2.7 Conflicts of Interest

Local government: results of the 2002-03 audits.

We continue to receive a large number of queries about conflicts of interest.

Local Authorities (Members’ Interests) Act 1968

We have statutory functions in administering the Local Authorities (Members’ Interests) Act 1968 (the Act). We encourage councillors – and Council staff who advise them – to contact us to discuss the application of the Act to particular matters before difficulties arise.

Other Conflicts of Interest

In previous years’ reports, we have discussed various issues arising out of our role under the Act. However, the Act deals only with pecuniary interests. Many of the queries we receive relate to other types of conflict of interest. This is understandable, because the boundary between financial and non-financial conflicts of interest is often not clear. From a legal perspective, non-financial conflicts of interest are governed by the common (i.e. judge-made) law about bias in public body decision-making.

We discussed the relevant legal principles briefly in last year’s report32, and the continuing level of interest in this area has persuaded us that there is a real need for practical guidance for members of local authorities. Accordingly, we have decided to expand the scope of our present Guide33 to the Act, to include new material about non-financial conflicts of interest. A new edition of our Guide will be published ahead of the 2004 local authority elections.

Other Recent Issues

The remainder of this article discusses three particular issues that we have encountered frequently during the last year. They are:

  • interests in common with the public (which relate to pecuniary interests under the Act);
  • involvement or employment with other organisations (which can raise questions about both financial and non-financial conflicts of interest); and
  • participation in public submissions processes (which are usually non-financial conflicts of interest).

Interests in Common with the Public

The Act restrains discussing or voting on a matter in which a member has a pecuniary interest. However, that restriction does not apply to “an interest in common with the public”. If the member’s pecuniary interest can be said to be “in common with the public”, he or she is not prohibited from discussing and voting on the matter.

In considering whether an interest is in common with the public, we consider whether the interest is of a different nature or kind to that of other people, and whether it is significantly different in size. In other words, whether the matter affects the member in a different way or to a materially greater degree than most other people.

Some tolerance is necessary so as to apply the “interest in common with the public” exception in a realistic and practical way. In order to rely on the exception:

  • We do not consider that the member needs to be affected to exactly the same extent as other members of the public. For instance, all ratepayers are affected slightly differently by the adoption of an overall rate. Nevertheless, we consider that this can safely be treated as an example of an interest which is in common with the public.
  • We do not consider that the interest needs to be shared by all members of the public in the district – it is sufficient that the councillor is part of a large group of people affected in a similar way. The question of whether or not an interest is one in common with “the public” is often a matter of degree. We acknowledge that it can be difficult to draw a clear line as to the point at which a large-ish section of the public should be treated as “the public”.

Members must always remain aware of the possibility of a pecuniary interest in cases where their particular interest is substantial and/or is shared by only a relatively small group of people. They need to consider whether or not many other members of the local community are likely to have a similar interest in the particular matter, or perhaps ask themselves whether the personal significance of any particular matter to them is greater than it is likely to be to the general public.

Two types of interest that we consider should be treated with particular care relate to:

  • A member who is a property developer. The member may have an interest in town planning or development matters that is different in kind to that of most other residents or “ordinary” property owners.
  • A member who is one of a small number of ratepayers affected by a targeted rate. The member’s interest may not be shared by a group large enough that it could be reasonably said to constitute “the public”.

Involvement or Employment with Other Organisations

We often receive queries about whether a member has a conflict of interest in a matter that concerns an organisation or club to which they belong, or a business of which they are an employee. Two different types of conflict might arise here. The member needs to consider whether he or she has:

  • a pecuniary interest under the Act; and/or
  • a conflict of interest more generally.

Pecuniary Interests under the Act

A pecuniary interest will usually not exist in these situations. But it depends on whether and how the particular matter could personally affect members or employees of that organisation.

A councillor who belongs to a community organisation such as a sporting, cultural or charitable group will not normally have a pecuniary interest in matters before the Council that concern the organisation (especially where it is, say, an incorporated society or charitable trust and members are not entitled to derive personal profit from the organisation’s activities). But a personal pecuniary interest might sometimes arise, if for instance the matter concerns a lease of Council land or clubrooms to the association where the rental could significantly affect subscriptions or other fees.

Similarly, we think a councillor who is employed by another organisation will not normally have a pecuniary interest in matters before the Council that concern the organisation. A Council decision relating to an operational matter of the organisation will not usually give rise to a personal financial interest of the member. Occasionally, however, a personal pecuniary interest might exist, if for instance the particular matter has the ability to affect the existence of the member’s ongoing employment or salary at the organisation.

Non-financial Conflicts of Interest

In our view, these situations will more commonly raise a question of a potential non-financial conflict of interest. A conflict of interest might reasonably be said to exist if the member has a close relationship with an organisation involved in the matter before the Council. Such a connection might be seen as tainting the member’s impartiality.

In our view, whether or not this is a real risk in any given case will depend on such things as:

  • the strength of the member’s personal links or involvement with the other organisation; and
  • the degree to which the matter under discussion directly affects the other organisation.

For example, in the case of a club, a conflict of interest claim might be stronger where the councillor is an officeholder or trustee or is otherwise strongly publicly identified with the club (as opposed to being merely a passive or ordinary member); and/or where the matter concerns a grant of money to the club or something else that specifically and significantly concerns the club (as opposed to a public policy issue which may indirectly affect the club or in which the club has chosen to take an interest).

Participation in Public Submissions Processes

Bias (of a non-pecuniary sort) might reasonably also be alleged against a councillor who participates in a Council decision in two different ways, by both making a submission to the Council as a member of the public and then voting on the matter as a councillor.

A member who makes (or is party to) a formal submission might be inferred to have a fixed position and to have closed his or her mind to further persuasion. There could be a perception of a person acting as both an interested party and decision-maker on the same matter or, in other words, acting as a judge in their own cause.

The role of community consultation and submissions processes is to seek the views of the wider public who would not otherwise have the opportunity to speak on a particular matter. We think it should normally be unnecessary for elected members to participate in Council matters as submitters, because they have other opportunities to express their views, such as during Council debates and deliberations.

A councillor is of course free to lodge a formal submission with the Council, acting in their private capacity. But, if they do so, and then attempt to participate in Council decisions about that matter, we think there is a risk of the validity of the Council’s decision being challenged on the ground of bias.

In addition, we also consider this would be ethically unacceptable as a matter of good practice.

While it is not for us to rule on questions of bias, we would strongly discourage members from acting in this way.

Footnote 32: Local Government: Results of the 2001-02 Audits, parliamentary paper B.29[03b], 2003.

Footnote 33: Financial Conflicts of Interest of Members of Governing Bodies, 2001, ISBN 0-477-02885-3.

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