Part 3: Discussing or voting at meetings – the pecuniary interest rule

Guidance for members of local authorities about the law on conflicts of interest.

3.1
This section explains the prohibition against discussing or voting on a matter in which you have a pecuniary interest.

What is the pecuniary interest rule?

3.2
The pecuniary interest rule is that members of an authority are not allowed to participate in discussion or voting on any matter before the authority in which they have a direct pecuniary interest or an indirect pecuniary interest, other than an interest in common with the public.

3.3
It is an offence under the Act to participate in any matter in which you have a pecuniary interest.

3.4
There are several exceptions to the pecuniary interest rule. These are described in paragraph 3.23. In addition, we can grant exemptions from the rule in particular circumstances (see paragraphs 3.24 to 3.34 for more details).

What is a pecuniary interest?

3.5
The Act does not define a pecuniary interest. The test we use is:

whether, if the matter were dealt with in a particular way, discussing or voting on that matter could reasonably give rise to an expectation of a gain or loss of money for the member concerned.

3.6
Appendix 2 contains summaries of a number of cases in which the courts have discussed pecuniary interests. We suggest that you refer to these case summaries for guidance.

When is a pecuniary interest held “in common with the public”?

3.7
If your pecuniary interest can be said to be “in common with the public”, you will not be prohibited from discussing and voting on the matter.

3.8
In considering whether your interest is in common with the public, you need to consider whether the interest is:

  • of a different nature or kind to that of other people, or
  • significantly different in size.

3.9
Another way is to ask yourself whether the matter affects you in a different way, or to a materially greater degree, than most other people.

3.10
For example, an interest may not be “in common with the public” if:

  • you are a property developer – because you may have an interest in town planning or development matters that is different in kind to that of most other residents or “ordinary” property owners; or
  • you are one of a small number of ratepayers affected by a targeted rate – because your interest in decisions about that rate may not be shared by a group large enough that it could be reasonably said to constitute “the public”.1

3.11
We accept that some tolerance is necessary in order to apply the “interest in common with the public” exception in a realistic and practical way. In order to rely on the exception:

  • You do not need to be affected to exactly the same extent as other members of the public. For instance, all ratepayers are affected slightly differently by the adoption of an overall rate. We consider that this can safely be treated as an example of an interest which is in common with the public.
  • The interest does not need to be shared by all members of the public in the district – it is sufficient that you are part of a large group of people affected in a similar way. The question of whether or not a group of people should be treated as “the public” is often a matter of degree.

3.12
We acknowledge that it can be difficult to draw a clear line. If you think that your pecuniary interest is not in common with the public, it is possible that you may still be able to participate, if:

  • your pecuniary interest is remote or insignificant (see paragraph 3.29); or
  • we make a declaration for you under the Act (see paragraphs 3.31 to 3.34).

Indirect pecuniary interests

3.13
It is difficult to be precise about when an indirect pecuniary interest exists. Each instance will have its own circumstances. However, the Act does provide certainty where an indirect pecuniary interest exists through a member’s spouse or partner, or in a company.

Interest through spouse or partner

3.14
If your spouse, civil union partner, or de facto partner has a pecuniary interest in a matter before the authority, you are deemed to have the same interest.

Interest in a company

3.15
If either you or your spouse or partner is involved in a company that has a pecuniary interest in a matter before the authority, you are deemed to have the same interest only if:

  • you or your spouse or partner, singly or together, own 10% or more of the shares in:
    • the company, or
    • another company which controls it; or
  • either you or your spouse or partner are a shareholder of:
    • the company, or another company which controls it, and
    • either of you are the managing director or general manager (whatever name you are actually called) of the company or the controlling company; or
  • either you or your spouse or partner are the managing director or general manager (whatever name you are actually called) of the company, and either of you is a shareholder of another company which controls it.

Direct and indirect interests

3.16
The “deeming” provisions on indirect interests can be deceptive. They mean that you are deemed to share a pecuniary interest that your spouse or partner or a company has in a matter. You could also have your own separate direct interest in a matter, in addition to or separate from an indirect interest that you have through your spouse or partner or a company.

3.17
For example, you may be one of many landowners who form a company to develop a community asset in the surrounding area, in partnership with the authority. As well as the company’s interest, you may have a direct interest which arises from the prospect of increased land values in the vicinity of the project. That interest could be caught separately by the pecuniary interest rule even if your involvement in the company is insufficient to meet the “deemed interest” test.

Declaration of interest and recording in minutes

3.18
If a matter comes before the authority in which you have a pecuniary interest, you must:

  • abstain from discussion and voting; and
  • declare to the meeting the existence of a pecuniary interest.

3.19
You do not need to inform the meeting about the nature of your interest; nor why it exists.

3.20
The requirement to abstain from discussion and voting does not mean that you have to leave the meeting room. However, we consider that you should leave the table and sit in the public gallery while the matter in which you have an interest is being discussed and voted on.

