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Part 3: Discussing or voting at meetings - the participation rule

Guidance for members of local authorities about the local authorities (Members' Interests) Act 1968.

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

What is the participation rule?

3.2
The participation 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 or indirect pecuniary interest, other than an interest in common with the public.

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

3.4
There are several exceptions to the participation rule. These are described in paragraph 3.35. In addition, we can grant exemptions from the rule in particular circumstances (see paragraphs 3.36-3.53 for more details).

3.5
There is a flow diagram at the end of this Part to help you assess whether the participation rule will apply to you.

What is a pecuniary interest?

3.6
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.

3.7
The rule needs to be applied pragmatically. It is a matter of judgement as to what is in fact a "pecuniary interest" for the purposes of the Act. That is, we apply a triviality threshold in determining what is a pecuniary interest. So, for example, if a member were to gain $20 as a result of a decision, we would not usually consider that that sum amounted to a "pecuniary interest" that the rule would apply to. However, our ability to read a triviality threshold into the Act is limited because the Act includes a specific power for us to grant an exemption under section 6(3)(f) of the Act, on the basis that the pecuniary interest is insignificant.

When is there a pecuniary interest in a decision?

3.8
Some care needs to be taken when assessing a possible interest against the "pecuniary interest" test set out above. The nature and context of the particular decision will be important. There are many situations where the decision is in fact a procedural or more general decision, which does not affect your interest in the same way as a decision on whether to agree to a specific proposal. In addition, the democratic context in which the Act applies is also relevant.

3.9
Once a relevant interest has been identified, it is important to assess whether it is a pecuniary interest that must be addressed. The interest has to be actually affected by the particular decision that is to be made. Sometimes, a member has a financial interest in an issue, but it will not be affected by the decision that the authority is about to take. For example, the decision may only be to raise an issue for discussion or to begin research or a consultation process. That decision may not have any particular effect on the member's financial interest.

3.10
It is sometimes helpful to view the different types of decisions an authority can make as a continuum: from a general idea, through development and consultation, to a firm proposal and implementation.3

3.11
When discussing a general idea or making procedural or general decisions, your interest may be so remote that it could not be reasonably expected that you would gain or lose financially from discussing or voting on an issue. There may still be a number of steps the proposal must go through, all of which might result in changes to the proposal. There may be a general possibility, but nothing concrete enough to amount to an expectation of financial gain or loss. That obviously changes, however, as the issue moves towards a fully developed proposal ready for adoption and implementation. You need to be careful and recognise when a proposal reaches the stage where it can reasonably be expected that it affects your interests – at this point you should no longer participate in the decision-making process.

3.12
Appendix 2 contains summaries of a number of leading 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"?

3.13
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.

3.14
Whether your interest is in common with the public will depend on the circumstances of the case, and is always a question of degree. The "interest in common with the public" exception needs to be applied in a realistic and practical way (see the examples set out in paragraph 3.19).

3.15
When considering whether your interest is in common with the public, you need to consider:

  • the nature of your interest (such as the kind of interest, its size or extent, and whether it is a direct or indirect interest);
  • the size of the group of people who are also affected; and
  • whether or not your interests and the group's interests are affected in a similar way.

3.16
The nature of your interest, and the comparison with the interests of the public, will be important. The interests of different people will be affected by a decision in different ways and to different degrees. Some people might be directly affected by a decision; others will be indirectly affected by flow-on effects from the decisions. The effect on one person's interest may be substantial, whereas the effect on another's may be only slight.

3.17
For the exception to apply, not only must the public also be affected but there must be some similarity between the way you are affected and the way the public are affected. However, you do not need to be affected to exactly the same extent as other members of the public – there can be some variation in the degree to which you and other members of the public are affected.

3.18
The question of whether a group of people should be treated as "the public" is often a matter of degree. On the one hand, 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. Most decisions about rating and charging, including targeted schemes, are broad enough in their application to be regarded as affecting the public generally. On the other hand, if you are in a small and clearly identifiable subset that is affected in a different way to the rest of the public, then your interest is not in common with the public. Although the size of the group is important, there is no formula that can be applied – an overall judgement is required.

