Judge blasts WP-run council but rejects MND's oversight plea
PUBLISHED ONMay 28, 2015 9:00 AMByWalter SimTham Yuen-C
The High Court has turned down the Ministry of National Development's (MND) application to appoint independent accountants to oversee government grants to the Workers' Party-run town council.
But Justice Quentin Loh, in explaining why the court was not in a position to do so, was scathing towards the council in his 80-page judgment released yesterday , saying it was a "travesty" that the Aljunied-Hougang- Punggol East Town Council (AHPETC) ignored its duties and obligations to residents. "They owe a duty and a heavy responsibility to their constituents to run AHPETC properly and it is incumbent on them to put their house and finances in order," he said.
Noting the "grave and serious questions" raised over the state of its accounts and propriety of past payments, Justice Loh said such lapses would result in "severe consequences" to office holders had they occurred in a public company. And if the council were a management corporation, it could well have faced civil or criminal liabilities.
MND wanted the High Court to appoint independent accountants to safeguard government grants that had been withheld owing to serious lapses in governance and compliance by AHPETC. MND would disburse the grants - of $14 million - if the court agreed to its application.
But Justice Loh said the High Court does not need to step in as the law already allows the National Development Minister to impose conditions on grants disbursed to town councils.
It would be up to AHPETC in this instance to decide whether to accept these conditions. If it chooses not to, or wishes to challenge the conditions, it may opt for judicial review proceedings.
Although he was unable to grant MND's application, Justice Loh found the conditions proposed by MND reasonable in the light of the Auditor-General's Office's report that unearthed serious accounting and governance lapses.
Noting that problems remain unrectified, and that AHPETC's management of funds and finances is "far from satisfactory", he urged both sides to reach a consensus on the conditions. This is so that grants can be promptly disbursed, and necessary transfers made to the sinking fund.
And on the "most heavily contested issue" of whether the accountants should be empowered to scrutinise past payments, Justice Loh said Parliament's intent when passing the Town Councils Act was to give councils latitude to operate and manage funds.
So MND stepping in as a form of "regulatory oversight" would go against the intent of the law, which already gives the Housing Board and residents the right to seek orders from the court.
The MND noted that the court agreed with its concerns about AHPETC, and said last night it would study the judgment and decide on the next steps. AHPETC and WP chairman Sylvia Lim said the town council respected the decision and would study its findings.
Judge: Numerous breaches by town council
Even as he explained why the court could not appoint independent accountants to oversee government grants given to the Aljunied-Hougang-Punggol East Town Council (AHPETC), High Court Judge Quentin Loh had sharp words for the town council, which he said ignored its duties and obligations under the law.
In his judgment released yesterday, he said there were "numerous breaches" of the Town Councils Act (TCA) and Town Councils Financial Rules (TCFR) by AHPETC.
Describing them as a "travesty", he called on the Workers' Party-run town council to put its house and finances in order.
The Ministry of National Development (MND), reacting to the release of Justice Loh's decision, cited this and other segments of his judgment and noted that the court "agreed with the MND's concerns about AHPETC".
It said it will consider what steps to take next after studying the judgment, adding: "The court said (the Housing Board) and residents could have brought the action, but not MND itself."
The ministry had filed an application with the High Court on March 20 to appoint independent accountants to help manage AHPETC's finances, after accounting and governance lapses were found during a special audit of the town council by the Auditor- General's Office (AGO).
The MND wanted the accountants to be appointed by the court before it would disburse grants to the town council.
Yesterday, its application was turned down by Justice Loh, who said Section 42 of the TCA already provides for the Minister for National Development to impose conditions tied to the disbursement of grants. The minister can hence rely on the Act to appoint independent accountants, instead of relying on a court order.
Justice Loh said that the conditions set by the MND were "reasonable in the light of the findings of the AGO report, which was also accepted without reservation by AHPETC".
"AHPETC's management of its funds and finances have been far from satisfactory, and the problems continue to remain unrectified," he said, adding that controls were needed to ensure that government grants to the town council are adequately managed and used lawfully.
