Judgement on AHTC case: What you need to know

SINGAPORE — On Friday (Oct 11), the High Court ruled that three Workers’ Party Members of Parliament and others were liable for damages suffered by the Aljunied-Hougang Town Council (AHTC) and the Pasir Ris-Punggol Town Council (PRPTC).

The 329-page written judgement by Justice Kannan Ramesh sets out what happened, who breached their duties and how they can be held accountable.

TODAY sieves through the judgement:

WHO ARE INVOLVED

Five of the defendants are the town councilors of AHTC:

• Ms Sylvia Lim – Chairman of WP and chairman of AHTC until Aug 2015. She is currently the vice-chairman of the town council.

• Mr Low Thia Khiang – Former WP secretary-general, vice-chairman of AHTC from June 2011 to Aug 2012.

• Mr Pritam Singh – Current WP secretary-general, vice-chairman of AHTC from Aug 2012 to Aug 2015, and thereafter the chairman of the town council.

• Mr David Chua Zhi Hon and Mr Kenneth Foo – WP members who were appointed town councilors to manage AHTC. Mr Foo was WP’s Nee Soon GRC candidate in the 2015 General Election and is the deputy organising secretary of WP.

The remaining two defendants run AHTC’s managing agent and emergency maintenance service provider FM Solutions and Services (FMSS), who were awarded the position by the town councilors. They are:

• Mr Danny Loh Chong Meng – Died on June 27, 2015. He owned FMSS and was the sole proprietor of FM Solutions and Integrated Services (FMSI), a service provider. He was the secretary of AHTC from Aug 2011 to May 2015.

• Ms How Weng Fan – Wife of Mr Danny Loh and the director of FMSS. She was also the general manager and secretary of WP-run Hougang Town Council before 2011. She later became the deputy secretary of AHTC.

The two plaintiffs are:

• AHTC: It is suing the defendants to claw back S$33.7 million of improper payments found by independent accountant firm KPMG. An independent panel, appointed by AHTC to investigate KPMG’s report, had filed the suit.

• PRPTC: After the General Election in 2015, the People’s Action Party retook the Punggol East single member ward, and estate management for the ward was folded into the PRPTC. It is suing the defendants for the losses incurred during WP’s administration of Punggol East.

POINTS OF CONTENTION

1. LOW THIA KHIANG AND SYLVIA LIM: IMPROPER APPOINTMENT OF FMSS

After the 2011 General Election, the WP took over Aljunied Group Representation Constituency.

FMSS, which replaced the previous managing agent CPG Facilities Management, was appointed that same year without going through the tendering process. CPG’s contract was not up at the time: it had another two more years to go, with an option to extend for a further period of three years.

FMSS was also awarded an emergency maintenance services contract without tender.

The defendants said that waiving the tender process was justified and they acted in good faith. When CPG pulled out of Aljunied, the WP scrambled to bring the plan to fruition to ensure minimal disruption to residents.

The plaintiffs argued that WP saw CPG as aligned to the PAP, and had no intention of continuing to work with the company. They also argued the WP MPs wanted to install a team of loyal WP supporters and took immediate steps after the 2011 General Election to replace CPG.

What Justice Ramesh said:

• WP planned to replace CPG soon after the General Election: “... this was no contingency plan. The assertion that FMSS was a contingency is nothing more than an attempt to varnish the plan with a veneer of credibility in order to camouflage its true motive.”

• Mr Low and Ms Lim had a decision-making role in waiving the tender: Mr Low had communicated two days after the General Election that “we will appoint managing agent”, and had expressed misgivings and dissatisfaction with CPG’s service. The e-mail was also sent to FMSS director and WP supporter Ms How. The judge said: “The intention all along was to retain the entire Hougang Town Council management team which included Ms How.”

• The waiver of the tender was not justified as there was no need for a rush to action: The judge accepted that the WP might not want to work with CPG, but this does not explain why no effort was made to secure time to call a tender for a new managing agent, he said.

• The tender was waived because Mr Low distrusted PAP-affiliated entities, and he wanted to ensure the continued employment of Hougang Town Council (HTC) staff who had served WP loyally: This included Ms How and Mr Loh. If CPG had continued as the managing agent, HTC staff might face termination.

• The waiver lacked transparency and candour: Efforts were taken to keep CPG in the dark about the waiver. “There was a concerted attempt to cloak the appointment of FMSS with a veneer of propriety. It was an attempt to mislead, and a clinical demonstration of the disregard Ms Sylvia Lim and Mr Low Thia Khiang had for the requirements in the town council financial rules.”