3.19
For example:

  • If you are a property developer, you may not have an interest in common with the public on changes to district or regional plans or development contributions policy because your interest is different in kind to that of most other residents or "ordinary" property owners.
  • As a ratepayer, the mere fact that you are affected slightly differently by the adoption of an overall rate because of the value of your property does not generally prevent you from having an interest which is in common with the public.
  • If you are one of a small number of ratepayers affected by a targeted rate, your interest may not be in common with the public because the interest is not shared by a group large enough that it could be reasonably said to constitute "the public".4
  • If you are one of a small group of permit holders directly affected by an increase in charges, your interest may not be in common with the public – even if the general public would be indirectly affected by a corresponding slight decrease in rates.5
  • If you are a dog owner, and the authority is proposing to increase dog licensing fees, your interest would be one in common with the public, as the interest is shared by a group large enough that it could be reasonably said to constitute "the public".

3.20
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. We acknowledge that it can be difficult to draw a clear line.

3.21
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:

  • we grant you an exemption because your pecuniary interest is remote or insignificant (see paragraph 3.42); or
  • we make a declaration allowing you to participate (see paragraph 3.46).

Indirect pecuniary interests

3.22
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 through a company. However, it is important to note that, although the Act provides two examples, you can have an indirect pecuniary interest in other ways, such as where you are a beneficiary of a family trust that has a pecuniary interest in the decision.

Interest through spouse or partner

3.23
If your spouse, civil union partner, or de facto partner has a pecuniary interest in a matter before the authority, you are deemed for the purposes of the Act to have the same interest.

Interest in a company

3.24
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 for the purposes of the Act 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 that controls it; or
  • either you or your spouse or partner is a shareholder of the company, or another company that controls it; and either of you is the managing director or general manager (by whatever name you are actually called) of the company or the controlling company; or
  • either you or your spouse or partner is the managing director or general manager (by whatever name you or they are actually called) of the company, and either of you is a shareholder of another company that controls it.

Direct and indirect interests

3.25
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.

3.26
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 that arises from the prospect of increased land values in the vicinity of the project. That interest could be caught separately by the participation rule even if your involvement in the company is insufficient to meet the "deemed interest" test.

Managing pecuniary interests

3.27
There are a number of steps you and your authority can take to ensure that possible conflicts of interests are managed smoothly and effectively, before a matter comes before the authority for decision.

3.28
In addition, when a matter in which you have a pecuniary interest comes before your local authority, you must ensure that the obligations imposed by the Act, including the obligation to abstain from considering the matter, are carefully observed.

Pre-meeting processes and assistance

3.29
It is sensible for an authority to consider implementing systems that allow for the early identification and assessment of possible conflicts of interest. These may include:

  • maintaining a register of interests for members of the authority;
  • ensuring that members have early and timely access to agenda papers so they can identify and assess whether they have a pecuniary interest in a particular matter that is to be discussed or voted on;
  • providing members with access to legal advice to help them assess whether they have a pecuniary interest in a particular matter that needs to be addressed; and
  • ensuring that there is the opportunity for a member to advise the mayor or chairperson of a pecuniary interest before the relevant meeting.

3.30
As a member of an authority, 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 you are unsure about whether your interest in the matter is a pecuniary interest that must be addressed, you should seek you seek advice, either independently or (if available) with the support of your local authority. 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.

Addressing a pecuniary interest at a meeting (declaring and recording the interest and abstaining from participating)

3.31
If a matter comes before the authority in which you have a pecuniary interest, the Act says that you must:

  • declare to the meeting the existence of a pecuniary interest;
  • abstain from discussion and voting; and
  • ensure that your disclosure and abstention are recorded in the meeting minutes.

3.32
You do not need to inform the meeting about the nature of your interest, nor why it exists.

3.33
The requirement to abstain from discussion and voting does not mean that you have to leave the meeting room. However, we consider that, to avoid any doubt about your abstention, 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.

3.34
The quorum of the meeting is not affected if a member is unable to vote or discuss because of a conflict of interest, provided they are still in the room (see clause 23(1) of Schedule 7 of the Local Government Act 2002).

Matters to which the participation rule does not apply

3.35
The Act sets out a number of matters to which the participation 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 – this exception is designed for situations where a person is explicitly elected or appointed to represent a particular group;6
  • 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 for that office;7
  • 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,8 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,9 or
  • the preparation, recommendation, approval, or review of:10
    • 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

3.36
If you are member of an authority with a pecuniary conflict of interest covered by section 6 of the Act, it is possible for you to apply to us for approval to participate. There are two ways in which we can approve participation:

  • Section 6(3)(f) allows the Auditor-General to grant an exemption 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 the discussion.
  • Section 6(4) allows the Auditor-General to grant a declaration enabling a member to participate if we are satisfied that:
    • the application of the participation rule would impede the transaction of business by the authority; or
    • it would be in the interests of the electors or inhabitants of that district that the rule should not apply.

