Boustead Compensation Scandal

Corrupt Networks

Social networks form when people interact. Networks are a type of social organisation that rely on relationships of trust, mutuality and reciprocity, coupled with a set of common norms established and maintained through peer pressure, social approval and sanction (stigma), to bind individuals to a collective unit. The characteristic ability of networks to be inclusive, flexible in their operation and quick to respond networks can be leveraged to benefit individuals, groups or businesses or society at large.However, as Raab and Milward (2003) have noted networks can also have a dark side, where the network achievements come at the cost of other individuals, groups or societies. It has been argued that the particularism of networks, that is, the banding together to pursue particular or common interests, is a key element of network disadvantage since it can lead to exclusivity rather than an inclusive approach (Taylor and Hoggett, 1994). Such inclusivity renders networks as essentially private rather than public entities and therefore not exposed to wider levels of scrutiny or subject to external accountability regimes. Because of this, networks can be quite secret and invisible in their operation and endeavours.This opaque nature of networks and their lack of transparency, coupled with values and norms that support clandestine actions and goals, can provide a basis for corruption. Granovetter (1992: 45) points out” networks can create their own norms at odds with the outside world to the point where they become a ‘law unto themselves”. In such a context, illegal activities can take on the aura of normality and members protect each other from the sanctions of the outside world.(source: Lauchs, Mark A. and Keast, Robyn L. and Yousefpour, Nina (2009) Predatory police : the roles of ethics and networks as mediating factors.)

Boustead Compenasation Scandal

Soon after taking over the helm as Chief Minister of Penang, Lim Guan Eng has unwittedly let himself embroiled in a controversy where he initially refused to abide by the height restriction of 18 metres or five storey on buildings within the core and buffer zones after Unesco regional adviser for the Asia-Pasific Dr Richard Engelhardt said George Town had no choice but to follow the guidelines approved by the WHC.  Lim Guan Eng argued that the state government would be subject to legal action by the developers if his administration now revoked the approvals which were given by the state planning committee based on MPPP guidelines prior to the inscription. Lim Guan Eng further argued that his administration could be sued for hundreds of millions if his administration demands Boustead to  scale down the firm’s hotel along Weld Quay. 

Now, we’re caught in a conundrum. If we allow the buildings to go ahead, we may risk the status, but if we stop the buildings, we could be sued for hundreds of millions which will definitely bankrupt the local council. (source: http://thestar.com.my/news/story.asp?file=/2008/11/20/nation/2598297&sec=nation)

Dancing to the tune of Lim Guan Eng, Boustead Holdings Bhd then made a claim of RM50 million from MPPP.  After all the hubbub , Lim Guan Eng offered a controversial proposed agreement to allow Boustead Holdings Bhd to reclaim land at Bayan Bay as compensation.  This controversial proposal immediately invited public criticisms and protests. After much public protest, the Penang State Government has no choice but to take cognisance of the views of the residents of Putra Marine, Gold Coast and Bay Garden and decided not to pursue the land reclamation at Bayan Bay to Boustead. In the end, the Penang state government agreed to give RM20m in compensation to Boustead Holdings Bhd for scaling down the height of its hotel in the George Town heritage zone from 12-storeys to five storeys.

There is one pertinent question that we should ask. Can Boustead sue the state government over it's decision to revoke or modify the planning  permission  and ask for hundreds of millions in compensation payment? 

Before we answer this question, let us take a look at the  TOWN AND COUNTRY PLANNING ACT 1976.

The following is the excerpt from TOWN AND COUNTRY PLANNING ACT 1976 :

 Revocation and modification of planning permission and approval of building plans

25. (1) If it appears to the local planning authority to be in the public interest that a planning permission granted under subsection 22(3) or an approval of a building plan given under any of the previous local government laws should be revoked or modified, the local planning authority may order the permission or approval to be revoked or modified to such extent as appears to it to be necessary. 

(2) No revocation or modification under subsection (1) shall have effect until confirmed by the Committee. 

(3) An order revoking a planning permission or an approval of a building plan shall state the period within which the person to whom the permission or approval was granted is required to demolish any building erected pursuant to the permission or approval and the maximum amount that the local planning authority is prepared to reimburse the person in respect of costs incurred by him in carrying out the demolition. 

(4) If, within the period stated in the revocation order or such longer period as the local planning authority may allow, demolition has not been carried out or completed, the local planning authority may itself and at its own expense carry out or complete the demolition. 

(5) If demolition has been completed by the person to whom the planning permission or approval of the building plan was granted, the local planning authority shall reimburse the person the costs actually and reasonably incurred by him in carrying out the demolition, but not exceeding the amount stated in the revocation order. 

(6) If demolition has been partially carried out by the person to whom the planning permission or approval of the building plan was granted, but completed by the local planning authority, the local planning authority shall assess the amount that the demolition would have cost had it been carried out entirely by the local planning authority, and determine the amount of the costs actually and reasonably incurred by it in completing the demolition, and shall pay the person by way of reimbursement of his costs the difference between the two amounts or the costs actually and reasonably incurred by the person in carrying out his part of the demolition, whichever is the lesser amount, but in no case shall the local planning authority be bound to pay any amount beyond the amount stated in the revocation order. 

