Part 3: Did Councillor Urquhart have a financial conflict of interest?

Ashburton District Council: Allegations of conflicts of interest affecting decisions on a second bridge.

The relevant law

The rule on participation in decisions

Section 6(1) of the Local Authorities (Members’ Interests) Act prohibits a member of a local authority from discussing or voting on any matter in which they have a pecuniary interest (whether direct or indirect), unless that interest is “in common with the public”.

A member with a possible pecuniary interest can apply to the Auditor-General for:

  • an exemption allowing the member to participate because the interest is so remote or insignificant that it is unlikely to influence how the person votes; or
  • a declaration that section 6(1) should not apply to a particular matter because:
    • applying it would impede the transaction of business by the local authority,2 or
    • it is in the interests of the people of the district that the rule should not apply.3

The Auditor-General’s role is to investigate alleged breaches and, if the circumstances warrant it, to bring prosecution proceedings. However, ultimately only a court can determine whether the Act’s requirements have been breached.

What is a “pecuniary interest”?

The Act does not define what a pecuniary interest is. The interpretation we give it, drawn from case law in New Zealand and overseas, is that a pecuniary interest is “a reasonable expectation of financial loss or gain”. For clarity, we usually simply refer to a “financial interest”.

Case law establishes the following general principles:

  • In determining whether an interest exists, the motives and good faith of the councillor concerned are irrelevant.
  • Whether a financial interest exists is a matter of fact, not a matter of opinion.
  • It is relevant to consider whether an informed objective bystander would conclude there was a reasonable likelihood of bias.
  • A financial interest might be direct or indirect, and might arise in a wide variety of factual situations.
  • Financial interests include potential benefits or liabilities.
  • Assessing whether someone has a financial interest must be done by reference to the particular matter under discussion, rather than to a matter in a broad or abstract sense.

This last point is particularly important in the local government context where a local authority often makes many different decisions about a matter (such as a development project) over a period of time. A councillor with a potential interest will not necessarily be affected financially by all of those decisions. For example, early decisions to commission work on options or to consult are unlikely to have a financial effect and so the rule against participation would not apply to them. However, a later decision to confirm a particular option might have a clear financial effect on a person and so the rule against participation would apply.

The facts

The Council decision

At its meeting on 22 May 2014, the Council had to decide whether to accept the recommendation of the independent commissioners and confirm the proposed designation of land for a second urban bridge over the Ashburton River. If the Council did, the land would become subject to a designation to be included in the District Plan.

As set out in Part 2, the chief executive reminded Councillor Urquhart that the Council’s legal advice was that it would be prudent for him to withdraw from the debate and decision, in part because of the risk that he had a financial interest in the decision. However, Councillor Urquhart said that he had different advice. He voted against accepting the recommendation and designating the land.

The Council vote was tied and so the Mayor used his casting vote to support the commissioners’ recommendation and confirm the designation.

The effect on Councillor Urquhart

Councillor Urquhart owns a property adjacent to the area that was proposed for designation. Matters that might affect properties near the area to be designated, such as changes to zoning areas and classification of roads, had already been made in recent changes to the District Plan. The decision on 22 May 2014 was simply about whether to confirm the designation.

The report from the commissioners described the functions of a designation as:

(i) Enabling the construction and operation of public works where those activities would otherwise be contrary to the provisions of a district plan;

(ii) Founding a process of land acquisition (where necessary), subject to the payment of compensation;

(iii) Protecting designated land against developments that might make it more difficult (or more costly) for the public work to proceed; and

(iv) By giving notice of a proposal, enabling people to factor its future existence in to their own decision-making.

The designation does not apply to Councillor Urquhart’s property and so the decision to designate has no direct effect on how he might use or develop the land. However, it increases the chance that at some future time a significant road might be developed near his land as part of the Project. At present, construction is planned to begin 12 years from now, in 2026.

What Councillor Urquhart told us

Councillor Urquhart told us that he knew that the Council’s legal advice said that he had a financial conflict of interest. However, he told us that two different lawyers told him that he did not have a conflict of interest.

He also contacted our office for advice, as set out in Part 2. He said that he did not find our response particularly helpful because it did not explicitly confirm whether the Council’s legal advice was correct. He decided to be guided by the advice from the lawyers he had talked to, rather than the written legal advice that the Council had sought and passed on to him.

3.15 Councillor Urquhart told us that he disagreed with the view that he had a financial interest because his property is not in the area that was to be designated. He said that, under one of the options considered earlier in the process, his property would have been within the designated area. He told us that, if that option had been chosen, he would probably not have participated in the decision.

He noted that, because his property is not in the designated area, the Council is not required to provide any form of compensation or offer to buy his land under the Public Works Act 1981. In his view, this suggested that the value of his property was not affected by the designation.

Our view

In our view, it is possible that the value of Councillor Urquhart’s land has been affected in some way by the Council’s decision to designate the adjacent land for the Project. However, attempting to assess the nature and scale of any change would be highly speculative. The access road is not due to be built until 2026, it is contingent on a number of other factors and steps in the process, and it is still possible that it may not proceed at all. As the commissioners noted, a measure of urban development is expected in Ashburton, whether or not the Project proceeds.

We do not regard the possible effect of the designation decision on the value of his land as sufficiently certain or significant enough to constitute a financial interest that would trigger the application of the rule against participation in the Act.

In case we are wrong in this view, we have also considered whether a financial interest in this situation would warrant a prosecution for breach of the Act. The Prosecution Guidelines issued by the Solicitor-General require us to take into account:

  • whether it is more likely than not that a prosecution will result in conviction;
  • the size and immediacy of any financial interest, the damage caused, the amount of public concern, and the extent to which the member’s participation influenced the outcome;
  • mitigating and aggravating factors, such as any previous misconduct, willingness to co-operate with an investigation, evidence of recklessness or irresponsibility, and previous breaches, cautions, and warnings;
  • the effect on public opinion of deciding not to prosecute;
  • the availability of alternatives to prosecution, such as reporting publicly to the Council or the public;
  • the prevalence of offending and need for deterrence;
  • whether the consequences of a conviction would be unduly harsh or oppressive; and
  • the likely length and expense of a trial.

We also considered the most recent case to have considered the application of section 6(1) in the context of a prosecution: Auditor-General v Christensen [2004] DCR 524. In that case, the Court said that:

  • the existence of a financial interest must be established “beyond reasonable doubt”;
  • on the particular facts, if the charge had been made out, the judge would have considered discharging the defendant without conviction because the councillor had not been motivated by self-interest and the consequences of convicting him (a criminal conviction and automatic loss of office) would have seriously outweighed his fault.

Applying the Prosecution Guideline factors and the comments from the Court, we have concluded that a court would be highly unlikely to convict in this situation. In particular, it would be difficult to establish beyond reasonable doubt that there had been a financial loss or gain. We think a court would also take into account that Councillor Urquhart is a first-time Councillor, that he made a genuine effort to seek advice about his situation, and that he did not appear to have been motivated by self-interest.

In summary we concluded that, although there is a possibility that Councillor Urquhart had some kind of financial interest when he participated in the Council’s decision on 22 May, that is not certain enough to trigger the application of the Act or to justify bringing criminal proceedings against him.

2: For example, if many Councillors had financial interests in the same matter, the Council might not be able to make effective decisions.

3: For example, the matter under discussion could be of such significance for the district, that it is preferable for all elected members to participate, despite the fact that some of them may have financial interests.

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