This story was first published on May 28, 2015.
SINGAPORE - The Court of Appeal sits on Monday (Aug 3) to hear the Ministry of National Development's (MND) appeal against a High Court's earlier decision not to appoint independent accountants to the Aljunied-Hougang-Punggol East Town Council (AHPETC) which is run by the Workers' Party (WP).
Here's a recap of the case, and what the judge said in his judgment, which was released on May 27.
What the case is about
The Ministry of National Development (MND) filed an application on March 20, 2015, to appoint independent accountants to the Aljunied-Hougang-Punggol East Town Council (AHPETC).
Only with this condition met would the ministry release $14 million in government grants to the Workers' Party-run town council.
After a year-long special audit by the Auditor-General's Office (AGO) uncovered serious lapses in governance and compliance at AHPETC, the MND wanted safeguards to be put in place before it would disburse grants to the town council.
Among MND's conditions were for the grants to be held in segregated accounts, and for independent accountants to be appointed to co-sign any payments exceeding $20,000 made from the accounts.
MND also asked for the accountants to be empowered to examine past AHPETC payments and take appropriate action to recover any losses suffered by the town council and its residents.
AHPETC opposed the appointment of the independent accountants. It also engaged two external accounting firms to help it manage its books.
The two-day hearing on the application took place on May 4 and 5.
The arguments
MND had said that appointing the two accountants were necessary to safeguard the government grants, which are public funds.
It contended that AHPETC had not taken enough steps since the AGO audit, to rectify the lapses. The town council was also in danger of running out of funds and had missed two scheduled sinking fund payments, the ministry had said.
Since the MND hands out grants and has regulatory oversight, it too is entitled to legal recourse under the Town Councils Act (TCA), its lawyers argued.
They added that while town councils have wide freedom in their other operations, town councils were nonetheless required to observe financial rules.
But AHPETC argued that the court should not intervene in what it described as a "political dispute" between the WP and the ruling People's Action Party.
The town council further said that the MND does not have the right under the TCA to make such a request. It added that the High Court did not have the the power to grant MND's request.
If there is any mismanagement of town council funds, only the Housing Board or the residents have the right to complain, AHPTC said.
Its lawyers added that if the town council were to run out of funds, nothing can be done until the next general election, when voters can register their dissatisfaction.
What the judge said
Justice Quentin Loh, in an 80-page judgement released on Wednesday, ruled that MND does not have the legal basis to make such an application.
Referring to what he said was Parliament's intention when town councils were first proposed and set up, he said it was clear that "the responsibility of running the town councils was laid squarely on the shoulders of the Members of Parliament of those constituencies and their chosen town councillors".
A key philosophy was also that voters had to choose their MPs carefully, as they would have to live with the choices made by their town councils, he noted.
But he added that that it "cannot, and must not, be construed as indicating that a town council can breach the duties imposed on it by the TCA with impunity, and remain only answerable to the electorate at the next general elections".
Justice Loh said a town council can be compelled by the court to comply with its duties, and if it fails to do so, be taken to task.
The TCA also allows the HDB and residents to seek a court order to compel a town council to perform its duties.
And while the MND cannot seek a court order to appoint the independent accountants, it can do so through section 42 of the TCA, which provides for the Minister for National Development to impose conditions tied to the disbursement of grants.
The judge added that the conditions set by the MND for the disbursement of grants were "reasonable in the light of the findings of the AGO report, which was also accepted without reservation by AHPETC".
"AHPETC's management of its funds and finances have been far from satisfactory, and the problems continue to remain unrectified," he said, adding that controls were needed to ensure that government grants to the town council are adequately managed and used lawfully.
Noting that there have been numerous breaches of the TCA and Town Council Financial Rules (TCFR), Justice Loh said that "grave and serious questions" have been raised regarding the state of AHPETC's accounts and the validity and propriety of payments previously made by the town council to related parties.
Among the lapses discovered at the town council by the AGO, was that AHPETC failed to disclose its related-party transactions involving its managing agent companies, FM Solutions and Services and FM Solutions and Integrated Services. The two companies are owned by some of the town council's key officers.
If similar lapses had occurred in a public company or Management Corporation Strata Title Committee, said Justice Loh, "there would have been severe consequences to the office holders".
He added that if AHPETC were subject to the Building Maintenance & Strata Management Act, its officers will be exposed to the possibility of civil and criminal suits.
"I can only say it is a travesty for AHPETC to have ignored their duties ad obligations imposed on them by the TCA and TCFR. They owe a duty and a heavy responsibility to their constituents to run AHPETC properly and it is incumbent on them to put their house and finances in order," he said, adding that his judgement did not stop any resident or the HDB from bringing legal action against the town council if they wished to do so.
What next
Both the MND and AHPETC have said they are studying the judgement.
MND, in a statement on Wednesday night, noted that "the court has agreed with MND's concerns about AHPETC".
It added: "The Court said that HDB and residents could have brought the action, but not MND itself ... MND will study the Judgement carefully and consider what the next steps should be."
AHPETC chairman Sylvia Lim, who is also chairman of the WP and an Aljunied GRC MP, said in response to media queries on Wednesday that "we respect the court's decision and will be studying the judgement in detail".
She added that the town council will continue to improve its financial processes and will focus on filing audited accounts for financial years 2013/2014 and 2014/2015, which are already late.
Lawyer Peter Low, who acted for AHPETC, added: "It now goes back to the original situation. Under the law, the minister can give the money but it is up to him to impose conditions. If he wants accountants to sign off on payments, he can."
