Application for an exemption or a declaration by Cr Hewitt

Liz Lambert
Acting Chief Executive
Hawke’s Bay Regional Council
By email: liz@hbrc.govt.nz

Dear Liz

APPLICATION FOR AN EXEMPTION OR A DECLARATION BY Cr HEWITT

Cr Deborah Hewitt applied to us on 14 May 2016 for an exemption or a declaration under the Local Authorities (Members’ Interests) Act 1968 (the Act) to enable her to participate in a number of decisions by the Hawke’s Bay Regional Council (the Council) about the proposed Ruataniwha Water Storage Scheme (the Scheme). We sought further information about that application from both the Council and Cr Hewitt. We received that further information on 15 June 2016.

On 17 June 2016 we advised that, based on the information we had been provided with, we:

• had formed the view that Cr Hewitt did have a pecuniary interest in the decisions;
• considered that her interest was not one that was in common with the public; and
• had reached the preliminary view that it was not appropriate for us to grant Cr Hewitt an exemption or a declaration.

We asked Cr Hewitt and you to provide us with any comments on the factual accuracy of matters discussed in the draft decision letter. We also advised, that if you or Cr Hewitt had any further information that you considered may be relevant to the conclusions we had reached, you could provide that to us. We received further comments on the evening of Friday 24 June 2016.

In particular, the further information provided contained more information and reasoning on why it would be in the interests of electors that Cr Hewitt be able to participate, as well as an assessment of the suitability of Cr Hewitt’s property for irrigation by a Senior Land Management Advisor at the Council.

As explained below, we have now decided to grant a declaration to Cr Hewitt.

Decisions about the proposed Scheme

The proposed Scheme is a large irrigation project that is being managed and developed by the Hawke’s Bay Regional Investment Company (HBRIC), a company controlled by the Council. In June 2014, the Council decided to invest up to $80 million in the Scheme, subject to a number of conditions being met. The Council is now at the stage of confirming that the conditions on the investment have been met.

Does Cr Hewitt have a pecuniary interest?

Cr Hewitt has an interest in Hewitt Livestock Limited, which operates as a livestock trading business. The company operates nationwide, and a small number of the company’s clients are within the areas proposed to be irrigated by the Scheme.

It is uncertain how the Council’s decisions about the Scheme would affect the company’s business, through any change to sheep and cattle numbers in the Scheme area. On the one hand, it is possible that the amount of land used for sheep and beef farming in the Scheme area could decline as a result of changes to higher value land uses. On the other hand, the availability of irrigation could facilitate more intensive farming practices, which could result in greater numbers of sheep and cattle.

Because it is difficult to determine how the Council’s decisions about the Scheme would affect Hewitt Livestock Limited or quantify any effect in any meaningful way, the extent of Cr Hewitt’s pecuniary interest in the Council’s decisions about the proposed Scheme, through her interest in Hewitt Livestock Limited is not clear.

Cr Hewitt’s family trust owns about 19 ha of land in an area proposed to be irrigated by the Scheme. Cr Hewitt told us that about 13 ha is productive land and that only about 6-7 ha of it could be irrigated. We understand that since the 2015 decision of the Tukituki Catchment Proposal Board of Inquiry, HBRIC has decided to add to areas proposed to be irrigated by the Scheme. This new area is called Zone N and the land owned by Cr Hewitt’s family trust is located within it.

The availability of water to irrigate land increases the potential range of uses of agricultural land, regardless of the size of the land. It potentially enables a higher value land use than is available on non-irrigated land, for example, irrigated viticulture compared to dryland sheep farming. This means that land used for agricultural purposes that is able to be irrigated is generally of a higher value than land that is not able to be irrigated.

On 24 June 2016, the Council provided us with a document prepared by a Council Senior Land Management Advisor about the extent to which the land owned by Cr Hewitt’s family trust was suitable for irrigation. He formed the view that only 6-7 ha of the land owned by Cr Hewitt’s family trust would be irrigable using centre pivots or linear irrigators because the remaining area of the property has trees, houses or sheds. He also noted that the soil type present on the land owned by Cr Hewitt’s family trust is such that it is not suitable for intensive farming, and any irrigation would need to be carefully managed due to the propensity of the soil to become waterlogged. After taking into account the value of irrigated and non-irrigated land in the Central Hawke’s Bay district, he noted that there would be very little, if any, capital gain as a result of converting this property to irrigation. He concluded that:

… irrigation on this property would be difficult and expensive with a lack of scale against which to leverage the investment.

