Part 1: Introduction

What this guide is about

1.1
This is a guide to the law about conflicts of interest for members of the governing bodies of territorial authorities, regional councils, tertiary institutions, and those other public bodies that are covered by the Local Authorities (Members’ Interests) Act 1968.¹ A full list of the organisations covered by the Act is set out in Appendix 1.

1.2
The law has two underlying purposes:

• ensuring that members are not affected by personal motives when they participate in local authority matters, and
• in contracting situations, preventing members from using their position to obtain preferential treatment from the authority.

Terms used in this guide

1.3
In this guide:

• “you” means a member of an authority;
• “local authority” or “authority” means a body subject to the Act;
• “we” means the Office of the Auditor-General; and
• “the Act” means the Local Authorities (Members’ Interests) Act 1968.

Who does this guidance apply to?

1.4
This guide is intended for members of local authorities. It focuses on the legal requirements that apply to members in formal decision-making at authority meetings.

1.5
This guide does not discuss other behaviour or situations that, while not unlawful, might be regarded as unethical.

1.6
It does not apply to staff of local authorities.

Other guidance

1.7
We have published separate guidance about managing conflicts of interest in the public sector more generally: see our 2007 publication Managing conflicts of interest: Guidance for public entities. That publication discusses a broader range of organisations, situations, and personnel, and considers ethical expectations as well as legal rules.

1.8
People who are not members of local authorities should refer to Managing conflicts of interest: Guidance for public entities. It is also relevant to members of local authorities, but is not as specific as this guide about the law that applies to them. Members of local authorities may find Managing conflicts of interest: Guidance for public entities especially useful in cases where there is no risk of breaching the law but where there may still be doubts about whether the situation or behaviour is ethically appropriate in a public sector context.

Conflicts of interest and the law about bias

1.9
A conflict of interest exists where two different interests intersect; in other words, where your responsibilities as a member of the local authority could be affected by some other separate interest or duty that you may have in relation to a particular matter. That other interest or duty might exist because of:

• your own financial affairs;
• a relationship or role that you have; or
• something you have said or done.

1.10
The common law requires that public decision-making be procedurally fair. In particular, conflicts of interest are usually dealt with under the rule about bias.² The law about bias exists to ensure that people with the power to make decisions affecting the rights and obligations of others carry out their duties fairly and free from bias. It is summed up in the saying “no one may be judge in their own cause”.

1.11
Another way of expressing the issue is:

Would a reasonable, informed observer think that your impartiality might have been affected?

1.12
The law about bias originally applied to judicial proceedings, but over the years has been extended to a wide range of decision-makers who exercise public functions that can affect the rights or interests of others. The law applies to members of local authorities.

1.13
The law applies differently to pecuniary (that is, financial) and non-pecuniary conflicts of interest. When you are considering whether to participate in the authority’s decision-making processes about a particular matter, you need to consider the potential for both types of conflict of interest. Different rules apply to each type.

Pecuniary interests: The Local Authorities (Members’ Interests) Act 1968

1.14
The Act deals with that part of the rule against bias as it applies to the pecuniary interests of members of local authorities. The Act:

• controls the making of contracts worth more than $25,000 in a financial year between members and their authority (see Part 2); and
• prevents members from participating in matters before the authority in which they have a pecuniary interest, other than an interest in common with the public (see Part 3).

1.15
The Act applies to members of city councils, district councils, regional councils, community boards, tertiary institutions, and a range of other public bodies.

1.16
The Act regulates the actions of individual members of authorities, not the actions of the authorities.

1.17
Members, not authorities, may be prosecuted for breaches of the Act.

1.18
The Act also applies to members of committees of those authorities (regardless of whether a committee member is also a member of the authority). It does not apply to council-controlled organisations, port companies, airport companies, or energy companies.

The role of the Auditor-General under the Act

1.19
Our role in administering the Act includes:

• deciding applications for approval of contracts worth more than $25,000 in a financial year;
• deciding applications for exemptions or declarations from the rule against members discussing and voting where they have a pecuniary interest;
• providing guidance to local authority members and officers, to help them comply with the Act in particular situations; and
• investigating and prosecuting alleged offences against the Act.

1.20
We do not issue “rulings” about whether a member has a pecuniary interest in a particular matter; nor about whether the Act has been breached. Only the courts can determine those matters.

Non-pecuniary conflicts of interest: The rule against bias

1.21
If a person challenges a local authority’s decision by way of judicial review proceedings, the courts could invalidate the decision because of bias on the part of a member of the decision-making body. The question you need to consider, drawn from case law, is:

Is there a real danger of bias on the part of a member of the decision-making body, in the sense that he or she might unfairly regard with favour (or disfavour) the case of a party to the issue under consideration?

1.22
It is the appearance of bias, not proof of actual bias, that is important.

1.23
The law about bias does not put you at risk of personal liability. Instead, the validity of the authority’s decision could be at risk.

The role of the Auditor-General in relation to non-pecuniary conflicts of interest

1.24
We have no formal decision-making role in respect of non-pecuniary interests. In particular, we do not have the power to grant exemptions in this area. Only the courts can determine whether the law has been breached in any particular instance.

1.25
However, we can look into matters of probity involving a member of an authority, which could include examining whether a member failed to declare a conflict of interest. As part of this role, we may also be able to give you guidance about whether a non-pecuniary conflict of interest could exist. Our guidance is set out in Part 5.

What is the difference between a pecuniary and a nonpecuniary conflict of interest?

1.26
A pecuniary interest is one that involves money. It can sometimes be difficult to decide whether an interest in a particular matter is pecuniary or some other kind (see “Frequently asked questions” in Part 6).

This guide is not a substitute for the law

1.27
This guide discusses the Act and the common law principles, and suggests some ways to approach questions that could arise for you. However, it is not a formal or definitive statement of the law. Nor is it to be treated as legal advice for specific situations. In difficult situations, we recommend that you refer to the actual wording of the Act or consult your own lawyer.

1: Previous editions of this booklet were called A Guide to the Local Authorities (Members’ Interests) Act 1968 (1995 and 1998); Financial Conflicts of Interest of Members of Governing Bodies: A Guide to the Local Authorities (Members’ Interests) Act 1968 (2001); and Conflicts of Interest: A Guide to the Local Authorities (Members’ Interests) Act 1968 and Non-pecuniary Conflicts of Interests (2004).

2: However, one recent judicial decision appears to suggest that conflicts of interest can be regarded as a stand-alone aspect of the general requirement of procedural fairness in public decision-making, and need not necessarily be characterised using “bias” language and concepts: see Diagnostic Medlab v Auckland District Health Board (HC, Auckland, CIV-2006-404-4724, 20 March 2007, Asher J).