• The losses incurred by subsequent contracts awarded to FMSS in 2012 were caused by the decision taken in 2011 to waive the tender.

2. PRITAM SINGH: OUGHT TO HAVE RAISED RED FLAGS

While Mr Singh had received the e-mails that described the plan to replace CPG, suggesting his involvement, Justice Ramesh found that his involvement was not made clear or fully explored during the trial. Other MPs, including former Hougang MP Yaw Shin Leong, had also been included in these e-mails.

“It is not entirely clear to me the exact role, if any, Mr Pritam Singh might have played. The documents that show his specific involvement in the plan to have FMSS appointed as managing agent are non-existent or at the very least thin,” said the judge.

The judge also noted that AHTC, as plaintiff, did not make any allegation against Mr Singh, and the cross-examination by the plaintiffs had been trained on Mr Low and Ms Lim.

Justice Ramesh said: “Thus, I do not find that Mr Pritam Singh has breached his fiduciary duties to AHTC in relation to the appointment of FMSS as managing agent in 2011.” He concluded the same for AHTC town councilors Kenneth Foo and David Chua.

However, he found Mr Singh, Mr Foo and Mr Chua to have breached their duties of skill and care to AHTC:

• They were privy to information that “ought to have raised red flags” in their minds as to the propriety of FMSS’s appointment.

• They should have at the very least inquired why CPG had been released from its contractual obligations when there was a considerable period left in the contract.

• They ought to have questioned whether it was proper not to call for a tender, even if they believed Mr Low or Ms Lim that circumstances over the managing agent had put AHTC in a difficult position.

3. CONTROL FAILURES

Part of the trial looked into the matter of a conflict of interest:  The shareholders of FMSS held positions within AHTC that allowed them to be part of the approval process for payments to FMSS and FMSI.

FMSS shareholders include Mr Loh (50 per cent shareholding) and Ms How (20 per cent) and Mr Yeo Soon Fei (10 per cent). Mr Yeo was the operations manager and deputy general manager of AHTC at the time, and testified that he had signed off on completed works.

A cheque was shown in court as signed by Mr Yeo, Mr Loh, and Ms Lim. The signature of Ms How, who is the deputy secretary of AHTC, could also be found on invoices as an authorised signatory of FMSS.

Justice Ramesh noted two “systemic control failures” to such a system:

• The involvement of Mr Loh, Ms How and Mr Yeo, “gave rise to a conflict of interest”. Cheques were accompanied by documents certified by these conflicted persons, such that those by a chairman or vice-chairman cannot rectify it.

• No proper verification, even by the conflicted persons, was done, and the signature in some instances “merely followed a tallying exercise”.

He held all the defendants responsible for allowing these control failures to persist, and had breached their duty of skill and care to AHTC.

4. IMPROPER TRANSACTIONS

Besides the contracts related to FMSS, the plaintiffs also took aim at the MPs for improperly awarding contracts to third-party contractors. They are:

LST Architects and Design Metabolists

AHTC invited tenders to set up a panel for architectural consultancy services and, from the bids received, appointed two firms, LST Architects and Design Metabolists, to the panel. It then awarded seven out of 10 ensuing contracts to LST Architects, even though Design Metabolists bid lower prices for some of the projects.

A key argument by the defence was that Design Metabolists had performed unsatisfactorily in past projects.

What the judge said:

The defendants were not wrong in setting up the panel and did not breach their duties when they did not call for separate tenders for each of the contracts awarded.

However, they were wrong not to award projects to the lowest bidder.

“It is clear that the defendants should not have awarded the seven contracts to LST Architects in the event that they felt that Design Metabolists was no longer a legitimate option. The appropriate course would have been to disband the panel and carry out a fresh tender exercise.”

Red-Power

In April 2012, AHTC called for a tender for the maintenance of transfer and booster pumps, automatic refuse chute flushing system and roller shutters. At the time, AHTC had contracts with Digo Corporation and Terminal 9 for the same services, which could have been extended for up to two years at the same rates.

In June 2012, AHTC awarded the contract to Red-Power Electrical Engineering, the sole tenderer, for three years.

AHTC lawyers argued that this move was costlier than extending the existing contracts with Digo and Terminal 9.

The defendants argued that the extension would only have been for a further 12 or 24 months. Hence, a tender would need to have been called in any event.