We note that the Council’s Senior Land Management Advisor did not consider whether the land was suitable for irrigation by other methods, such as drip irrigation, and whether other types of land use could be carried out on the property using those methods. It is therefore difficult to assess whether the land owned by Cr Hewitt’s family trust has the limited irrigation capacity as suggested by the Council, or in fact has a greater capacity.

We acknowledge that based on the information provided by the Council, the land owned by Cr Hewitt’s family trust may have limited capacity for irrigation, and that she may have a minor pecuniary interest. However, in the absence of the information set out above, we are unable to be certain that it is in fact a minor pecuniary interest. Although we are unable to quantify with any certainty the extent of Cr Hewitt’s pecuniary interest is in these decisions, we have formed the view that, on balance, she is likely to have a pecuniary interest in the Council’s decisions about the Scheme because the value of land owned by her family trust has the potential to be affected by the Council’s decisions.

Is Cr Hewitt’s pecuniary interest one that is in common with the public?

The prohibition on a councillor discussing and voting on a matter in which they have a pecuniary interest in section 6(1) of the Act does not apply where the pecuniary interest held by the councillor is one in common with the public. 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. We sought further information from you to understand whether Cr Hewitt’s pecuniary interest through her family trust’s ownership of land was one that was in common with the public.

You told us that:

• there are 76,183 rating units in the Hawke’s Bay region;
• there are 5,172 rating units in the Scheme irrigation zones; and
• of the 5,172 rating units in the Scheme irrigation zones, 2,196 are zoned as rural.

Based on this information, it would appear that the owners of about 2.9% of rating units in the Hawke’s Bay region are inside the Scheme irrigation zones and could potentially irrigate their land using water from the Scheme.

In our view, the number of rating units inside the proposed Scheme irrigation zones and potentially able to irrigate their land using water from the Scheme, is not sufficiently large to be considered to be the “public” for the purposes of the exception in section 6(1).

Therefore we consider that Cr Hewitt’s pecuniary interest in the decisions about the Scheme is not one that is in common with the public. This means that her pecuniary interest is a disqualifying one under the Act.

Legal grounds for an exemption or declaration

Section 6(1) of the Act prohibits a councillor from discussing or voting on a matter before the council in which the councillor has a pecuniary interest, other than an interest in common with the public. However, in some circumstances the Act allows the Auditor-General to grant an exemption or declaration, which has the effect of suspending the prohibition on discussing and voting on the matter for the councillor concerned.

Under section 6(3)(f) of the Act, we may grant an exemption if the councillor’s interest is, in our opinion, so remote or insignificant that it cannot reasonably be regarded as likely to influence the councillor when voting or taking part in discussion on the matter.

Under section 6(4) of the Act, we can grant a declaration that the pecuniary interest rule will not apply if we are satisfied that applying the pecuniary interest rule to this matter would:

• impede the transaction of business of the Council; or
• otherwise not be in the interests of the electors or inhabitants of that region.

Our approach, in considering an application for a declaration on the basis that it is in the interests of the electors or inhabitants, is to weigh the benefits of allowing a councillor to participate against the risk that their pecuniary interest could be seen to unduly influence the outcome.

Our assessment of the application for an exemption or a declaration

Exemption

As we have set out above, we have reached the view that Cr Hewitt is likely to have a pecuniary interest in the Council’s decisions about the Scheme. Because it is difficult to quantify the amount of her pecuniary interest, we are unable to conclude that her interest is so remote or insignificant that it cannot reasonably be regarded as likely to influence her in voting or taking part in discussions about the Scheme. On this basis, we have concluded that it is not appropriate for us to grant Cr Hewitt an exemption under section 6(3)(f).

Declaration

You have set out your concern that if the Cr Hewitt is unable to participate, and the Council is evenly divided on the decisions, then the Chair may be required to use his casting vote. You are concerned that this may create risk to the Council’s decision-making process. Because of this risk, you consider that a declaration should be granted on the basis that the application of the rule would impede the transaction of business of the Council.

