“Not unreasonable” for new town councillors to engage those who could “fulfil their political work”, says Chief Justice as Court of Appeal reserves judgement on AHTC case

Chief Justice Sundaresh Menon said AHTC lead counsel David Chan's arguments "raises the question if we are barking up an imaginary tree"

It is “not unreasonable” for newly minted town councillors to engage individuals and entities they believe would “fulfil their political work”, said Chief Justice Sundaresh Menon on Thursday (25 Feb).

He stated this during the appeal hearing of the Aljunied-Hougang Town Council (AHTC) case yesterday, in which a panel of five presiding judges reserved their decision.

The appeal concerns a 2019 High Court decision, in which three Workers’ Party (WP)’s Members of Parliament were found guilty of breaching their duties as AHTC town councillors.

Party and AHTC chair Sylvia Lim, as well as then-party chief Low Thia Khiang, were found to have been in breach of their fiduciary duties by failing to “act in AHTC’s best interests and had acted for extraneous purposes”.

Party chief Pritam Singh, the High Court found, fell short of his “duties of skill and care”.

These duties revolved around the hiring of the town council’s managing agent FM Solutions & Services (FMSS), which had several decades of experience managing the Hougang Town Council.

Justice Kannan Ramesh dismissed the WP MPs’ argument that they were compelled to not call for an open tender at the time due to urgent and extraordinary circumstances, which allowed the requirement for such tenders to be waived under the Town Council Financial Rules.

“Not only was there no real urgency or necessity in the public interest to waive tender, but it would also appear that the waiver was really motivated by extraneous considerations, including politics and a misguided sense of loyalty,” said Justice Ramesh.

CJ Menon, who leads the panel of judges, said on Thursday he had “great sympathy” for the WP MPs’ lawyers’ argument that it has always been Parliament’s intention — as per the Town Councils Act — to allow town councillors “as much latitude as possible” to contract the people they need to carry out the work as necessary.

Senior Counsel Chelva Retnam Rajah noted that Mr Low was made privy to information regarding how the incumbent managing agent, CPG Facilities Management, was seeking to be released from its contract despite having a remaining two years in the said contract.

CPG was linked to the People’s Action Party.

Not trusting “people you perceive to be PAP-affiliated”, Mr Rajah argued, is not inherently in breach of fiduciary duties as town councillors.

CJ Menon said that such an argument could be behind Ms Lim and Mr Low’s decision not to call an open tender for the appointment of AHTC’s managing agent in 2011, soon after their Aljunied GRC team won the constituency in that year’s general election.

“It was to try to get somebody in (as managing agent) as soon as possible with the departure of CPG, because Mr Low said that we have to fend for ourselves and we cannot rely on people with interests with the People’s Action Party,” he said, when asked by CJ Menon as to how the WP MPs acted in good faith by not calling an open tender.

Mr Rajah, in continuing the point, highlighted that PAP Sitoh Yih Pin had appointed a managing agent without calling a tender after winning Potong Pasir SMC the same year and took over the town council from then-Singapore People’s Party chief Chiam See Tong.

David Chan, the lead counsel for AHTC, argued that the tender waiver had disrupted the effectiveness of the checks and balances process.

AHTC and the Pasir Ris-Punggol Town Council (PRPTC) had appointed an independent panel to sue the WP MPs, seeking the S$33.7 million of improper payments made found by independent accounting firm KPMG to have been made to FMSS by the town councillors.

The WP-run Sengkang Town Council (SKTC) last year took over the lawsuit from PRPTC after electoral boundaries were redrawn for the former Punggol East Single-Member Constituency.

Mr Chan posited that it was not possible to know whether the work that had been paid for was actually carried out in the absence of independent checks and balances.

However, the judges grilled him on his point, with Justice Judith Prakash stating that such an argument is “speculative” and lacking in evidence.

“There are, what, 100,000 people living in Aljunied? Singaporeans are not quiet. If things are not done properly, they will complain to the town council, they complain to their MP and they complain to the papers,” she said.

Justice Andrew Phang similarly branded Mr Chan’s argument as “theoretical”, saying that a lack of competence needs to be differentiated from a breach of fiduciary duty, and that there needs to be “a clear linkage”.

“Who is to say that if any other managing agent had been appointed, these mistakes would not have occurred? We don’t know. We don’t want to speculate unduly.

