Hyflux group takes legal action against former auditor KPMG over alleged contract breach

HYFLUX and 35 companies in its group have lodged a lawsuit pre-emptively against their former independent auditor KPMG alleging breach of contract, and possibly pursuing claims that would include over S$400 million in dividends the company paid out between 2010 and 2018.

The Singapore-listed company in compulsory liquidation has, together with its 35 local and foreign units including Tuaspring, filed a writ of summons against the professional services firm in Singapore's High Court on Mar 28, according to a cause book search by The Business Times (BT).

KPMG was the statutory auditor for Hyflux and some of its subsidiaries in the group for several years.

The plaintiffs' main cause of action against KPMG is alleged breach of contract. They said the defendant should compensate them, with the quantum to be assessed but would include the dividends paid out by the water treatment company to shareholders between 2010 and 2018.

Data from Bloomberg on dividends Hyflux paid out from 2010 to 2017 showed that the company founded by Olivia Lum amounted to about S$438.7 million. The 2018 figure wasn’t available.

A KPMG spokesperson stated to BT that the writ is a “protective” writ. The liquidators of the Hyflux group have indicated to the court that they have not ascertained if there are sufficient grounds to pursue the claims, but are filing a writ to try to avoid a time bar that would prevent any future claim, she elaborated.

In Singapore, there are time limits for a party who wants to take out civil claims. For example, the limit for actions concerning breach of contract or tort (civil wrongdoings between private individuals) is 6 years.

The KPMG spokesperson noted that the writ has not been served on the firm, and there is no statement of claim - a document containing the relevant facts relied on by the plaintiff to establish its claim. 

“We consider that any claim by the liquidators against us would be without merit, and would defend any such claim,” she added. No lawyers are on record yet for KPMG, the cause book search result showed. This could be due to the lawsuit being at its preliminary phase. 

Eddee Ng of Tan Kok Quan Partnership is representing the plaintiffs. He declined to comment when approached by BT. 

According to procedures, the plaintiff has to serve the writ on the defendant no later than 6 months from the date the writ is issued if the defendant is in Singapore.

On Wednesday, the Monetary Authority of Singapore (MAS) gave an update on the joint investigations launched in June 2020 into Hyflux and its current and former directors for possible offences under the Securities and Futures Act, as well as possible non-compliance with accounting standards under the Companies Act.

The MAS said it is working with the Attorney-General's Chambers to review the evidence.

The investigations include an extensive review of the announcements and financial statements issued by Hyflux from 2011 to 2018. The probe stemmed from a review into Hyflux's disclosure, accounting and auditing issues concerning the Tuaspring Integrated Water and Power Project.

Hyflux was ordered by the court to be placed under judicial management in November 2020 and be wound up in July 2021, after the company failed to secure a white knight despite numerous attempts while it was under a debt moratorium for almost 2 years. 

Its troubles emerged in 2014, following its venture into the energy business through the Tuaspring desalination plant.

The plant chalked up losses amid low electricity prices and a challenging macro environment, while Hyflux continued to borrow heavily from banks and investors through the issuance of perpetual securities.