Court of Appeal holds that Town Council members and employees do not owe fiduciary duties

Introduction

On 9 November 2022, the Court of Appeal, sitting as a bench of five judges, delivered its decision in How Weng Fan and others v Sengkang Town Council and other appeals [2022] SGCA 72, holding inter alia that members and senior employees of Aljunied-Hougang Town Council (“AHTC”) do not owe fiduciary duties to AHTC, but owe a tortious duty of skill and care to AHTC.

The Court of Appeal further held that section 52 of the Town Councils Act (Cap 329A, 2002 Rev Ed) (“TCA”) (now section 74 of the Town Councils Act 1988) immunises members, employees and officers of Town Councils from personal liability against both third parties and the Town Council itself. However, this immunity only extends to acts performed in the execution or purported execution of their statutory duties, provided that they are done or intended to be done in good faith.

This case update discusses the issues raised in the Court of Appeal’s landmark judgment.

Background

Following the 2011 General Elections (“2011 GE”), candidates from the Workers’ Party (“WP”) were elected as Members of Parliament (“MPs”) for the electoral divisions of Aljunied and Hougang. The existing Aljunied Town Council and Hougang Town Council were subsequently merged to form AHTC. The MPs for the electoral divisions of Aljunied and Hougang became elected members of the newly constituted AHTC. FM Solutions & Services Pte Ltd (“FMSS”) was appointed by AHTC to be its managing agent.

After several instances of non-compliance with statutory requirements, AHTC appointed an Independent Panel, directing it to take appropriate follow-up action. The Independent Panel, on behalf of AHTC, commenced a suit against several members and senior employees of AHTC, and FMSS (collectively, “the Defendants”). Sengkang Town Council (“STC”) became a plaintiff due to subsequent parliamentary elections and the re-drawing of electoral boundaries which impacted the constitution of the WP-run AHTC. AHTC and STC will be collectively referred to as the Plaintiffs.

The Plaintiffs alleged that the Defendants breached their fiduciary duties and/or tortious duty of care and skill for the following reasons.

  1. First, awarding the contract for Managing Agent services from 15 July 2011 to 14 July 2012 (“First MA Contract”) and the contract for the provision of Essential Maintenance Service Unit from 1 October 2011 to 30 June 2012 (“First EMSU Contract”) to FMSS without tender was unjustified and in breach of the Town Councils Financial Rules (Cap 329A, R 1, 1998 Rev Ed) (“TCFR”).
  2. Second, notwithstanding a tender being called, awarding the contract for Managing Agent services from 15 July 2012 to 14 July 2015 (“Second MA Contract”) and the contract for the provision of Essential Maintenance Service Unit from 1 July 2012 to 30 June 2015 (“Second EMSU Contract”) to FMSS was wrongful due to the manner which the First MA Contract and First EMSU Contract were procured.
  3. Third, improper payments were made to FMSS due to, inter alia, control failures in the payment approval process to FMSS.
  4. Fourth, several contracts awarded to third-party contracts were improper as the contracts were awarded at significantly higher prices than those offered by contractors who submitted lower bids and were thus in breach of the TCFR.

The Court of Appeal’s Decision

Members and Senior Employees of AHTC Do Not Owe Fiduciary Duties to AHTC

The Court of Appeal held that members and senior employees of Town Councils do not owe fiduciary duties to the Town Council they serve. Three main reasons were provided to support its holding.

  1. First, the relationship between a Town Council and its members and employees does not bear the characteristics of a fiduciary relationship, and it was inappropriate to impose fiduciary duties on members and employees of Town Councils where they are performing statutory duties under public law. In this regard, the Court of Appeal emphasised the onerousness of fiduciary duties and re-affirmed its earlier decision in Tan Yok Koon v Tan Choo Suan and another and other appeals [2017] 1 SLR 654 (“Tan Yok Koon”) that the existence of fiduciary duties depends on whether the putative fiduciary has voluntarily placed himself in a position such that the law can objectively impute an intention on his part to undertake such duties.
  2. Second, analysing breaches of fiduciary duties in the context of members and employees of Town Councils performing their statutory duties would require the courts to engage with political or policy-laded considerations which may undermine the doctrine of the separation of powers.
  3. Third, while it is unclear if Parliament intended to impose fiduciary duties on members and employees of Town Councils when enacting the Town Councils Act 1988, Parliament conceived the nature of the relationship between Town Councils and its members and employees as largely political.

Members and Senior Employees of AHTC Owe Common Law Duty Care to AHTC

The Court of Appeal held that as the test set out in Spandeck Engineering (S) Pte Ltd v Defence Science & Technology Agency [2007] 4 SLR(R) 110 (“Spandeck”) is satisfied, a common law duty of care can concurrently exist with the statutory duties imposed on members and employees of Town Councils.

