AHTC appeal judgement: WP leaders acted with 'gross negligence', not in good faith in paying S$23m over 3 years to FMSS

SINGAPORE — While the apex court on Wednesday (Nov 9) largely overturned a High Court decision in the Aljunied-Hougang Town Council (AHTC) lawsuit, the Workers' Party (WP) town councillors were still found to be have acted with "gross negligence" over the payment process that disbursed more than S$23 million over at least three years to its managing agent FMSS.

The WP members embroiled in the lawsuit included senior party figures Mr Pritam Singh, Mr Low Thia Khiang and Ms Sylvia Lim. 

"The character of such neglect, in sum, was at least potentially grave. We are thus unable to see how such conduct that amounted to gross negligence can be said to have been done in good faith," said Chief Justice Sundaresh Menon in the judgement, adding that this involved public funds.

Ms Lim, who is WP chairman, was also singled out for a decision the town council made to award a contract to a new electrical engineering firm at a higher rate instead of renewing existing contracts for the same rate.

The finding means that the town councillors and AHTC employees may still be liable to pay some damages, as originally sought by the plaintiffs, before the latest appeal decision overturned some claims. They had been seeking damages to the tune of S$33 million.

In a statement on Wednesday night, the Ministry of National Development (MND) said it noted "with concern" that the Court of Appeal has found Ms Lim and some other AHTC councillors and employees did not act in good faith in respect of S$23 million in payments to FMSS. 

In 2017, an independent panel acting on behalf of the WP-run AHTC as well as by the People’s Action Party-run Pasir Ris-Punggol Town Council (PRPTC) sued the three WP leaders and some others.

Mr Singh is now Leader of the Opposition and secretary-general of WP. Mr Low was the former secretary-general.  

The plaintiffs alleged that they had breached various fiduciary and equitable duties owed to AHTC, among other things, and the three WP leaders were found in 2019 to be liable for some of the claims.

Aside from the three WP leaders, the other parties sued included former AHTC town councilors Chua Zhi Hon and Kenneth Foo. 

Separately, two AHTC employees — deputy secretary How Weng Fan and her late husband, secretary Danny Loh — were also sued, along with FMSS, which Ms How incorporated after the 2011 General Election.

The alleged negligence was over a potential conflict of interest in the payment process because Ms How and Mr Loh were both employees of AHTC as well as shareholders and directors of FMSS.

This created a risk they might be overpaid, CJ Menon noted in the judgement. 

AHTC’s standing instruction was for payments to FMSS to be co-signed by the AHTC chairman or vice-chairman, but the court found that this was not a sufficient safeguard because there was no system to ensure that each cheque presented was fully verified by independent parties.

In the judgement, CJ Menon noted that the town councillors were aware of this conflict of interest as early as May 19, 2011 — more than a week after the general election — but failed to properly address it.

CJ Menon pointed out that this "state of affairs was allowed to persist for at least three years – from July 2011 to July 2014 – and in that period of time, AHTC disbursed over S$23 million”. 

He said: "It appears to us that the town councillors simply took it on faith that FMSS was performing the work it was contracted for and being paid to do. After all, they trusted FMSS to carry out the works properly and diligently... While this may explain why they were open to appointing FMSS to provide the services in question, it does nothing to address the need for a system to verify the payments to FMSS."

He added: "This was exacerbated by the manifest conflicts of interest which were clearly perceived and understood by all concerned. In our judgment, this was a paradigm example of poor financial governance and a breach of the duty of care."

CJ Menon said the judges who presided over the appeal werealso satisfied that the town councillors were not shielded from personal liability under the Town Council Act "because, given the severity of this failure, it could not be said to have been done in good faith".

He noted that a finding that the town councillors and employees did not act in good faith "does not require any demonstration of deceit or dishonesty".

As for Ms Lim, the court found that she had been negligent over the awarding of a contract to Red-Power Electrical Engineering, even though it charged higher rates than Digo Corporation and Terminal 9. AHTC already had existing contracts with both these firms.

While those contracts had been due to expire soon, AHTC had the option to extend them at the same rates.

“We find that Ms Lim has failed to discharge her burden of proof that she acted in good faith when she chose not to renew the contracts with Digo and Terminal 9 for AHTC, and instead chose to invite a tender and then award the new contracts to Red-Power,” the Chief Justice said.

“We also find that this constituted a breach of Ms Lim’s duty of skill and care in tort owed to AHTC, and that Ms Lim is thus liable in negligence in this respect.”

The court will assess any damages that may be payable arising from the defendants’ negligence at a later date, subject to further submissions by the parties.

MND MONITORING PROCEEDINGS 

In its statement on Wednesday, MND said that Ms Lim and the AHTC councillors and employees knew that there were "manifest conflicts of interest" and that there was a risk of overpayments or improper payments to FMSS or FMSI.

MND also noted that the apex court had said the extent of this risk “cannot be overstated” and that their payments process was a "paradigm example of poor financial governance".

"As a result, over a period of three years, from 2011 to 2014, AHTC disbursed over S$23m to FMSS," said MND.

"The Court of Appeal has directed that parties make submissions on matters relating to damages in respect of the payments made. MND will be monitoring the proceedings as public funds are involved."