Part 6: What are the rules?
6.1
Rules and expectations about conflicts of interest might be derived from any or all of:
6.2
In this Part, we outline some of the main legal and ethical considerations that are likely to apply to managing conflicts of interest and the possible consequences of breaching the applicable rules.
Statutory rules
6.3
Some public organisations are subject to statutory rules that apply to managing conflicts of interest.
6.4
Statutory rules generally regulate conflicts of interest of members of an organisation's governing body, rather than the organisation's employees. If you are on the governing body of an organisation that is subject to one of these Acts, you need to be familiar with the rules that apply to conflicts under that Act.
6.5
Statutory rules commonly do one or more of the following:
- prohibit members from discussing and voting at meetings on matters in which they have an interest;
- require members to disclose interests before appointment, in a register of interests and/or at relevant meetings;
- prohibit members from having an interest in certain contracts with their organisation;
- prohibit members from signing documents relating to matters in which they have an interest; and
- provide mechanisms for seeking exemptions from the general rules.
6.6
Some important statutory rules can be found in the:
- Crown Entities Act 2004;
- New Zealand Public Health and Disability Act 2000;
- Companies Act 1993;
- Local Authorities (Members' Interests) Act 1968; and
- Education Act 1989.
6.7
Appendix 2 sets out summaries of the relevant statutory provisions.
Common law rules
6.8
Conflicts of interest are also regulated under the common law, as part of the general requirement that all public decision-making must be procedurally fair, including being free from the taint of bias and predetermination.
6.9
The common law's rule against bias has two main goals:
- First, it ensures that the best decision is made based on relevant information and arguments, not ulterior motives or prejudices.
- Secondly, it ensures that people affected by, or interested in, a decision have trust and confidence in the process – meaning they are more likely to accept a decision once it is made.
6.10
The rule against bias operates both to avoid actual bias and to avoid any appearance of bias. The principle is that justice should not only be done but it should also be seen to be done.
6.11
The courts usually approach bias by asking the following question:
Would a fair-minded observer reasonably think that the decision-maker or member of the decision-making body might not bring an impartial mind to the decision, in the sense that they might unfairly treat someone's case with favour or disfavour?12
6.12
Also, under the common law, a person who has a fiduciary obligation towards someone else (such as a trustee of a trust or director of a company) is not allowed to put themselves in a position where their official role conflicts with their personal interests.
6.13
The principles that have been developed through the common law are relevant to managing conflicts of interest, even where there is a statutory rule in place, because the common law is likely to influence how the statutory rule is interpreted.
6.14
Appendix 3 sets out a list of some New Zealand court cases that consider conflicts of interest.
General standards and expectations
6.15
As stated in Part 1, public business should be conducted with a spirit of:
- integrity;
- impartiality;
- accountability;
- trustworthiness;
- respect; and
- responsiveness.
6.16
As well as legal requirements, all decisions about conflicts of interest need to be guided by ethical principles. A lack of integrity in relation to conflicts can impact the culture of an entire team. At an extreme end, the normalising and acceptance of conflicts can permeate throughout a team and facilitate criminal corruption.13
6.17
There is no single source of rules or expectations specifying what constitutes ethical behaviour for all situations or all public organisations. Any rules or expectations applying to a particular situation might come from a variety of sources, including:
- the organisation's founding or constituting document;
- the organisation's code of conduct or relevant internal policies and procedures, such as those about procurement decisions;
- other sets of mandatory requirements that apply to the public sector or a particular part of it (such as the Code of Conduct for the State Services, the Cabinet Manual, the State Services Commission's Board Appointment and Induction Guidelines, or the Government Procurement Rules);
- relevant clauses in an employment agreement or contract for services;
- rules of conduct or codes of practice applying to members of a profession or industry;
- general guidance or good practice guides (such as this one);
- customary practice and behaviour in the public sector or a particular part of it;
- commonplace understandings of the concepts of integrity, impartiality, accountability, trustworthiness, respect, and responsiveness; and
- analogies drawn from legal rules that apply to similar situations.
6.18
Appendix 1 sets out a list of other useful sources of guidance.
Consequences if the rules or expectations are breached
6.19
A poorly managed conflict of interest can have consequences for both you and the organisation you work for.
6.20
If you are a member of a governing body, breaching a statutory rule might constitute grounds for your removal from office. It might constitute an offence. Sometimes, the law provides that a transaction of the public organisation might be able to be cancelled. Some matters might adversely affect the public organisation's audit report.
6.21
If an organisation's decision is tainted by bias, the courts may declare the decision invalid or may prevent a person from exercising a power. The risk, delay, and expense in defending a decision against a legal challenge can be significant.
6.22
More often, if a conflict of interest is not handled well, there is a risk that you, your managers, and the organisation you work for might become the subject of public criticism by politicians, the media, or members of the public. A regulatory agency may conduct a formal inquiry into the public organisation. If you are an employee, the organisation might have grounds for taking disciplinary action against you.
6.23
A public scandal could be severely damaging to the public organisation's reputation and could lead to people losing their jobs.
12: Saxmere Company Ltd v Wool Board Disestablishment Company Ltd [2010] 1 NZLR 35; [2010] 1 NZLR 76.
13: R v Borlase & Noone [2016] NZHC 2970. In this case, the court found that there were adequate conflicts of interest policies, but they were not appropriately observed. This led to "the insidious corruption of officials" noted by Fitzgerald J at [131].