The High Court today (11 Oct) found Workers’ Party (WP) Aljunied GRC Members of Parliament (MPs) Pritam Singh, Sylvia Lim and Low Thia Khiang liable for damages against the Aljunied-Hougang Town Council (AHTC) and the Pasir Ris-Punggol Town Council (PRPTC).
Judge Kannan Ramesh, in his written judgement, ruled that Lim and Low as town councillors had acted in breach of their fiduciary duties to AHTC.
He reasoned that such breach of fiduciary duties was evident in the waiver of tender leading to the award of the first managing agent (MA) contract to FM Solutions & Services (FMSS).
The waiver, said the judge, was “not justified under the Town Council Financial Rules (TCFR), and that subsequently, Lim and Low had “failed to act in AHTC’s best interests and had acted for extraneous purposes”.
“The evidence shows that there was a clear plan for FMSS to replace the incumbent MA CPG regardless of CPG’s intention as regards the existing MA contract, and that this decision was made by Ms Sylvia Lim and Mr Low Thia Khiang shortly after the 2011 General Elections,” said Justice Kannan.
“There was no urgency of circumstances that would have justified the waiver of tender, particularly since CPG was contractually obliged to continue serving as the MA under the existing MA contract, and the defendants should have held CPG to that contractual obligation, at least for such time as was necessary for a tender to be called,” he added.
The judge also stressed that the TCFR does not permit such waiver “except in very special circumstances”, and said that it was “clear” to him that “other alternative solutions had not been explored in this case before tender was waived”.
“This was because the sole objective was for CPG to be replaced as MA by FMSS,” he said, pointing out that Low’s “own evidence” had demonstrated “the real reason” behind the waiver of tender.
Low’s purported “distrust of CPG and other entities he perceived to be affiliated to the People’s Action Party”, in addition to his “sense of loyalty towards the staff of Hougang Town Council who risked being retrenched if CPG continued as MA of the expanded AHTC” were reasons cited by Justice Kannan behind Low’s move to waive the tender.
Commenting on Singh’s role in the case, Justice Kannan said that while “it cannot be said that he has breached his fiduciary duties to AHTC” based on the available evidence, the former had breached his “duties of skill and care” to the Town Council in relation to the award of the first MA contract.
Role of town councillors “gives rise to fiduciary duties” based on “a relationship of trust and confidence”: Judge Kannan Ramesh
Being subject to fiduciary duties, according to the judge, entails managing the estate and serving the interests of their Town Council “with single-minded loyalty, and for proper purposes”.
Citing Section 5 of the Town Council Act, which stipulates that the Town Council is to be a body corporate, Justice Ramesh said that town councillors “must therefore act in accordance with the duties that the law imposes on officers of bodies corporate”.
“In this regard, there is a close analogy between town councillors and directors of a company or council members of a strata development management corporation.
“There is no reason not to conclude that town councillors have undertaken to act on behalf of their Town Council in a relationship of trust and confidence that gives rise to fiduciary duties,” he said.
On the involvement of How Weng Fan and her late husband Danny Loh as Deputy Secretary/General Manager and Secretary of AHTC respectively, Justice Ramesh said that these roles constituted “part of the top management of AHTC”, and that “there were no other employees of AHTC more senior than them”.
Employees, said the judge, are fiduciaries “if their duties require them to act with a single-minded loyalty, and “top management” will commonly have undertaken such duties to their employers”.
Thus, any “potential conflicts of interest” that arise from this must be managed as part of their fiduciary duties to AHTC, and “did not mean that they cannot owe fiduciary duties”, he added, in reference to How’s position as the majority owner of FMSS.
Consequently, said Justice Kannan, How’s “heavy involvement in the award of the first MA contract to FMSS suffices for a finding that she too breached her fiduciary duties to AHTC”.
“Mr Danny Loh’s fiduciary duties to AHTC only began from the date of his appointment of Secretary of AHTC, 1 August 2011, and since the first MA contract was entered into before that date, he is not liable for breach of fiduciary duties in this regard,” he added.
Lack of proper verification, absence of sufficient safeguards in approving payments to FMSS “represent a breach of the duties of skill and care” by town councillors: Justice Kannan Ramesh
A lack of proper verification and an absence of sufficient safeguards, alongside the involvement of “conflicted persons” in the approval process for payments to FMSS and FMSI “created an inherent risk of overpayment”, Justice Kannan said.
“The standing instruction for payments to FMSS to be co-signed by the AHTC Chairman or Vice-Chairman was not a sufficient safeguard because there was no system to ensure that each cheque
presented was fully verified by independent parties.
“In some instances, there was no proper verification even by conflicted persons, as supporting documents were signed after a mere tallying exercise,” he added.
Such lapses “represent a breach of the duties of skill and care” owed by the town councillors, as well as How and Loh, according to the judge.
“FMSS is also liable for knowing receipt for the payments to it under the first MA and EMSU contracts,” he added.
Having custodial duties over town council’s assets makes town councillors liable to “reconstitute those assets” in the event of misapplication: Judge Kannan Ramesh
Town councillors, particularly Lim and Low in the immediate case – while not trustees of AHTC’s assets as submitted by PRPTC – are “custodial fiduciaries”, according to Justice Kannan.
“This means that they have custodial duties over their Town Council’s assets, and may be ordered to reconstitute those assets if they misapply them,” he said.
“When awarding equitable compensation, the court should be concerned not so much with the fact of the misapplication of the trust property, but rather the true or proper loss that is suffered.
“In the present case, all the disbursements under the first and second MA and EMSU contracts could be said to involve the misapplication of AHTC’s monies.
“However, in return AHTC had received MA and EMSU services, which was something it was required to procure.
“The loss flowing from the misapplication is therefore prima facie the difference between the amount of money misapplied and the value of the net benefits actually obtained by AHTC,” he said.
All three MPs may now owe the two town councils part S$33.7 million in claims.
The exact amount will be determined in a “future second stage of the trial”, in which the court will assess the quantum of compensation that the town councils are entitled to from the defendants.