Part 2: Have the councillors breached the Act?

2.1
Section 6(1) of the Act prohibits a councillor from discussing or voting on any matter at a council meeting in which they have, directly or indirectly, any pecuniary interest other than an interest in common with the public.

Did the councillors have a pecuniary interest in the proposal?

2.2
The term “pecuniary interest” is not defined in the Act. However, the definition that we use is:

... whether, if the matter were dealt with in a particular way, discussing or voting on that matter could reasonably give rise to an expectation of a gain or loss of money for the member concerned.⁴

2.3
Section 6 of the Act also deems a councillor to have a pecuniary interest in a matter when their spouse, or a company in which they (or their spouse) holds 10% or more of the shares, has a pecuniary interest in the matter. All four councillors held consents either in their own name or in the name of their spouse or through companies in which they or their spouses had shareholdings of more than 10%.

2.4
The effect of the proposal was that consent holders would be liable to pay charges under section 36 of the RMA to the Council, but that this would be offset to some extent by decreased general rates, depending on the value of their properties. Therefore, all four councillors (or their spouse or companies) as consent holders would be liable to pay these charges under section 36. The proposal would have a direct financial effect on them, so they did have a pecuniary interest in it.

2.5
The definition of pecuniary interest that we use requires a councillor to have a reasonable expectation of gain or loss of money at the time they discuss or vote on a matter. In practice, it is common for debate on issues of this kind to progress from broad consideration of a problem, to options for addressing it, through to a developed proposal being recommended for adoption.

2.6
It can be hard to determine at which point a general discussion becomes firm enough for an individual councillor to have a “reasonable expectation” of being financially affected. For the purposes of the Act, we usually draw a distinction between a council approving proposals as a basis for consulting with the community, when we consider that there is often still uncertainty about the shape of the final proposal, and later stages when the council is deciding to adopt the final proposal.

2.7
At the meeting of 5 March 2009, the councillors voted on whether to approve the draft fees and charges for public consultation. At this point, it was uncertain whether the proposal would be adopted in its proposed form by the Council, because it might change significantly as a result of public submissions. There were also still several different options being put forward, with different financial effects. Therefore, at the meeting of 5 March 2009, we do not consider that the councillors could have had a reasonable expectation of loss or gain of money because there was still some uncertainty about the shape of the final proposal.

2.8
However, at the meeting of 4 June 2009, the councillors were required to vote on whether to adopt a final proposal for including in the final LTCCP and to take effect during the 2009/10 financial year or the next financial year. We consider that, at this meeting, the councillors did have a reasonable expectation that the proposal would affect them financially. Therefore, they had a pecuniary interest in the decision at the June meeting.

2.9
We do not agree with the legal advice provided to Cr Oldfield, which he shared with the other councillors, that the prohibition in the Act does not apply to policy decisions of this kind.

Do any of the exceptions or defences in the Act apply?

2.10
There are some exceptions to the prohibition in section 6(1) of the Act, and also some defences. We do not consider that any of the exceptions or defences apply to these councillors. We have set out our reasons for this in paragraphs 2.11-2.21.

Section 6(1) – interest in common with the public

2.11
The prohibition on discussing and voting in section 6(1) of the Act does not apply where the pecuniary interest held by a councillor in the matter under discussion is one in common with the public. There is no guidance given in the Act about when this exception applies.

2.12
The issue of whether a councillor’s pecuniary interest is an interest in common with the public will always depend on the circumstances of the case, and is always a question of degree. We consider that a pecuniary interest does not need to be shared by the entire public for the exception to apply. In our view, it is enough that a councillor is part of a large group of people affected in a similar way.

2.13
The Council told us that there are around 10,919 RMA consent holders and 260,000 ratepayers, so around 4.2% of ratepayers are consent holders. However, not all of these consents are subject to the proposed water charges. The Council told us that 6950 water and discharge consent holders would be subject to the charges under section 36 of the RMA. So, about 2.7% of ratepayers hold consents that would be subject to the water charges.

