AHTC case: Court of Appeal finds 'gross negligence' in 'woefully inadequate' payments process

SINGAPORE: The Workers' Party (WP) leaders embroiled in the Aljunied-Hougang Town Council (AHTC) civil suit may be liable for damages, after the Court of Appeal on Wednesday (Nov 9) found "gross negligence" in a payment process by the town council to its managing agent.

In a 285-page judgment, the five-judge panel cleared the eight appellants of some liability, but maintained that there was negligence in the way payments were made to managing agent FM Solutions & Services (FMSS) and its service provider FM Solutions & Integrated Services (FMSI).

Among the findings of the court was that there was no actual verification of whether work was done by managing agent FMSS, even at a late stage of the payment process.

WP chief Pritam Singh, Aljunied MP Sylvia Lim, and former WP secretary-general Low Thia Khiang testified that their roles were more to ensure that cheque payments tallied with the invoices they were presented with.

There appeared to be no actual certification or verification of work being done by FMSS, the court found. The various steps of the payment approval process simply involved tallying numbers to ensure that the figures were consistent.

The apex court agreed with the trial judge's finding that the channels for residents to raise feedback and complaints provided only a general means for AHTC to monitor FMSS' general work performance, and did not verify that work was done in relation to each particular cheque.

"We are unable to see how such conduct which we consider amounted to gross negligence can be said to have been done in good faith," said the court.

It added that the importance of ensuring that the disbursement of public money is subject to oversight cannot be denied.

"Having sought to devise a system for monitoring the payments to FMSS in view of the clear conflict of interest that permeated the payments process, it simply cannot be said that the standing instruction, or even the general avenues for feedback that did not bear any direct nexus with each work as certified on a particular cheque, were adequate safeguards," said the court.

The judges said this was "not mere negligence". The conflict was apparent, with the risk of overpayment or improper payments to FMSS "clearly present" in the town councillors' minds.

The court said that the payments process was "woefully inadequate", with AHTC simply not having adequate protocols or processes in place to assess independently and objectively the service levels of the work done by FMSS and FMSI.

“Accordingly, the extent of this risk cannot be overstated. Yet, this state of affairs was allowed to persist for at least three years - from July 2011 to July 2014 - and in that period of time, AHTC disbursed over S$23 million under the contracts," said the court.

"The character of such neglect, in sum, was at least potentially grave."

WHAT HAPPENED

The eight appellants in the case are Mr Singh, Ms Lim, Mr Low, then-AHTC councillors Chua Zhi Hon and Kenneth Foo Seck Guan, along with managing agent FMSS and its director Ms How Weng Fan, who also acts in the capacity of her late husband Danny Loh.

An independent panel appointed by AHTC launched the suit against the WP leaders and AHTC councillors, who were tried in 2018 for breaching duties owed to AHTC and Pasir Ris-Punggol Town Council (PRPTC) between 2011 and 2015.

The court on Wednesday found that the town councillors and employees did not act in good faith when they put in place a process for AHTC to approve payments to FMSS and FMSI.

The judges said the town councillors and employees breached their duty of care by permitting control failures to exist in the payment process.

It was not disputed that the payment process was overseen by and involved people with a conflict of interest - Ms How and Mr Loh. The couple had direct interests in FMSS and FMSI while also holding key management and operational positions in AHTC.

The plaintiffs contended that this created a conflict between the employees' obligations to AHTC on the one hand and their profit motive arising from their interests in FMSS and FMSI on the other, exposing public funds to the risk of improper use.

Ms Lim and Mr Low gave evidence at trial that it was industry practice to have employees of the managing agent assume key managerial positions in the town council, such as that of general manager and secretary.

Much of the evidence pointed to the fact that this practice was adopted from the prevailing practice at Aljunied Town Council before the Workers' Party won the GRC.

The Court of Appeal disagreed with the appellants' argument that industry practice precludes a conflict of interest from arising.

"Instead, we agree with AHTC (the plaintiff) that, even if it were true that all MA operators were operating in the same positions of a potential conflict of interest, this would not necessarily make such conduct justifiable, much less form the de facto standard that ought to be applied across the board," said the court in its judgment.

The judges found that there was no independent verification that payments were made either for work that was completely done or for work that was satisfactorily done.

The town councillors' case was that a standing instruction provided an independent check on payments made to FMSS, because it required cheques to be signed by either the chairman or the vice-chairman, neither of whom had any interest in FMSS.

The court said the fact that this instruction was implemented shows that the town councillors and employees were aware of the concern that conflicted people were involved in the payment process.

However, the court found that the standing instruction was of little utility. There were no formal protocols or processes in place to independently and objectively assess the service levels of FMSS, nor any process to monitor the integrity and sufficiency of work FMSS did.

However, the court said that its finding was not to say that the town councillors and employees had deliberately constructed a system with these "control failures" and allowed them to persist so that FMSS could receive unjustified payments.

The court also found that Ms Lim was negligent and liable for a breach of duty of skill and care in tort owed to AHTC over her decision not to renew some contracts for AHTC. She had done so even though those contracts would have been renewed at significantly cheaper rates.

She did not prove at trial that she acted in good faith in her actions, the court said.

DAMAGES

The damages that may be recovered from the WP leaders and AHTC councillors involved will be dealt with at a separate hearing.

However, the court pointed out a potential difficulty in the recovery of damages. The plaintiffs relied on a report by KPMG outlining the purported losses or control failures by the town councillors.

The plaintiffs' case was constructed on the perceived risks inherent in the payments process, and it is unclear if there was evidence of any instance where the control failures resulted in improper payments, the court said.

AHTC and STC, as claimants, would bear the burden of proving any losses as a result of the control failures, the court said.

If the defendants are unable to pay any damages which are imposed, AHTC could commence bankruptcy proceedings against them, and the WP MPs may lose their parliamentary seats.

Under the Singapore Constitution, an undischarged bankrupt cannot be a Member of Parliament and will not be allowed to contest in any parliamentary election.

The WP MPs involved in the suit successfully raised a million dollars over a few days in October 2018 after turning to the public for help with legal fees.

In a statement, the Ministry of National Development (MND) said that it noted "with concern" that the Court of Appeal has found that Ms Lim, some other AHTC Town Councillors and employees did not act in good faith in respect of S$23 million in payments to FMSS.

The ministry added that it will be monitoring the proceedings, as public funds are involved.