Freshwater planning, farmers, and financial interests

21 November 2023: This note is about one of our recent decisions under the Local Authorities (Members’ Interests) Act 1968. It will be helpful for councillors with financial interests in plans under the Resource Management Act 1991.

Key points from the Otago Regional Council decision

On 15 November 2023, the Auditor-General issued declarations under section 6 of the Local Authorities (Members’ Interests) Act 1968 (the Act) to several Councillors at Otago Regional Council (ORC). The Councillors have a financial interest in freshwater planning decisions, and applied for declarations to enable them to participate in discussions and decisions relating to ORC’s new Land and Water Regional Plan (the new Plan).

In deciding the applications, we found that:

the new Plan is a significant planning instrument that will affect the whole region, so it should be developed with each constituency effectively represented;
the new Plan will have a financial effect on farmers that is more than remote or insignificant;
the new Plan will affect individual farmers differently, so a farmer’s financial interest in the new Plan is not an interest in common with members of the public; and
the effect of the new Plan on co-operative companies and industrial and provident societies is not certain. A small number of shares in those kinds of entities does not, on its own, give a person more than a remote or insignificant financial interest in the new Plan.

The declarations applied only to the Councillors’ financial interests in the new Plan. They don't apply to any non-financial conflicts of the interest the Councillors may have.

Relevance to other regional councils

The Ministry for the Environment notes that all regional councils and unitary authorities need to have amended freshwater policy statements and plans notified by the end of 2024 and operational by 2026.¹

For the benefit of other councils whose members might have financial interests in freshwater planning decisions, this note:

sets out our key findings in more detail; and
provides a checklist of information to include in an application about a plan change.

Why we gave declarations

The Auditor-General can give a declaration under section 6(4) of the Act if they are satisfied of either of the grounds set out in that subsection:

if applying the non-participation rule would impede the transaction of business by the council; or
if it would be in the interests of the electors or inhabitants of the district of the council or of the area under its jurisdiction that the non-participation rule should not apply.

Our published guidance on the Act explains the criteria we use to determine whether these grounds are satisfied.²

In assessing whether to give the ORC councillors declarations, we took into account:

the new Plan is a significant planning instrument that will affect the whole region, and it is important for each constituency to be effectively represented:
discussions and votes will be about planning, not individual consent applications:
each of the Councillors had specific and relevant skills and experience to contribute to the development of the new Plan:
in one case, the Councillor did not seek to participate in aspects of the new Plan that were specific to the freshwater management unit in which their farming or other business interests were located.

On that basis, the Auditor-General was satisfied that the public interest ground was satisfied. The Auditor-General gave declarations accordingly.

Why interests in farms weren't an interest in common with the public

Some ORC Councillors own or run a farm, hold shares in a company that owns or runs a farm, or are beneficiaries of a trust that owns or runs a farm. We were told that ORC’s new Plan will affect farming practices across the Otago region, and that it would invariably have financial implications for farmers.

The Councillors sought to categorise their financial interests in farms as interests in common with the public. If a financial interest is an interest in common with the public, it does not prevent a member of a local authority from participating in votes or discussions on a matter.³

However, we were told that the financial impact of the new Plan on individual farmers would depend on the nature of the rules ultimately adopted and the degree of additional compliance work required for individual farming operations.

We took the view that whether a farmer has a reasonable expectation of gain or loss under the new Plan will depend on many variables, including the size of the farm, the characteristics of its land and waterways, the way in which the farm is managed, what work has already been done, and the intentions of the owner.

We did not consider that enough other farmers were sufficiently similarly affected for any of the Councillors’ financial interests in their farms to be considered an interest in common with members of the public.

Why financial interests in co-operative companies were remote or insignificant

Some ORC Councillors hold shares in co-operative companies (such as Ravensdown Limited, Silver Fern Farms Co-operative Limited, and Primary Wool Co-operative Limited) and shares in industrial and provident societies (such as Farmlands Co-operative Society Limited).

The Councillors’ shareholdings in these entities are too small to constitute a deemed financial interest under section 6(2) of the Act. However, a shareholding below the section 6(2) threshold can still be a relevant financial interest if the matter to be discussed or voted on could materially affect the value of the entity’s shares or the dividends to be paid.

We took the view that, although the new Plan could affect the value of a person’s shareholdings in a co-operative company or industrial and provident society, this was far from a certain outcome.

We were satisfied that the Councillors’ shares in these kinds of entities created a financial interest so remote or insignificant that it could not reasonably be regarded as likely to influence them in voting on or taking part in discussions of the new Plan (see section 6(3)(f) of the Act).

The information we need to assess applications under section 6

If members of other councils wish to seek a declaration under section 6 of the Act in relation to a plan change, their application should include at least:

an overview of the proposed plan change; and
the classes of person and activities likely to be affected by the plan change.

If a Councillor has financial interests in a farm:

a description of the Councillor’s financial interests in the farm;
a description of the farm and its operations and the extent to which it would be affected by the plan change; and
the scale of the associated financial cost or benefit for the farm.

If a Councillor or their partner holds shares in an entity that has a financial interest in the plan change:

a description of the entity and its activities and the extent to which they would be affected by the plan change;
the scale of the associated financial cost or benefit for the entity;
how many shares the Councillor or their partner hold, and what proportion those shares represent of the entity’s total issued shares;
whether the Councillor or their partner is a director of the entity;
whether the Councillor is deemed to share the entity’s financial interest (applying the test set out in section 6(2) of the Act); and
how the value of the entity’s shares would be affected by the plan change.

If a Councillor or their partner is a trustee or beneficiary of a trust that has a financial interest in the plan change:

a description of the trust and its activities and the extent to which they would be affected by the plan change;
the scale of the associated financial cost or benefit for the trust; and
the Councillor’s connection to the trust and whether financial benefits or costs for the trust will flow through to the Councillor (we may ask for a copy of the trust deed).

If a Councillor has any other kind of financial interest in the plan change, include sufficient details to indicate the nature and extent of that financial interest.

1: Government freshwater work programme | Ministry for the Environment.

2: Local Authorities (Members’ Interests) Act 1968, section 6(1). See also Local Authorities (Members’ Interests) Act 1968: A guide for members of local authorities on managing financial conflicts of interest, at paragraphs 4.55-4.60.

3: Local Authorities (Members’ Interests) Act 1968, section 6(1). See also Local Authorities (Members’ Interests) Act 1968: A guide for members of local authorities on managing financial conflicts of interest, at paragraphs 4.35-4.37.