3.21
The minutes of a meeting are evidence of what went on at the meeting. For this reason, you should ensure that your abstention and declaration are correctly recorded in the minutes.

3.22
You would be wise to read agenda papers before a meeting to see whether you have an interest in any matters that are to be discussed or voted on. If possible, you should advise the mayor or the chairperson before the meeting starts that you are going to declare an interest in a particular matter.

Matters to which the pecuniary interest rule does not apply

3.23
The Act sets out a number of matters to which the pecuniary interest rule does not apply. This means that a member can participate in discussion and voting on the following matters, despite the fact that the member may have a pecuniary interest:

  • if you were elected by or appointed to represent a particular activity, industry, business, organisation, or group of persons, and your pecuniary interest in a matter is no different from the interest of those whom you represent;
  • any payment to you or for your benefit where it is legally payable and the amount, or the maximum amount, or the rate, or maximum rate, of the payment has already been fixed – such as payment of remuneration to members in accordance with determinations made under the Local Government Act 2002;
  • any contract of insurance insuring you against personal accident;
  • your election or appointment to any office, notwithstanding that any remuneration or allowance is or may be payable in respect of that office;2
  • any formal resolution to seal or otherwise complete any contract or document in accordance with a resolution already adopted;
  • the preparation, recommendation, approval, or review of a district scheme or any section of such a scheme,3 unless the matter relates to:
    • any variation or change of or departure from a district scheme or section of the scheme, or
    • the conditional use of land;4 or
  • the preparation, recommendation, approval or review of:
    • general schemes under the Soil Conservation and Rivers Control Act 1941 for the preventing or minimising of damage by floods or erosion; or
    • reports as to the effect or likely effect on the environment of any public work or proposed public work within the meaning of the Public Works Act 1981.

Exemptions and declarations

3.24
We can grant an exemption or declaration to allow a member to participate in a matter in which the member has a disqualifying pecuniary interest.

The procedure

3.25
If you think you have a disqualifying pecuniary interest in a matter, you can apply for an exemption or a declaration to enable you to participate in the matter.

3.26
An application for an exemption or a declaration must be made before you participate. We cannot grant a retrospective exemption or declaration.

3.27
The application must be in writing, and can be made by you or by the authority on your behalf.

3.28
In order to be able to consider an application for an exemption or declaration, we need to be provided with detailed information about:

  • the nature of the matter which is to come before the authority;
  • the nature and extent of your pecuniary interest in the matter, and how that interest may be affected by the matter; and
  • the reasons that the necessary grounds for an exemption or declaration may exist (see paragraphs 3.28 to 3.33).

Exemptions

3.29
We can grant an exemption under section 6(3)(f) of the Act if your interest is, in our opinion, so remote or insignificant that it cannot reasonably be regarded as likely to influence you when voting or taking part in discussion on the matter.

3.30
When determining whether an exemption is appropriate, we consider: the relationship between your pecuniary interest and the matter under consideration; and the significance (that is, the size, weight, and importance) of the pecuniary interest in terms of its possible influence on you when discussing and voting.

Declarations

3.31
We can grant a declaration under section 6(4) of the Act if we are satisfied that either:

  • the application of the pecuniary interest rule would impede the transaction of business by the authority; or
  • it would be in the interests of the electors or inhabitants of the district that the rule should not apply.

3.32
For a declaration based upon the “impede the transaction of business” ground, we consider such factors as whether or not:

  • the pecuniary interest rule would preclude a majority of the members of the authority or committee from participating in the matter;
  • the declaration sought is only for a minor or procedural decision; or
  • the application of the rule could unduly distort the way in which the authority deals with the matter.

3.33
For a declaration based upon the “interests of the electors or inhabitants” ground, we must weigh the benefits of allowing you to participate against the risk that your pecuniary interest could be seen to unduly influence the outcome. Relevant factors could include such factors as whether or not:

  • you have any particular expertise in the matter under consideration;
  • the views of the people in the area would be inadequately represented if you were not able to participate; or
  • the matter justifies the involvement of all elected members because of its significance to the community as a whole.

3.34
We may also take into account the extent to which:

  • your pecuniary interest is quantifiable; or
  • the matter involves decisions focused on the rights, interests, and obligations of individuals – as opposed to matters of high level policy or matters where the authority has only advocacy or recommendatory powers.

1: These examples are discussed in further detail in our 2007 publication Local government: Results of the 2005/06 audits.

2: This would apply, for example, to the appointment by a local authority of one of more of its members as directors of a council-controlled organisation. It would not, however, apply to any subsequent discussion of the directors’ remuneration (see Calvert & Co v Dunedin City Council, discussed in Appendix 2).

3: This exception was applied in the case of Auditor-General v Christensen [2004] DCR 524.

4: The terminology about district schemes is based on the repealed Town and Country Planning Act 1977. We interpret it by reference to the Resource Management Act 1991.

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