SINGAPORE - Aljunied-Hougang Town Council (AHTC) has alleged that all payments it made to its then-managing agent FM Solutions and Services (FMSS) and service provider FM Solutions and Integrated Services (FMSI) are null and void as its town councillors had acted in breach of their fiduciary duties.
It is demanding that Workers' Party (WP) chief Low Thia Khiang; town council vice-chairman Sylvia Lim; Ms How Weng Fan, owner of FMSS; and FMSS, give an account of $33,717,535 of payments made to FMSS and FMSI from July 15, 2011 to July 14, 2015.
Failing which, AHTC wants "equitable compensation" for any sum that has been wrongfully paid out.
At the centre of the issue is a flawed system that resulted in the appointment of FMSS and FMSI, and allowing its officers to benefit themselves.
This latest lawsuit was filed in the High Court on Friday (July 21) under the direction of an independent panel appointed by AHTC to help recover improper payments.
In a statement of claim obtained by The Straits Times, AHTC alleges that Ms Lim and Mr Low "set up and/or allowed" such a system at the town council, which effectively enabled Ms How and her late husband Mr Danny Loh to be responsible for certifying work done, approving payments and/or signing cheques to FMSS and FMSI to benefit themselves.
Ms How and Mr Loh were owners of FMSS and held key management and financial control positions in the town council at the same time.
In a statement on Wednesday (July 26), Mr Low, Ms Lim and Mr Pritam Singh, the town council chairman and another defendant named in the suit, denied the allegations against them."We are taking legal advice and will contest the lawsuit and lay out our case vigorously in Court," said the trio in their statement.
AHTC's lawsuit makes allegations against the defendants in three broad areas.
The installation of FMSS as managing agent
It alleges that the town council's "financial woes and the improper payments" started when FMSS was installed as its managing agent.
In the statement, the town council said Mr Low and Ms Lim had, on or before May 15, 2011, decided purportedly on behalf of AHTC, that Ms How and her late husband Danny Loh would be instructed to set up and incorporate FMSS, which would be appointed as managing agent of AHTC without a tender being called. The decision followed the WP winning Aljunied GRC from the People's Action Party(PAP) in the May 7, 2011 general election.
This would initially be for a "transition period" of one year. Mr Loh would concurrently be appointed general manager or secretary of AHTC, while Ms How would be appointed deputy secretary.
AHTC's statement also made reference to an email sent by Mr Low to Ms How on May 19, 2011, where Mr Low mentioned a discussion with Ms Lim over the appointment of Mr Loh to his roles in the town council.
Mr Low said in the email: "As for the conflict of interest, we find that it is not a big issue as all transaction has to follow (sic) the Financial Rules and (managing agent's) company is subject to the Companies Act."
The statement also alleged that in a town council meeting on Aug 4, 2011, Ms Lim and/or Mr Low had made "key misleading and/or false representations" to other town councillors.
Among them, that CPG, the previous managing agent under the PAP, had "indicated their desire" to be released from their agreement with the town council.
It was also allegedly said that there was also no time to call for a tender for a new managing agent, and it would be in the public interest for the calling of such a tender to be waived.
Meanwhile, town councillors were also allegedly told that terms offered by FMSS "did not put the town council worse off" than under CPG.
AHTC's statement pointed out that a report by audit firm KPMG had stated that these reasons for waiving a tender for a managing agent were false or did not justify a waiver.
After the initial first-year contract, a tender for a three-year managing agent contract was called - and it was awarded to the only tenderer, FMSS.
Flawed system of payment
The statement also said that Ms Lim and Mr Low had set up or allowed a "flawed system of governance" which facilitated or contributed to the improper payments made to FMSS and FMSI. AHTC had also paid "inflated rates" to FMSS.
Outlining the payment system, AHTC said invoices from FMSS to the town council would be raised by Ms How, while Mr Loh would raise invoices from FMSI to the town council.
Ms How was director of FMSS, while Mr Loh was sole proprietor of FMSI.