Justice Loh said the Government, through the MND, has a responsibility to make sure public money is used in accordance with the law.
During the two-day hearing on the application earlier this month, AHPETC's lawyers argued against the MND's proposal to appoint PwC partners Ong Chao Choon and Chan Kheng Tek as the independent accountants.
The lawyers said this was inappropriate as the accounting firm had participated in the AGO audit of AHPETC's books. Therefore, they submitted, the two men would come with "preconceived notions" that the town council has done wrong, and would appear biased.
Justice Loh disagreed, saying that if appointed, the two accountants should be seen as professionals "who were exercising their professional judgment in the discharge of their duties".
"It is unfair to the proposed independent accountants to say that they would come with preconceived notions and it would be improper to allege that their appointment will lead to an appearance of bias, as there is no basis for any such allegation," he said. In his 80-page judgment, he also delved into the lapses identified by the AGO and noted that AHPETC's lawyers acknowledged during the hearing that the town council had not yet addressed some of these issues.
On the town council's failure to set aside money for its sinking fund, Justice Loh said it was "the height of financial irresponsibility".
He added that AHPETC had "more severely" failed to disclose its related-party transactions involving its managing agent companies, FM Solutions and Services and FM Solutions and Integrated Services. The two companies are owned by some of the town council's key officers.
"There can be little doubt that AHPETC has breached several of its duties under the TCA and the TCFR and continue to be in breach of some of them," he said.
The MND, in its statement last night, also noted that the judge said "the town council was to be blamed" for not getting the government grants - given to all town councils - as it rejected the ministry's offer to release the grant with conditions.
Earlier this month, AHPETC chairman Sylvia Lim said the town council deferred making transfers to the sinking fund so that it could pay routine expenses and "ensure continuity of operations".
On this point, Justice Loh noted that AHPETC rejected the MND's offer to release half of the grants for the 2014/2015 financial year (FY), subject to conditions. "If AHPETC has anyone to blame for failing to make the transfers on time, it was itself," he said.
He also cited Ms Lim's Feb 12 statement in Parliament that the town council accepted that it should have transferred quarterly amounts due to the sinking fund, and should have paid sinking fund expenses directly from the sinking fund accounts.
"We have taken steps and made good the transfers. For FY2011/2012 and FY2012/2013, the necessary transfers have been done. We have also done the transfers for FY2013/2014 and have been making transfers for FY2014/2015," Ms Lim had said.
Justice Loh noted that Ms Lim's statement came a day after AHPETC made a late transfer to its sinking fund and 12 days after another transfer was due. But Ms Lim failed to mention this, or acknowledge that the town council had been making late transfers to its sinking fund.
"I find the Latin phrase, suppressio veri, suggestio falsi (suppression of the truth is equivalent to the suggestion of what is false), particularly apt to this statement of Ms Lim's," he said.
WP: Council bent on improving processes
The Workers' Party-run town council remains focused on filing audited accounts and continuing to improve its financial processes, chairman Sylvia Lim said last night.
The Aljunied-Hougang-Punggol East Town Council (AHPETC) has until June 30 to submit its already-late accounts for the 2013/2014 financial year, and until Aug 31 for the accounts for financial year 2014/2015.
The Ministry of National Development (MND), which has withheld $14 million in government grants to AHPETC, applied to the High Court to appoint independent accountants to safeguard the grants and co-sign on any payments above $20,000.
Justice Quentin Loh yesterday turned down the ministry's application because there was no legal basis for the court to approve it.
When asked what this means for AHPETC, its lawyer Peter Low said: "It now goes back to the original situation. Under the law, the minister can give the money but it is up to him to impose conditions. If he wants accountants to sign off on payments, he can."
Last year, the MND offered to release half the grants for financial year 2014/2015, subject to AHPETC meeting four conditions.
These included assuring that it will put measures in place to properly account for how the grants are used and that it will make prompt transfers to the sinking fund - monies used for long-term cyclical maintenance. AHPETC did not accept the offer.
This article was first published on May 28, 2015.
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