  1. First, the threshold requirement of factual foreseeability of damage is satisfied as the acts and/or omissions of members and employees of AHTC in carrying out statutory duties under the TCA and TCHR can clearly cause harm to AHTC.
  2. Second, the legal requirement of legal proximity under the first stage of the Spandeck test is satisfied as, upon assuming their appointments as members and employees of AHTC, the Defendants assumed responsibility for their acts and/or omissions in carrying out their statutory duties for AHTC. Furthermore, being a body corporate, AHTC would have relied on the acceptance of such responsibility by the Defendants.
  3. Third, there are no material policy considerations that negate the prima facie duty of care that arise under the first stage of the Spandeck test. In particular, the doctrine of the separation of powers is not offended as the question of whether there has been negligence generally does not involve political or policy-laden considerations. However, any concomitant common law duty of care is statutorily limited by section 52 of the TCA which immunises members, officers and employees of Town Councils from legal liability if they acted in good faith in the execution (or purported execution) of their statutory duties.

Scope of Section 52 of the Town Councils Act (Cap 329A, 2002 Rev Ed)

The Court of Appeal held that based on the plain and ordinary meaning of section 52 of the TCA, the provision applies to both claims brought by third parties and claims brought by the Town Council itself.

In addition to holding that the inquiry into good faith is a subjective one, a non-exhaustive list of factors indicative of good faith was set out by the Court of Appeal: (i) acts done honestly and for proper purpose; (ii) acts done with a basic degree of competence and diligence; and (iii) the acts are not such no reasonable person in that position could honestly believe it was an appropriate cause of action. Consequently, it was held that gross negligence may amount to bad faith if a dishonest intention, an improper purpose, or an utter lack of diligence can be inferred. However, the Court of Appeal clarified that mere negligence would not amount to bad faith.

Where a plaintiff seeks to prevent a defendant from relying on section 52 of the TCA, the Court of Appeal held that the plaintiff bears the burden of proving that the impugned acts are not done in execution or purported execution of the defendant’s statutory duties. If the plaintiff fails to do so, it will be taken that the acts were so done. Thereafter, the burden falls on the defendant to prove that his or her acts were done in good faith.

After a thorough analysis of the evidence, the Court of Appeal unanimously concluded that: (i) the award of the First MA Contract and First EMSU Contract to FMSS without tender, and the award of the Second MA Contract and Second EMSU Contract to FMSS, were done in good faith; (ii) the conduct that led to the control failures in the payment approval process arising amounted to gross negligence and thus cannot be said to have been done in good faith; and (iii) out of the three relevant third-party contracts, two were found to have been awarded in good faith. Therefore, where the Defendants were found to have acted in good faith, they were immunised from personal liability pursuant to section 52 of the TCA.

Commentary

The Court of Appeal’s decision makes clear that Town Councils are not in a fiduciary relationship vis-à-vis their members and employees. With respect to Town Council employees, this is consistent with the general position in law that fiduciary duties are only imposed on employees in exceptional circumstances. However, it is notable that the Court of Appeal did not discuss the factors set out in Clearlab SG Pte Ltd v Ting Chong Chai [2015] 1 SLR 163 which are indicative of the appropriateness of imposing fiduciary obligations in the employment context.

While the Court of Appeal reaffirmed the ‘test’ set out in Tan Yok Koon, it is unclear what significance it played in the present case. There are three reasons for this.

  1. First, apart from general statements that such a scenario will be rare in the governmental context, the Court of Appeal did not specifically explain why members and employees of Town Councils cannot be said to have voluntarily placed themselves in a position such that the law can objectively impute an intention on their part to undertake fiduciary duties.
  2. Second, in concluding that no fiduciary relationship exists, the Court of Appeal placed great emphasis on the practical and theoretical distinctions between private law duties and public law duties, the onerousness of fiduciary duties, and the generous remedies available under fiduciary law.  However, the Court of Appeal did not explain how these factors are relevant to the Tan Yok Koon test.
  3. Third, the Court of Appeal held that even where statutory duties are consistent with fiduciary duties, a fiduciary relationship need not arise. However, given that the Court of Appeal in Tan Yok Koon held that the existence of a fiduciary relationship is merely a conclusion reached based on the obligations that a fiduciary is subject to, it is unclear why this is so.

While the Tan Yok Koon approach is undoubtedly a broad and open-textured one, there appears to be little engagement with it in the present case. Consequently, the Court of Appeal’s judgment may be read as (i) implicitly creating an exception to Tan Yok Koon such that it is inapplicable if it results in the superimposition of fiduciary duties on top of statutory duties, and/or (ii) providing an illustration of a case where the Tan Yok Koon approach is, at best, a guideline that need not be strictly adhered to.

Indeed, apart from certain established classes of relationships, the question of under what circumstances the imposition of fiduciary obligations is justifiable has vexed courts and academics alike – and, as recently noted by the General Division of the High Court in Commodities Intelligence Centre Pte Ltd v Mako International Trd Pte Ltd and others [2022] SGHC 131, no effective theory of fiduciaries have been formulated and accepted. Ultimately, the Court of Appeal’s decision in this case is likely one based on policy rather than strict adherence to any legal test.

Regardless of whether the Tan Yok Koon ‘test’ may be utilised to impose concurrent fiduciary obligations on top of statutory duties, the Court of Appeal’s decision can broadly be understood as a general reluctance to impose fiduciary duties on public officials carrying out statutory duties. Such a cautionary approach is consistent with the approaches taken in other common law jurisdictions.

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