Meanwhile, Punggol-East had a separate contract with EM Services for the same services. The contract could not have been further extended after its expiry on 31 March 2015. AHTC included Punggol-East into its contract with Red-Power with effect from April 2015.

PRPTC lawyers argued that the town council should instead have asked another company, Tong Lee Engineering Works, which already had a contract with AHTC and which charged lower prices, to cover Punggol East.

What the judge said:

The award of a contract to Red-Power when there was an option to extend the contracts with Digo and Terminal 9 for a further 12 or 24 months was a breach of the equitable duty of skill and care to AHTC on the part of the tender committee — Ms Lim, Mr Singh, Mr Foo and Mr Chua.

However, there was no breach of duty on the part of any of the defendants in including Punggol-East under the contract with Red-Power.

Rentokil

PRPTC had challenged AHTC’s award of the contract to Rentokil for pest control services for a three-year period, arguing that another pest control firm, Pest-Pro, had submitted a lower bid and could achieve a better quality for the price.

What the judge said:

• The judge found no breaches as the reasons for awarding the contract to a higher bid were properly documented.

Titan and J Keart

Before Punggol East became a WP ward in the 2013 by-election, PRPTC had contracts for conservancy and cleaning works with Titan Facilities Management and servicing and maintenance of fire protection systems with J Keart Alliances. Both contracts expired in March 2015 and could be extended for another year.

Instead, the defendants called for fresh tenders, which were awarded to the same contractors but at a higher rate. They could have saved S$423,147 on the Titan contract, and S$27,249.20 on the J Keart contract.

What the judge said:

• When the members of AHTC’s tender committee realised this, they should have examined why there was a drastic increase and understand what changed. Instead, they relied on AHTC contracts manager Philip Lim, who was a staff member of FMSS, who had wrongly said there was no option to extend existing contracts.

• There was a breach of duty of skill and care to AHTC on the part of the tender committee, namely Ms Lim, Mr Singh, Mr Foo and Mr Chua.

Several specific invoices and transactions were also flagged in the trial. These include:

• An S$106,559 invoice in June 2011 and an S$166,591 invoice in July 2011 to FMSS, covering partly the reimbursement of salary for the staff of HTC who were ported over to the newly constituted AHTC: No breach found, and the benefit of doubt was given to the defendants. There was also a contractual basis for these invoices.

• Two sets of payments of S$608,911 and S$611,786 to FMSS for project management fees: No breach found due to insufficient proof from AHTC that the payments were unjustified.

• The 12 sets of invoices totalling $171,112.62 and 56 invoices totalling $674,388.70 to third party contractors: While they lacked monthly service reports or supporting documents, the judge found no breach of duties.

REMEDIES THAT PLAINTIFFS MAY PURSUE

The full S$33.7 million claimed by AHTC may not be what the town councillors and senior staff who were sued have to pay, based on the decision by Justice Ramesh.

While the actual amount that the WP MPs and other defendants eventually have to pay will be decided only in the next phase of the trial, Justice Ramesh said that not “every cent disbursed under the impugned contracts” is a loss to AHTC.

The judge noted that town councillors are custodial fiduciaries of the town council’s assets.

A fiduciary, in the Singapore context, is someone who owes a high duty of care to the principal — AHTC, in this case.

A fiduciary has a duty to act in good faith, to not make a profit out of this relationship, to not be in a position where their interests will conflict with their duty, and to not act for the benefit of themselves or any third party, according to the document.

Fiduciaries who are held liable can reinstate or reconstitute the principal to the way it was before, said Justice Ramesh. That means if AHTC’s assets are wrongly used, the town councillors can be ordered to reconstitute it as a form of remedy.

AHTC’s lawyers had argued that the S$33.7 million paid to FMSS and service provider FM Solutions and Integrated Services had to be returned.

But Justice Ramesh rejected this, saying "this would be to entirely ignore the nature of the breach, which involved entering into various contracts for the provision of services".

He noted that the services bargained for are what the defendants were obliged to procure.

Instead, Justice Ramesh said the loss to AHTC should be the difference between the amount of money paid out by the town council and the value of the services it received. The burden of proving the amount lost falls upon the plaintiffs, he added. 

The plaintiffs had argued that the FMSS contracts are to be rescinded from the start. However, Justice Ramesh dismissed this, saying that the contracts are voidable but not void.

The plaintiffs can choose to void the contracts, and if they do, the benefits received by AHTC must be returned to the contractor, said the judge.