Part 6: Frequently asked questions

Guidance for members of local authorities about the law on conflicts of interest.

This Part sets out some frequently asked questions about conflicts of interest, and the answers.

I think I might have an interest in a matter. How do I tell if it’s pecuniary or non-pecuniary?

Ask yourself whether the matter could reasonably give rise to an expectation of a gain or loss of money for you personally (or, in the case of a deemed interest,1 for your spouse or partner or a company).

Are pecuniary interests treated more strictly than non-pecuniary interests?

Generally, yes. Under the common law, a pecuniary interest of any size gives rise to an automatic disqualification – in effect, a presumption of bias. This rule is reflected in the Act, which governs pecuniary interests for members of local authorities (subject to the powers of exemption and declaration set out in paragraphs 3.23 to 3.33). On the other hand, non-pecuniary conflicts of interest involve a more discretionary judgement – you can consider all the circumstances of the situation to determine whether or not a reasonable observer would consider that a real danger of bias exists.

Do the legal consequences of not declaring a pecuniary or non-pecuniary conflict of interest differ?

Yes. A breach of section 6 of the Act – which relates to a pecuniary interest – can result in you being prosecuted for an offence. If convicted, you will be deemed to have vacated office (that is, you will no longer be a member of the authority).

Failing to declare a non-pecuniary conflict of interest is not an offence. But it could result in legal proceedings that challenge the validity of the authority’s decision. Those proceedings would not directly affect you personally, but you could face condemnation from your colleagues and the public if your actions resulted in the authority’s decision being overturned by the courts.

Can the common law rule about bias apply to pecuniary interests too?

Yes. Pecuniary interests of members of local authorities are mainly governed by the Act. But the common law rule about bias could also be used to overturn a local authority’s decision on the ground of a member’s pecuniary interest.

Can anything else happen to me if I don’t follow the rules?

Your actions might constitute a breach of the authority’s code of conduct.2 The authority might also take some form of action against you; for example, a censure motion or removing you from a council committee.

For members of city councils, district councils, and regional councils, your actions could also result in personal financial liability under section 46 of the Local Government Act 2002. This might arise if your conduct contributed to the local authority incurring a loss.

Can the local authority or chairperson order me not to participate on the ground of a conflict of interest?

No. The decision about whether to participate is yours (although the authority might be able to resolve to remove you from a committee considering the matter). You should carefully consider any advice offered to you by senior members, the chief executive, or other staff. You should also consider seeking your own legal advice.

The authority has resolved that I do not have a pecuniary interest in a particular matter. Does this mean that I can participate?

No. A resolution of an authority that you do not have a pecuniary interest in a particular matter is not an authoritative statement of the law. If, in fact, you do have a pecuniary interest in the matter and you participate in discussion and voting on it, you will have committed an offence under the Act.

However, if the authority resolves that you should be able to participate, subject to our approval being obtained, we would take the resolution into account when deciding whether to grant an exemption or declaration enabling you to participate.

I’m fairly sure I have a non-pecuniary conflict of interest in a matter, but I still think it is important for me to participate. Can the Auditor-General grant me an official exemption?

No. We have no power to grant exemptions or declarations for non-pecuniary conflicts of interest. Nor can we provide you with a formal ruling about whether a legal conflict of interest exists – only the courts can determine that. You should approach a lawyer if you want definitive advice.

If I abstain from participating in a matter as a member, can I still speak to the matter as a member of the public?

The fact that you may be prohibited, as a member, from taking part in discussion on a matter in which you have a pecuniary interest does not stop you from expressing views on the matter to the meeting.

Having declared a pecuniary interest and left the formal confines of the meeting, you are entitled, as a private citizen, and consistent with the rights of any member of the public, to address comments to the meeting from that area of the room where the public is able to be present.

These actions, if taken, should be explicitly recorded in the minutes.

I belong to various clubs throughout my district, as well as being a member of the district council. Do I have a pecuniary interest in every matter that comes before the council that relates to those clubs?

Usually, no. Membership of community organisations such as sporting or cultural or charitable associations is unlikely to give rise to a pecuniary interest in matters involving those organisations because of their “not for profit” nature. However, it is possible that your membership of an organisation may entitle you to a share of the organisation’s assets if the organisation is wound up. You should check the rules of the organisations you belong to, to see whether you may have a pecuniary interest of this type.

A pecuniary interest may also arise in the case of, for example, a golf club occupying land leased from the authority when the lease rental has a significant bearing on the members’ subscription or other fees.

See paragraphs 5.30 to 5.32 for discussion of whether membership of a club might give rise to a non-pecuniary conflict of interest.

I am an employee of a company/organisation that has dealings with the authority of which I am a member. Do I have a pecuniary interest in any dealings that my company/organisation has with the authority?

The existence of an employment relationship, where you receive a fixed level of remuneration, does not, on its own, give rise to a pecuniary interest.

If there is any link between the authority’s decision and the level of remuneration paid to you as an employee of the company/organisation, then a pecuniary interest exists. For example, if you were employed by an organisation that received funding from the authority and the authority was deciding whether to stop funding that organisation, resulting in the possible loss of your job, you would have a pecuniary interest in that decision.

See paragraphs 5.33 to 5.35 for discussion of whether your employment might give rise to a non-pecuniary conflict of interest.

I’m also a member of the board of another organisation. Is it relevant to the question of conflict of interest if I’ve been appointed to that organisation specifically as a representative of the local authority?

Yes. In that situation, we think it will often be acceptable to participate in the authority’s decisions about matters concerning that organisation. However, a conflict of interest might sometimes arise. See our discussion in paragraphs 5.38 to 5.41.

1: See paragraphs 3.14 to 3.15.

2: See our 2006 publication Local authority codes of conduct.

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