AHTC lawsuit

Financial woes began with FMSS' installation, says town council

AHTC's statement pointed out that a report by audit firm KPMG had stated that the reasons given for waiving a tender for a managing agent were false or did not justify a waiver.
AHTC's statement pointed out that a report by audit firm KPMG had stated that the reasons given for waiving a tender for a managing agent were false or did not justify a waiver.ST PHOTO: SEAH KWANG PENG

It says WP duo breached fiduciary duties by misleading AHTC to secure managing agent's appointment

Shortly after the Workers' Party (WP) won Aljunied GRC in the 2011 General Election, Mr Low Thia Khiang and Ms Sylvia Lim allegedly decided that Ms How Weng Fan and her husband Danny Loh would be instructed to set up and incorporate the estate management company, FM Solutions and Services (FMSS).

The couple, longstanding WP supporters, had helped manage the estate of Mr Low's previous Hougang ward.

FMSS was incorporated on May 15, 2011, with Mr Loh as its sole shareholder and director. The company would go on to be appointed the managing agent of Aljunied-Hougang Town Council (AHTC).

This incident was the start of AHTC's "financial woes", contends a statement of claim filed by AHTC in the High Court.

The statement set out how the two MPs had breached their fiduciary duties by misleading the town council to secure FMSS' appointment, and said this was done in "bad faith and/or for improper purposes".

The town council wants both Ms Lim and Mr Low to declare that they have "breached their fiduciary duty and duty of care", and for them to give an account of $33,717,535 of payments made to FMSS and service provider FM Solutions and Integrated Services (FMSI) from July 15, 2011, to July 14, 2015.

AHTC wants "equitable compensation" for any sum that has been wrongfully paid out.

Alternatively, AHTC wants the two WP MPs to be liable for a sum of $1,261,773 - which it claims was the difference in fees between the "inflated rates" charged by FMSS and the rates it would have paid under CPG Facilities Management, the previous managing agent under the People's Action Party.

It also wants them to give an account of any profits they made in breach of their duties.

The statement alleges that Mr Low and Ms Lim had, on or before May 15, 2011, decided on behalf of AHTC to instruct that FMSS be set up, and that the company would be appointed as managing agent of AHTC without a tender being called.

This would initially be for a "transition period" of one year. Mr Loh - who died after a fall in Japan in June 2015 - would concurrently be appointed general manager or secretary of AHTC, while Ms How would be appointed deputy secretary.

AHTC also points to an e-mail sent by Mr Low to Ms How on May 19, 2011, as proof that the WP chief was aware that his instructions, once carried out, would "create a position of conflict".

In the e-mail, Mr Low mentioned a discussion with Ms Lim over the appointment of Mr Loh to his roles in the town council.

He wrote: "As for the conflict of interest, we find that it is not a big issue as all transaction has to follow 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 - including that CPG had "indicated their desire" to be released from their agreement with the town council.

The two WP MPs also allegedly said there was no time to call for a tender for a new managing agent, and it would be in the public interest to waive calling for such a tender.

There was also no record that town councillors were told that Ms How and Mr Loh were owners of FMSS at the meeting, or that any discussion on conflicts of interest arising from their appointment took place.

Meanwhile, town councillors were also supposedly told that the 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.

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 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.

Such a system was incapable of providing any independent checks 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.

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 used CPG's rates between July 2012 and July 2015, it would have saved some $746,000.

A version of this article appeared in the print edition of The Straits Times on July 27, 2017, with the headline 'Financial woes began with FMSS' installation, says town council'. Print Edition | Subscribe