WP leaders, AHTC members mostly acted in good faith but negligent in some areas: Court of Appeal

SINGAPORE: The Court of Appeal on Wednesday (Nov 9) allowed part of the appeals brought about by the Workers' Party (WP) leaders and related parties in the Aljunied-Hougang Town Council (AHTC) case. 

In a reversal of the High Court's judgment, the apex court found that the members and senior employees of AHTC do not owe the town council fiduciary or equitable duties.

The bulk of the accusations levelled at the WP Members of Parliament and AHTC councillors had rested on this purported breach of fiduciary or equitable duties.

However, the court found that the members and senior employees are liable to AHTC for "gross negligence" in certain respects relating to the payments process. 

WP chief Pritam Singh, Aljunied GRC MP Sylvia Lim and former WP secretary-general Low Thia Khiang had been found liable in October 2019 for breaching different types of duties in the handling of about S$33 million in town council funds.

Other appellants in the suits are 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.

All eight parties appealed against the high court's finding that they were liable for various breaches.

The appeals were heard by a five-judge panel comprising the Chief Justice and Justices Andrew Phang, Judith Prakash, Tay Yong Kwang and Woo Bih Li.

The WP Members of Parliament and AHTC councillors had been accused of breaching their fiduciary duties in the appointment of town council managing agent FM Solutions & Services (FMSS). FMSS was led by Ms How, WP stalwart Low Thia Khiang's long-time colleague from Hougang Town Council.

As a result of this appointment, they allegedly allowed "improper" payments of more than S$33 million to FMSS, its service provider FM Solutions & Integrated Services (FMSI) and third parties.

THE FIDUCIARY ISSUE

A fiduciary is a person who acts for or on behalf of another, in a legal or practical relationship of trust, such as one between a trustee or beneficiary.

In its decision released on Wednesday, the court found that there were a number of reasons why fiduciary duties should not be imposed on the town councillors and employees.

These include the fact that the relationship between a town council and its members and employees does not bear the characteristics of a fiduciary relationship.

"The key fact militating against the imposition of fiduciary duties in this case is the fact that the town councillors and the employees were executing statutory duties under public law," said the Chief Justice.

He said it was "both unprincipled and inappropriate to 'convert' these statutory duties existing under public law into fiduciary duties existing under private law".

The court disagreed with the plaintiffs that it was necessary to impose fiduciary duties on the town councillors and employees as there would be no mechanisms to enforce the duties of a town council.

The court pointed to a key provision in the Town Councils Act, which mandates that a town council must comply with all obligations under the act.

IN GOOD FAITH

The court found several members of the town council had acted in good faith. This was a key argument during the trial.

The judgment stated that the town councillors and Ms How had acted in good faith when they decided to waive the tender for and award the first contract for managing agent (MA) services to FMSS.

They were thus entitled to claim immunity from personal liability under the Town Councils Act.

The court found that the evidence showed that the town councillors had taken seriously the feedback they had received, which suggested that their then-managing agent CPG Facilities Management might not fulfil its role.

"Simply put, Mr Low harboured a belief, which developed and strengthened as events unfolded, that the difficulties affecting the prospects of a WP-led town council working successfully, meant that it would better serve the residents in AHTC if the WP-led AHTC engaged a new company, established from scratch, made up of people who would serve a WP-led town council wholeheartedly and competently," the court found.

The town councillors and employees acted in good faith when they decided to waive the tender for and award the first contract for Essential Maintenance Service Unit (EMSU) services to FMSS, the court found.

The court also found no breach of duties in how the town council had awarded to FMSS the second contracts for MA and EMSU services, and that the town councillors had undertaken their actions in good faith.

NEGLIGENCE IN PAYMENTS PROCESS

However, the court found that the members and senior employees are liable to AHTC for negligence in certain respects relating to the payments process. 

"The town councillors and employees were grossly negligent in implementing the payments process, as the involvement of conflicted persons for payments to FMSS and FMSI created an inherent risk of overpayment in the absence of safeguards," said the court in a case summary. 

For this, they may be liable for damages.

The court found that the town councillors and employees had not acted in good faith when they implemented the payments process for AHTC to approve payments to FMSS and FMSI.

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

First, payments were overseen by and involved people with conflicts of interest - individuals who had direct interests in FMSS and FMSI while simultaneously holding key management and operational positions in AHTC. These are Ms How and her late husband Mr Loh.

The court said it was clear that there was no actual verification of whether work was done.

"It was never seriously contended by the town councillors that there was any process by which an independent person certified or verified that payment was made for work properly done," said the court.

"Indeed, there appeared to be no actual certification or verification of work being done; the various steps of the payment approval process simply involved tallying numbers to ensure that the figures were consistent."

The court said the town councillors were aware of the existence of Ms How's and Mr Loh's potential conflict of interest as early as May 19, 2011, but failed to properly address such conflict. 

Calling it "gross negligence", the court said this state of affairs was allowed to persist for at least three years from July 2011 to July 2014.

In that period of time, AHTC disbursed over S$23 million under the contracts.

"The character of such neglect, in sum, was at least potentially grave," said Chief Justice Menon.

"We are thus unable to see how such conduct that amounted to gross negligence can be said to have been done in good faith."

He said it appeared that the town councillors "simply took it on faith that FMSS was performing the work it was contracted for and being paid to do".

This was "exacerbated by the manifest conflicts of interest which were clearly perceived and understood by all concerned", said the court.

"In our judgment, this was a paradigm example of poor financial governance and a breach of the duty of care," said the Chief Justice.

The issue of damages for this negligence will be dealt with at a later stage.

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.

Meanwhile, in a statement published on the blog In Good Faith on Wednesday afternoon, Ms Lim, Mr Singh and Mr Low said they were “pleased” to note that the court had found that the town councillors largely acted in good faith.

“We are still in the process of studying the judgment of the Court of Appeal released earlier today with our lawyers and take advice on the next steps,” said the trio.

Thanking their lawyers from Tan Rajah & Cheah, they added: “We take this opportunity to once again thank members of the public and supporters who have stood by us throughout this case.”