(7) If a planning permission or an approval of a building plan is revoked under subsection (1) and the person to whom the permission or approval was granted claims from the local planning authority, within the time and in the manner prescribed, compensation for any expenditure incurred by him in carrying out works to implement the permission or approval prior to its revocation or modification, the local planning authority shall, after giving the person a reasonable opportunity to be heard, offer such compensation to him as the local planning authority thinks adequate. 

(8) Where a planning permission or an approval of a building plan is modified under subsection (1), the local planning authority shall reimburse the person to whom the permission or approval was granted the costs actually and reasonably incurred by him in implementing the modification, being costs that he would not have incurred had the modification not been ordered, and shall compensate him for any loss suffered as a result of the modification. 

(9) If any person is aggrieved by the amount of any reimbursement or compensation offered or paid to him under this section, he may, within the time and in the manner prescribed, appeal to the Appeal Board and the Appeal Board shall assess the amount of reimbursement or compensation to be paid.

(10) In subsection (1), “previous local government laws” means the Town Boards Enactments of the Federated Malay States [F.M.S. Cap. 137] and of the States of Johore [Johore En. No. 118] and Terengganu [Terengganu En. 12 of 1355 A.H.], the Municipal Ordinance of the Straits Settlements [S.S. Cap. 133], the Municipal Enactment of the State of Kelantan [Kelantan En. 20 of 1938], the Local Councils Ordinance 1952 [Ord. 36 of 1952], and any other written law replacing any or any part of those laws.

The subsection 25(1) stated that if it appears to the local planning authority to be in the public interest that a planning permission granted under subsection 22(3) or an approval of a building plan given under any of the previous local government laws should be revoked or modified, the local planning authority may order the permission or approval to be revoked or modified to such extent as appears to it to be necessary.

As regarding compensation, subsection 25(8) stated that where a planning permission or an approval of a building plan is modified under subsection (1), the local planning authority shall reimburse the person to whom the permission or approval was granted the costs actually and reasonably incurred by him in implementing the modification, being costs that he would not have incurred had the modification not been ordered, and shall compensate him for any loss suffered as a result of the modification. 
Subsection 25(9) state that  if any person is aggrieved by the amount of any reimbursement or compensation offered or paid to him under this section, he may, within the time and in the manner prescribed, appeal to the Appeal Board and the Appeal Board shall assess the amount of reimbursement or compensation to be paid.
Subsection 36(13) state that an order made by the Appeal Board on an appeal before it shall be final, shall not be called into question in any court, and shall be binding on all parties to the appeal or involved in the matter. 

It is clear that the planning authority can not be challenged when it decided to revoke or modify any planning permission in the  name of public interest. In the case of Boustead, the planning permission need to be modified so that the height of the hotel meet the height restriction of 18 metres or five storey in order to protect George Town's heritage listing status. This is done in the name of public interest. Therefore, Boustead has no choice but to comply. The planning authority can exercise unfettered discretion in deciding the amount of compensation to reimburse Boustead for any loss suffered as a result of the modification. If Boustead is unhappy over the amount of compensation, it can only appeal to the Appeal Board. The Board's decision is final and can not be challenged in any court of law. 

When the state government agreed to give RM20m in compensation to Boustead Holdings Bhd , Lim Guan Eng said the state has to negotiate a settlement with the developer, failing which the state risks facing lawsuits amounting to hundreds of millions of ringgit. This is totally untrue and misleading. The decisions of the planning authority and the appeal board can not be challenged in any court of law, how can there be any lawsuit?

Lim Guan Eng has since made use of this  fraudulent  claim to silent critics by imposing psychological precedence over the fear that any revocation or forced modification of planning permissions could leave the local council vulnerable to  hundreds of millions of ringgit lawsuits.  Lim Guan Eng knowingly made a false assertion of fact and  used this  false representation  to justify the payment of RM 20million to Boustead. His dishonesty in misleading the people  is a clear case where position of trust has been abused.
Lim Guan Eng should step down gracefully for his dishonesty in the form of an intentional deception or a deliberate wilful misrepresentation of a material fact in the case of Boustead compensation.

 XVI INCOSAI URUGUAY 1998 viewed fraud as a legal concept, which involves acts of deceit, trickery, concealment, or breach of confidence that are used to gain some unfair or dishonest advantage; an unlawful interaction between two entities, where one party intentionally deceives the other through the means of false representation in order to gain illicit and unjust advantage.(source:http://www.asosai.org/asosai_old/guidelines/guide_un_st_fru_corruption.htm) 

The effort to prosecute Lim Guan Eng for this alleged corrupt practice is expected to face serious obstacles to the investigation and causes pressure on law enforcement agencies particularly the MACC ,the police and the prosecutors. Certain media, political parties as well as supporters of Guan Eng may claim that it is a political conspiracy to bring down their hero and try to influence public opinion in favor of the defendant, thereby inevitably weakening the principle of impartiality.

It is therefore imperative for the government to set up an independent royal commission of inquiry to investigate into the RM20million Boustead compensation scandal.