We consider that applying the pecuniary interest rule would not impede the transaction of business of the Council. From the information provided to us, we understand that Cr Hewitt is the only councillor affected and the remaining eight councillors will take part in discussions and vote. The Council’s standing orders specifically enable the Chair to use his casting vote. Therefore, the Council does have the legal power to make the decisions about the Scheme without Cr Hewitt’s participation, even if the councillors are evenly divided.

In our view, the more relevant ground is whether it would be in the interests of the electors or inhabitants of the region that the pecuniary interest rule should not apply to Cr Hewitt in this case.

The decisions about the Scheme will determine whether the Council’s investment in the Scheme will proceed and therefore whether the Scheme will go ahead. These are very significant decisions for the Council and for the region. You told us that the Council has invested significant resources in getting to this point. You and Cr Hewitt have told us that:

• Cr Hewitt is the elected councillor representing the majority of land owners within the Scheme boundaries. “The economic analysis presented to the Board of Inquiry in relation to the RWSS shows that 60% of the economic benefits from the Scheme will be received by the Central Hawke’s Bay area”. “… although the views of the Central Hawke’s Bay inhabitants are well-known (i.e. that they are overwhelmingly in favour of the Scheme), councillors from other constituencies cannot be expected to take this into account when voting on decisions relating to the RWSS. Rather, these councillors can be expected to vote according to the perceived benefits or missed benefits for their constituents”. If she is unable to participate “the views of her constituents will not be adequately represented in decisions which have a direct impact on them”;
• the Scheme is the most significant project ever undertaken by the Council and the most significant recent infrastructure project in the Hawke’s Bay, therefore all members should be able to participate in the discussion and vote on the Scheme. “It is therefore crucial that all elected members of the Council are able to participate in the decision, if possible, in the interests of democracy”; and
• Cr Hewitt as a result of her role as the Chair of the Stakeholder Group for the Tukituki catchment for three years before her election to the Council in 2013, has extensive expertise in matters about the Scheme. The Stakeholder Group was made up of representatives of a range of stakeholders including environmental groups, farmers, and iwi. She has an appreciation and knowledge of the competing interests in the project. “Her knowledge on the matter therefore directly contributes to the value of the Council’s decision-making in respect of the RWSS”.

In making a decision on a declaration, we are required to weigh the benefits of allowing a councillor to participate against the risk that their pecuniary interest could be seen to unduly influence the outcome. In this case, we consider the matter to be finely balanced.

Determining whether it is in the interests of electors that Cr Hewitt should participate in the discussion and voting on the decisions is not straightforward because the gain or loss of money to Cr Hewitt from these decisions is uncertain. We note that the area of land that is owned by Cr Hewitt’s family trust which is suitable for irrigation is small and we have taken this into account. We have considered the Council’s advice that the potential benefits from irrigating the land are marginal. However, the advice provided by the Council about the suitability of that land for irrigation by centre pivot or linear irrigators, does not include other methods of irrigation and a wider range of alternative land uses.

Despite this uncertainty, on balance we consider that the benefits of allowing her to participate outweigh the risk that her pecuniary interest could be seen to unduly influence the outcome. In reaching this view we have been particularly influenced by the significance of the decisions to the Council and the region, which in our view warrant all councillors being able to participate in discussion and voting on these decisions.

Conclusion

For these reasons, we grant a declaration to Cr Hewitt to participate in discussing and voting on the decisions about whether the conditions on Council’s $80 million investment have been met.

The declaration is in the following terms:

The Auditor-General declares, under section 6(4) of the Local Authorities (Members’ Interests) Act 1968, that section 6(1) of the Act will not apply with respect to discussion or voting on decisions about whether the conditions on Council’s $80 million investment have been met before the Hawke’s Bay Regional Council or any of its committees. This declaration will continue in effect until the next triennial elections of the Council.

We note that this declaration applies only to any pecuniary interest that Cr Hewitt may have, and is not applicable to any non-financial conflicts of interest she may have.

Because of the public interest in this matter, we will be publishing a copy of this letter on our website.

Yours sincerely

Melanie Webb
Assistant Auditor-General, Legal