2.14
We considered whether the fact that the proposal could indirectly affect ratepayers was relevant to the “interest in common with the public” exception. Possible indirect effects include:

• costs passed on to ratepayers by territorial authorities, who are among the water consent holders most affected by the proposed water charges; and
• costs passed on to ratepayers, as consumers or shareholders, by large companies and organisations that hold water consents.

2.15
However, we consider that the pecuniary interest of the councillors who held consents was different to the public generally. Although the proposal affected all ratepayers through the reduction in general rates, and some ratepayers could be indirectly affected if large entities that became subject to the charges passed them on, it affected the relevant consent holders differently because they became liable to pay charges under section 36 of the RMA. This would be a direct effect that is different in kind and extent to the effect on the public generally. As noted in paragraph 1.31, the reduction in general rates for the average property would have been just under $10.

2.16
Although many consent holders would have been affected by the proposal, we consider that they do not make up a large enough group of the public for the exception in section 6(1) to apply. There is no formula that can be applied to determine whether this exception applies; it requires judgement. However, in our view, consent holders are in a small and clearly-identified subset that is affected differently by this proposal, compared to the rest of the rate-paying population in the region.

Section 6(1A) – elected to represent a particular group

2.17
Crs Murray and Oldfield argued that the exception in section 6(1A) of the Act applied. Section 6(1A) provides that the prohibition in section 6(1) does not apply where the councillor has been elected by, or is appointed to represent, any activity, industry, business, organisation, or group of persons, and their pecuniary interest is not different in kind from the interests of other persons in the activity, industry, business, organisation, or group by which the councillor is elected, or in respect of which they are appointed. The councillors argued that they had been elected to represent South Canterbury, that the rural sector is a major part of South Canterbury, and that irrigation was a major issue for those within the rural sector. They argued that they had been elected by rural sector voters and that their pecuniary interest was the same as other members of the rural sector.

2.18
In our view, section 6(1A) does not apply to local authority elections for general constituencies or wards. Rather, it applies when a person is explicitly elected or appointed to represent a particular group. An example is a student representative on a University Council. Even if section 6(1A) were to apply to local authority elections, because the vote is by secret ballot, a councillor could rarely if ever prove that they had been elected by particular voters. Therefore, we do not consider that Crs Murray and Oldfield are covered by the exception in section 6(1A).

Section 7(2) – member did not know they had a pecuniary interest

2.19
Under section 7(2) of the Act, it is a defence in proceedings under the Act if a member can prove that they did not know, or had no reasonable opportunity of knowing, that they had a financial interest other than an interest in common with the public. None of the councillors have argued that this defence applies, but we deal with it for completeness.

2.20
All four councillors are experienced councillors and they had previously been given information about conflicts of interest. The issue of whether Cr Murray had a conflict was raised directly with her at meetings, and with Crs Oldfield and Harrow by the then Chairperson, Sir Kerry Burke, by email. These three councillors were also given information on conflicts of interest in relation to the proposal by the then Chairperson in February 2009, and that advice was then given to all councillors. In particular, they were given material on deemed pecuniary interests (that is, where a councillor’s spouse, or a company in which a councillor or their spouse is a shareholder, has a pecuniary interest).

2.21
The councillors could have asked Council staff for advice on how the proposal would affect them financially. None did so before the June 2009 meeting. We appreciate that they may have been relying on legal advice that said they were not barred from participating at that time.

Conclusion on breach of the Act

2.22
In our view, each of the four councillors had a pecuniary interest in the proposal when it was considered at the Council meeting on 4 June 2009. Their pecuniary interest was not one that was in common with the public, and none of the other exceptions or defences in the Act applies. Therefore, all four councillors breached section 6(1) of the Act by voting on the proposal at that meeting.

4: Office of the Auditor-General, Guidance for members of local authorities about the law on conflicts of interest, June 2007, paragraph 3.5.