The procedure

3.37
An application for an exemption or a declaration must be made before you participate. We cannot grant a retrospective exemption or declaration.

3.38
The application must be in writing, and can be made by you or by the authority on your behalf.

3.39
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 decision that is to come before the authority; and
  • the nature and extent of your pecuniary interest in the decision, and how that interest may be affected by the decision.

3.40
That information is important to enable us to assess whether there is a financial interest in the particular decision that is covered by the Act. We also need this information to assess how significant the decision and the pecuniary interest are. In practice, it is often helpful if the authority is able to provide us with a draft copy of the paper that is to be considered.

3.41
We also need to be provided with detailed information setting out the reasons why the necessary grounds for an exemption or declaration may exist (see paragraphs 3.42-3.53).

Exemptions

3.42
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.

3.43
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 or voting.

3.44
When we are considering an application under section 6(3)(f), we need to understand how directly the proposed decision is connected to your pecuniary interest (the remoteness ground). We also need to understand how large or important the pecuniary interest is. That means we need reasonably precise information (if it is available) on the value of the cost or benefit to you that will result from the decision. It is also useful to be able to assess any cost or benefit to you in the context of your overall financial situation or that of your business. A cost that might be significant at an individual level may not be so important if it is borne by a large business.

3.45
The test in the Act is an objective one. Although your views about how significant the interest is and whether it is shaping your position on the issue are relevant, they are not determinative. Ultimately, we must assess how significant the interest looks to an observer.

Declarations

3.46
We can grant a declaration under section 6(4) of the Act if we are satisfied that either:

  • the application of the participation 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.

"Impede the transaction of business" ground

3.47
For a declaration based on the "impede the transaction of business" ground, we consider such factors as whether:

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

3.48
To assess an application for a declaration based on the "impede the transaction of business" ground, it is useful for us to receive information on how many members might be prevented from participating, how significant the decision is for the area and the authority, and any other information that can help explain to us why it might be problematic if a member was not allowed to participate. For example, we have at times granted declarations on this ground when a number of members might otherwise have been prevented from participating in a decision on the future of an authority's significant shareholding in a listed company.

"Interests of the electors or inhabitants" ground

3.49
For a declaration based on 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:

  • 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.

3.50
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.

3.51
To assess whether it would be "in the interests of electors or inhabitants" for a member to be able to participate, we need to assess the benefits of allowing that member to participate against the risk that their participation could be regarded as distorting or tainting the decision. Therefore, we need information on why that member's participation is important. It may be because they have particular expertise or knowledge, or provide an important link with another organisation or community group. It may be that the issue is so significant for the community that the participation of all elected members is seen as more important than any individual interests. There may be a strong representation argument that the views of a particular group or community would not otherwise be able to be represented at the authority table.

3.52
For example, we have granted a declaration on this ground when the decision related to a council position in a submission on a long-term plan being prepared by another organisation, and the relevant councillor provided an important link with, and voice for, the most affected section of the community. The council saw it as an important part of its role in the consultation process to give voice to that community and saw the particular councillor as critical to that process, even though the councillor was also potentially directly affected.

3.53
In general, we are happy to receive applications and to then ask the authority staff or affected member for any further information that we need. We recognise that, sometimes, these issues arise with some urgency because the potential conflict may be identified only shortly before the meeting in question. When a decision on a declaration is needed within a few days, it is helpful to our consideration if the initial application is as comprehensive as possible.

3.54
This flow diagram is provided to help you assess whether the participation rule applies to you.

Flow diagram that would help you assess whether the participation rule applies to you.

3: For the recognition of these different stages in a different context, see Easton v Wellington City Council [2009] NZCA 513 at [14].

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

5: See our Investigation into conflicts of interest of four councillors at Environment Canterbury (December 2009), which is available on our website.

6: This exception does not apply to councillors elected to represent general constituencies or wards. See our Investigation into conflicts of interest of four councillors at Environment Canterbury (December 2009), which is available on our website.

7: This would apply, for example, to the appointment by a local authority of one or 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).

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

9: 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.

10: The Act also includes another exemption for 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 and by erosion. This exemption is no longer available because the relevant provision of that Act, which enabled catchment boards to recommend, approve, or review general schemes, has been repealed.

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Guidance for members of local authorities about the local authorities (Members' Interests) Act 1968

ISBN 978-0-478-32676-5 (print)
ISBN 978-0-478-32677-2 (online)