WP leaders displayed ‘grave neglect’ in allowing conflict of interest at AHTC to persist: Appeal Court

The leaders had breached their duty of care by allowing “control failures” to exist in the payments process, the five-member court led by Chief Justice Sundaresh Menon said in a written judgment. PHOTO: LIANHE ZAOBAO

SINGAPORE – The Workers’ Party leaders involved in running Aljunied-Hougang Town Council (AHTC) were found to be grossly negligent in implementing a process to approve payments to their managing agent, the Court of Appeal said on Wednesday.

The leaders had breached their duty of care by allowing “control failures” to exist in the payments process, the five-member court led by Chief Justice Sundaresh Menon said in a written judgment.

The court said it appeared the town councillors, who included WP chairman Sylvia Lim, then-WP chief Low Thia Khiang and current WP chief Pritam Singh, simply took it on faith that FM Solutions and Services (FMSS) was performing the work it was contracted for and being paid to do.

“There was no actual verification of whether work was done,” the court said. “Ms Lim, Mr Low and Mr Singh testified that their role was more to ensure that the cheque payments tallied with the invoices that they were presented with.”

“Furthermore, the supporting documents relied upon by the chairman and vice-chairman were prepared by FMSS’s personnel, which meant that the signatories were not independently informed other than by persons who were conflicted.”

“For completeness, even though Ms Lim gave evidence that she would, on occasion, take such supporting documents away with her to seek clarification instead of signing the cheque at the chairman’s meetings, it is not the town councillors’ pleaded case that this was the standard practice,” the court added.

FMSS was set up by Ms How Weng Fan and her husband Danny Loh, WP supporters who were later appointed deputy secretary and general manager, and secretary of AHTC, respectively.

The court said that while the town councillors and employees had acted in good faith in appointing FMSS as AHTC’s managing agent, they were also aware of the conflict of interest involved, but failed to address it properly.

“The risk of overpayment or at least improper payments to FMSS was clearly present in the town councillors’ minds,” the court said. “But... the payments process instituted was woefully inadequate.” 

The court rejected arguments from the WP leaders that their contract making clear that payments to FMSS were to be in fixed monthly sums meant that there was no room for abuse.

It said: “Payments could have been made of fixed sums, but the possibility of improperly certified works remained.”

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Workers' Party leaders and others involved in running the Aljunied-Hougang Town Council (AHTC) acted in good faith when they ...

A 2016 court-ordered audit of AHTC by accounting firm KPMG found “serious flaws” in the town council’s governance, and highlighted improper payments of $33.7 million to FMSS.

The judgment said that the procedure of making monthly payments according to stipulated rates did not absolve the town councillors from having to see for themselves that the work was done, and such a process created an inherent risk of overpayment or payment for work which was not adequately completed.

The court also assessed a point made by the councillors that a set of standing instructions stipulating that cheques to FMSS had to be signed by the chairman or the vice-chairman constituted an independent check on the payments process. Ms Lim was the chairman of AHTC in 2011, and Mr Low its vice-chairman.

The town councillors had said these standing instructions were regarded as a sufficient check as the chairman or the vice-chairman had to satisfy themselves that the cheques they were signing were justified.

The court pointed to evidence submitted by KPMG forensic partner Owen Hawkes that said it was unlikely that either the chairman or the vice-chairman of AHTC would have been independently informed about whether FMSS’s invoices were appropriate or justified.

It also said that AHTC did not have the processes in place to independently and objectively assess the level of service provided by FMSS and Mr Loh’s related company FMSI.

It said: “Accordingly, the extent of this risk cannot be overstated. Yet, this state of affairs was allowed to persist for at least three years.” The court noted that in that period of time, AHTC disbursed over $23 million under contracts with FMSS and FMSI.

“We are thus unable to see how such conduct that amounted to gross negligence can be said to have been done in good faith,” it added. 

The judgment also examined AHTC’s dealings with third-party contractors. 

It found that while the councillors acted in good faith in dealing with firms LST Architects, Titan and J Keart, they were negligent in dealing with engineering companies Red-Power, Digo and Terminal 9.

The court noted that AHTC had, in April 2012, called for a tender for some maintenance works, and Red-Power was the sole tenderer. On June 11, 2012, it was awarded a term contract for three years even though AHTC had the option to extend its existing contracts with Digo and Terminal 9 for the same services at significantly cheaper rates. 

It said: “Ms Lim made no attempt to explain why she did not decide to renew the contracts with Digo and Terminal 9 for AHTC, despite the significantly cheaper rates, or even if she knew that the rates were cheaper.”

The court found that Ms Lim had failed to prove that she acted in good faith when she chose not to renew the contracts with Digo and Terminal 9. It said these actions constituted a breach of her duty of skill and care owed to AHTC, and that she is liable in negligence in this respect.

Read the full judgment at https://www.elitigation.sg/gd/s/2022_SGCA_72

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