In a recent Singapore Court of Appeal decision, it was held that a charge of corruption can be madeout even where consideration was paid for the gratification. It is not necessary for the Prosecution to prove that the consideration was inadequate or that the transaction was a sham. Instead, one has to look at the substance of the entire scheme and its context before deciding whether there was gratification within the meaning of the Prevention of Corruption Act (“PCA”).
The Respondent, Teo Chu Ha (“Teo”), a Senior Director of Logistics at Seagate Technology International (“Seagate”), was acquitted by the High Court of all 12 charges of corruption under s 6(a) of the PCA for having received a reward for assisting Biforst Singapore Pte Ltd (“Biforst”) to secure contracts to provide trucking services from Seagate. On this premise, the Public Prosecutor, pursuant to s 397 of the Criminal Procedure Code, referred two questions for the Court of Appeal’s determination:
- “For the purposes of s 6 of the 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 (“Question 1”)?”
- “For the purposes of s 6 of the PCA, in determining if a transaction was objectively corrupt, must the Prosecution prove that a reward to an agent corresponds in time with acts of assistance done or favors shown by the agent in relation to his principal’s affairs (“Question 2”)?”
The brief facts of the present case are that Teo had allegedly received the following rewards:
- 20,000 Biforst shares which were issued to Teo via his nominee, Ms Winnie Choo (“Choo”), and which Teo had paid $ 6,000 for (the “Shares”); and
- regular payouts from 2006 to 2010 (11 of such payouts in total) which represented 22.5% of the profits of Biforst (the “Regular Payouts”).
In August 2004, Seagate’s existing trucking contract for the route between Singapore and Malaysia expired and a tender system was set up for vendors to bid for a new trucking contract (the “Tender”). The vendors that participated in the Tender included Biforst, the company set up by Teo and another individual shortly before the Tender started. In in corporating Biforst, Teo requested for 20,000 Biforst shares to be issued to him via a nominee, Choo. Teo paid for the shares on 29 September 2004 and the shares were duly transferred to Choo on 20 December 2004. Teo, in contravention of Seagate’s conflict of interest policy, did not disclose his beneficial interest in Biforst to Seagate. The contract was eventually awarded to Biforst and another company. In 2005, 2007 and 2010, Biforst also submitted successful bids in three further tender exercises. Throughout the years 2006 to 2010, Teo received the Regular Payouts. Each of the Regular Payouts corresponded to 22.5% of an amount withdrawn from Biforst’s account and was marked as “director’s fees”.
Of the two questions referred to the Court of Appeal, only Question 1 was found to have satisfied the four cumulative requirements that must be met before the Court of Appeal will exercise its substantive jurisdiction to answer questions raised in a criminal reference:
- the determination by the High Co urt of a criminal matter must have been in the exercise of its appellate or revisionary jurisdiction;
- the question of law must be a question of law of public interest;
- the question must have arisen in the matter; and,
- the determination by the High Court must have affected the outcome of the case.
The sole question that therefore arose for determination in this criminal reference is whether or not the Prosecution must prove that the consideration was inadequate or that the transaction was a sham, where consideration was paid for the gratification, before an offence under s 6 of the PCA is made out.
Decision and observations
The Court of Appeal observed that a charge of corruption can be made out even where consideration was paid for the gratification. It is not necessary for the Prosecution to prove that the consideration was inadequate or that the transaction was a sham. Instead, one has to look at the substance of the entire scheme and its context rather than only at the actual (and more specific) transaction involving, in the present case, the payment for the shares themselves in order to determine whether there was gratification within the meaning of the PCA. The Definition of Gratification in the PCA The Court of Appeal recognised that the Parliament had clearly intended the PCA to be of wide application. Hence, the definition of gratification in s 2 of the PCA is certainly non – exhaustive. Further to this, the Court of Appeal highlighted that consideration is, in fact, inherent in some of the examples of gratification in s 2 of the PCA. For instance, if a contract was given as a form of gratification (pursuant to s 2(b) of the PCA), the receiver would also undertake obligations and liabilities in relation to the giver of the contract. Therefore, the Court of Appeal adopted the view that one should look at the substance of the entire scheme in determining whether there was gratification within the meaning of the PCA. The Identification of Gratification The Court of Appeal recognized that Teo would have been unable to purchase the shares in the open market given that Biforst is a private company. On this basis, the Court of Appeal found that it is the opportunity to purchase the shares and/or the assistance rendered in p urchasing the shares which, together with the shares, constitutes the gratification. Furthermore, the Court of Appeal also highlighted the possibility that the gratification lay in the receipt of subsequent material gratification that constituted the subject matter of the Second to Twelfth Charge. The Court of Appeal therefore took the view that even payment of the full consideration for the shares does not naturally mean that there is no gratification. Policy Reason The Court of Appeal also had regard to the spirit of the PCA which is to prevent corruption in its various forms and all the more so with regard to deliberate and sophisticated schemes such as that devised by Teo in the instant case. Given that it is imperative that such sophisticated schemes fall within the ambit of the PCA, an invariable requirement on the part of the prosecution to prove that the share transaction is a sham or that the shares were purchased at an undervalue would be counter – productive in this fight against corruption and should not be imposed.
The present case demonstrates that the scope of the PCA is far – reaching and does not preclude the scenario where there has been a transaction for value (in other words, payment has been made by the recipient for the allegedly corrupt gift or reward). In such a situation, it is no longer the case that the burden would lie on the prosecution to prove beyond a reasonable doubt that the payment was a sham or that consideration was inadequate. By Andy Leck, Weiyi Tan, Lau Kah Hee (Baker & McKenzie Singapore)