Ms How or the town council's deputy general manager Mr Yeo Soon Fei - who was also a minority shareholder of FMSS - would then certify the work done.
This was done "without any second review by another town council officer/member, despite How and Yeo being interested parties to the transaction".
Approval of payment vouchers or cheques would be done in the same fashion by Ms How. Most of the cheques to FMSS and FMSI would then be signed by Mr Loh on behalf of the town council.
AHTC noted that by holding their positions at FMSS, FMSI and the town council, Mr Loh and Ms How were responsible for certifying that work was done and for approving payments to FMSS and FMSI, thereby benefitting themselves.
Such a system was incapable of providing any independent check against the payments, and safeguards to public monies held by AHTC, said the statement.
"Accordingly, no town councillor could have reasonably approved the system, without being in breach of his or her duties," said the statement.
The conflicts of interest were "so severe", that without proper safeguards, the transactions would not have been authorised by AHTC or town councillors if they were "acting consistently with their fiduciary duties", the statement added.
AHTC also said it had paid "inflated rates" about 10 per cent or $515,733 higher for FMSS' initial first-year contract, than if CPG had been retained as managing agent.
Similarly, if AHTC had continued to use CPG's rates from July 2012 to July 2015, it would have saved some $746,000.
Entering into contracts with architects in breach of duties
AHTC also alleged that it had breached the Town Council Financial Rules for 10 construction projects that cost between $71,500 and $1,668,711, by failing to call a tender for each project, and not accepting the lowest bid for each tender.
The rules stipulate that tenders must be called for projects above $70,000 in value, and reasons for not accepting the lowest bid must also be carefully spelt out.
AHTC therefore wants to take to task the defendants named in the suit who were members of the council's tenders and contracts committee - WP MP and current town council chairman Pritam Singh; Ms Lim; Mr Chua Zhi Hon, a former member of the WP Youth Wing executive committee; and Mr Kenneth Foo, deputy organising secretary of the WP and WP candidate in Nee Soon GRC in the 2015 general election.
The committee was chaired by Mr Singh.
AHTC said instead of issuing separate tenders for each project, the council had invited a tender for consultants on a "fixed fee basis" - and would then choose from a panel of pre-approved consultants to manage projects.
It selected two architects - LST Architects and Design Metabolists - to provide services in such a manner.
In all 10 projects, LST Architects was engaged by AHTC, despite it charging higher fees in seven of these projects.
This was done "without adequate justification and/or recording the circumstances and reasons for doing so", said AHTC.
The additional cost for hiring LST Architects over Design Metabolists amounted to $2,794,560.
AHTC is now alleging that the committee members had breached their duty to the town council because of this.
Role of independent panel
The independent panel that directed this lawsuit was appointed by AHTC in February (2017) to help recover improper payments, following an extensive report by audit firm KPMG last year that found a total of $33,717,535 in payments had been paid to FMSS or FMSI and that were co-signed by conflicted persons or FMSS employees.
The panel is chaired by Senior Counsel Philip Jeyaretnam. Its other members are Senior Counsel N. Sreenivasan and KPMG managing partner Ong Pang Thye.
It has the power to commence legal action on behalf of the town council for overpayments and payments without proper certification of work being done, among others. This can include mediation, arbitration and other court proceedings.
Its other powers include making demands and coming to settlements on behalf of AHTC.
The Housing Board had asked AHTC to appoint a third party to recover the improper payments made from town council funds.
A pre-trial conference has been scheduled for Aug 31.
Besides this case, AHTC also filed another writ of summons in the High Court against FMSS last Friday. This was in relation to an arbitration case over a financial dispute emerging from the lapses at the town council.
In a report last year, audit firm KPMG found that governance lapses at AHTC between 2011 and 2015 had put public funds running into the millions of dollars at risk of improper use.
It traced some of the improper payments to AHTC's then managing agent FMSS, and raised the possibility of civil and criminal liabilities.
The report was part of the ongoing audit of AHTC following lapses flagged by its own auditors as well as by the Auditor-General's Office in a special report in February 2015.