“A lack of competence is one thing. Mistakes are one thing, but to say it rises to a level of breach of fiduciary duty, you need to establish a … connection,” said Justice Phang.

Noting that CPG did not come forward to give evidence during trial, CJ Menon highlighted that the WP MPs had indeed put up a tender for a new managing agent in 2012, but had received no bids.

Mr Chan replied that it was because FMSS was already AHTC’s managing agent at the time.

CJ Menon said: “Mr Low is an experienced politician. He obviously went in with a high degree of scepticism that CPG wanted to do the work, and CPG did as he expected.”

“But it’s artificial to say they should’ve gone in expecting that CPG wanted to stay, because they never intimated a desire to stay,” he added.

CJ Menon stressed that “CPG was clear that it didn’t want to carry on”.

“So if the incumbent is not there and not keen to carry on, then speaking for myself, I have great sympathy for the fact that an elected MP will not want to sue their managing agent and order them to perform.

“For goodness sake, you are running a town council, you don’t want to start off that way. If the incumbent was not keen on carrying on, I find it difficult to imagine anyone else would be rushing in,” he said.

Mr Chan’s arguments, said the CJ, “raises the question if we are barking up an imaginary tree”, as he was “looking for tests that show something has gone wrong” without demonstrating parallels or examples of other town councils doing so to compare.

The Court of Appeal reserved their judgement, which CJ Menon said will be released in due course.

Should the court allow the appeal in its entirety, the suit against the WP leaders and other parties in the suit will be dismissed.

However, if the appeal is allowed, a second tranche of the trial will begin at a later date to assess damages the defendants are liable to pay to AHTC.

If the defendants are not able to pay damages, AHTC could initiate bankruptcy proceedings against them. This may result in the WP MPs losing their Parliamentary seats, as undischarged bankrupts cannot be MPs and are not allowed to contest in Parliamentary elections by law.

Only S$15,710 recoverable out of S$33.7 mil lawsuit claims: Workers’ Party MPs’ defence team

In 2018, the WP MPs’ lawyers argued that only S$15,710 out of the lawsuit claims made by the independent panel acting on behalf of AHTC are recoverable out of the total S$33.7 mil.

The defence team said in their final submissions that contrary to claims made by AHTC and PRPTC, which the latter had argued were for monies that were “misappropriated” or “unaccounted for” by the defendants, the plaintiffs’ claims only called into question the manner” in which the defendants managed the monies as AHTC’s town councillors.

The town councillors’ lawyers also noted that AHTC and PRPTC had relied “solely on two reports from their respective accountants, KPMG and PwC”.

The lawyers also noted from the plaintiffs’ arguments that PRPTC had called KPMG an “expert witness”, while AHTC had called PwC its “factual witness”, which the defence had argued is an indication that the latter was “less certain of its position”.

Additionally, the defence lawyers highlighted that while a report by KPMG found that “the ‘detectable’ improper payments by AHTC to FMSS or solutions provider FM Solutions and Integrated Services (FMSI) amounts to not more than S$1,518,286”, the auditing firm’s report also concluded that “only $624,621 is recoverable”.

“The KPMG Report”, the defence team submitted, “does not define what ‘determinable’ means”.

They added that KPMG’s executive director Owen Hawkes stated that “not determinable” refers to payments in which it is “not possible to determine what part of them could be labelled improper and ought to be recovered”.

“This suggests that for these payments, KPMG could not ascertain whether AHTC had suffered any loss,” the submission read.

Much of the “recoverable” amount of S$608,911 entailed project management fees paid to FMSS, which KPMG claimed to be improper, given that the fees were meant for “serious cyclical repairs and redecorations”.

The WP MPs’ lawyers, however, highlighted that KPMG did not conduct any on-site investigation to determine whether such a claim is substantiated “and failed to take into account the past practice of Aljunied Town Council”.

Mr Hawkes also testified during the cross-examination that no checks were made by him and he relied solely on advice given to him to classify the projects as ones that should have been covered under the TC management fees instead.

“When it was still controlled by PAP MPs, the town council had classified similar services rendered as project management fees”, added the lawyers.

AHTC and PRPTC, alleged the defence team, were not aware of the losses or potential losses stemming from “control failures” in the remaining S$33.7mil in the former’s claim.

Only S$1,965 out of more than the S$5.4mil flagged as improper use of town council monies was “determinable”.

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