.iium.edu.my/3530/1/Directors_Reliance_and_Responsibility_to_Supervise_and_Auditors_Duty_of_Care.pdf; http://irep.iium.edu.my/3530/; http://www.lexisnexis.com/ap/auth/
• Institution: Universiti Islam Antarabangsa Malaysia

The duty of care, skill and diligence requires directors to be involved in managing the company, so much so that being a passive director is itself a breach of duty. n1 In reality, directors do not manage all of the company's business themselves but leave appointed employees to deal with specific scope of work. However, this does not resolve the problem faced by directors in delegating authority. The extent to which directors may rely on delegates in the exercise of power or on the information provided by others to enable directors to make business decisions is often fact-sensitive. There is also a difference in the standard of care between executive and non-executive directors. As noted in The Equitable Life Assurance Society v Bowley, n2 'there is a considerable measure of agreement about the duty owed in law by a non-executive director to a company. In expression it does not differ from the duty owed by an executive director but in application it may and usually will do so. The recent Singapore case of Gaelic Inns Pte Ltd v Patrick Lee Pac, n3 which went on appeal to the Singapore Court of Appeal (Planassurance PAC Formerly known as Patrick Lee PAC v Gaelic Inns Pte Ltd), n4 highlighted the relationship between directors amongst themselves and with auditors in relation to a company's financial statements. While the Gaelic Inns case is not the first case on the duty of care, skill and diligence to be decided in Singapore, n5 it discusses the issue of directors' duty of care when delegating powers and what amounts to reasonable reliance. The case is an interesting read as it involves non-executive directors' reliance on management. The case is also topical as it also focuses on the relationship between the auditor and the company, a topic of interest in view of numerous financial reporting failures and the current economic meltdown.