Legal News & Analysis – Asia Pacific – Singapore – Regulatory & Compliance

In the recent case of PP v Teo Chu Ha [2014] SGCA 45, the Singapore Court of Appeal found that a senior employee of a company that had taken shares in a trucking company in return for using his influence to ensure that trucking contracts were awarded to that trucking company had received gratification for his influence and so had been guilty of corruption even though he had not received the shares for free but had paid for them. This was also notwithstanding the fact that it was the accused that had come up with the idea of incorporating a company to obtain the trucking contracts. This article takes a look at the decision.

Facts

The accused (“Accused”) was employed by Seagate Technology International (“Seagate”) as its Senior Director of Logistics. One of Seagate’s trucking contracts was with a company known as “Richland”.

The Accused came to know an ex-employee of Richland, Yap, and the two met on various occasions. Over various discussions, the Accused and Yap came up with the idea of incorporating a company to take over the trucking contracts from Richland.

At about the same time, another ex-employee of Richland, Koh, set up a company, Biforst Singapore Pte Ltd (“Biforst”). Koh was an acquaintance of Yap. Yap informed him that someone in Seagate wanted a stake in Biforst. Koh was prepared to give that someone a stake, provided that Biforst could obtain the Seagate business. The Accused subsequently purchased 20,000 shares (the “Shares”) in Biforst from Koh and paid SGD 6k to Koh for them.

Seagate’s trucking contract with Richland came to an end at about this time. Seagate therefore conducted a tender exercise to award new trucking contracts. The Accused was in the Seagate tender committee which assessed the various tenders and did, in fact, influence the tender process. As a result of his influence, Biforst was one of the two successful bidders. Shortly thereafter Koh transferred the Shares to a nominee of the Accused (and not to the Accused directly).

Other contracts were also awarded by Seagate to Biforst in 2005, 2007, and 2010. Throughout the years from 2004 to 2010, the Accused received regular payouts from Biforst of 22.5% of its distributable profits, being the dividends attributable to the Shares.
The prosecution charged the Accused with corruption for his receipt of the Shares, and the payments made by Biforst to him. It alleged that the shares and the payments amounted to gratification received for assisting Biforst to secure contracts to provide trucking services from Seagate. The prosecution succeeded before the District Court but the conviction was overturned in an appeal by the Accused to the High Court.

Proceedings

The prosecution brought a criminal reference to the Court of Appeal. This is a procedure under which the Court of Appeal may hear and rule on certain questions of law relevant to the matter before it. In this instance, the question considered and ruled upon by the Court of Appeal was the following: 

For the purposes of section 6 of the Prevention of Corruption Act (“PCA”), in determining if a transaction was objectively corrupt where consideration was paid for the gratification, must the Prosecution prove that the consideration was inadequate or that the transaction was a sham?

In short, the question was whether the fact that the Accused had paid for the Shares was sufficient as a defence to the charge of corruption as it could not therefore be shown that he had received gratification in return for the exercise of his influence.

Decision

The Court of Appeal held that, notwithstanding the consideration the Accused paid for the Shares, they still constituted gratification within the meaning of the PCA. In brief, its reasons were as follows:

• The definition of “gratification” under the PCA is very wide, and includes forms of gratification where the receiver has to give consideration for the gratification. For example, the definition of “gratification” includes a “contract”. If a contract is given as gratification, the receiver would be undertaking obligations and liabilities in relation to the giver of the contract. The Court noted that at the end of the day, one has to look at the substance of the entire scheme and its context rather than only at the actual (and more specific) transaction itself.

• In this instance, the gratification need not be confined to simply the shares. In the appropriate case it is the opportunity to purchase the shares and/or the assistance rendered in purchasing the shares which, together with the shares, constitutes the gratification. The Court referred to prior cases where being given the opportunity to subscribe for shares at an initial public offering or at a private placement had been held to be gratification for the purposes of the PCA.

• The Court also opined that the gratification lay not merely in the Shares per se but, rather, in what they represented. They were the necessary “key” that “unlocked” the many “doors of opportunity” for the subsequent material gratification in the form of dividends from Biforst received by the Accused. Without the Shares, the Accused would have been unable to receive the subsequent kickbacks which were camouflaged and sanitised through the Accused’s shareholding in Biforst and which took the form of the Accused’s “share of profits” resulting from his shareholding in Biforst itself.

• The payment of consideration was a legal red herring which was not to obscure the fact that the Accused was able to achieve, with a more complex scheme, the same result as more traditional, simpler forms of corruption. Indeed, the Court noted that as an important point of principle if the Accused had allowed himself to be “bought over” by a third party who gave him an opportunity to acquire the Shares and the Shares unlocked the door to subsequent material gratification, then whether he paid the full consideration for the shares could not by itself be decisive. In fact, it was entirely possible in such a situation for the agent to have paid an amount in excess of the market value for the shares and still be corrupt.

• The Court also stated that the broader spirit and policy behind the PCA was to prevent corruption in its various forms and all the more so with regard to deliberate and involved as well as sophisticated schemes such as that devised by the Accused in the present case. It would be counterproductive to this spirit and policy if the PCA were to not cover the more complex, devious, and sophisticated forms of corruption.

Where an accused has purchased shares in such a situation, he may in his defence seek to show that the purchase was not corrupt because there was never any understanding that the accused would use his position to show anyone favour and to contend that the purchase of the shares was the result of a purely commercial transaction. In support, an accused may point to two facts, viz., there was a purchase price paid for the shares and the amount paid was the fair market value (or that he believed he was paying fair market value for the shares).

In the present case, the Accused did not prove that SGD 6k was the true market value of the shares. Furthermore, the Court also noted that the Biforst shares were only transferred to him after Biforst had been awarded the trucking contract from Seagate even though he had already paid for the shares before the tender exercise.

Our Comments / Analysis

This Court of Appeal decision reinforces the position in law that for a corruption offence to be made out, two essential elements are necessary, viz. receipt of gratification and conferment of a favour. Where, as in this case, the evidence showed that the accused had used his influence to favour another, it mattered not that consideration was paid for the gratification. The prosecution did not have to prove the adequacy or otherwise of the consideration, or that it was a sham transaction. The result may well have been different if the accused had incorporated a company himself to tender for the trucking contracts (although this would amount to a civil breach of his duties to his employer) or if he had disclosed his interest in the company.

For further information, please contact:

Chee Meng Tan, Partner, WongPartnership

[email protected]

Melanie Ho, Partner, WongPartnership
[email protected]

Regulatory & Compliance Law Firms in Singapore