Appendix 2: Illustrative cases on financial interests
A definition of "financial interest"
In Downward v Babington [1975] VR 872, the Supreme Court of Victoria, Australia, gave a useful definition of the term "pecuniary interest" (financial interest):
… a councillor should be held to have a pecuniary interest in a matter before the council if the matter would, if dealt with in a particular way, give rise to an expectation which is not too remote of a gain or loss of money by him.
We have chosen to adopt this definition as appropriate in the New Zealand context, although acknowledging that our Act deals separately with the element of remoteness in section 6(3)(f) of the Act.
Cases on the Local Authorities (Members' Interests) Act 1968
Loveridge & Henry v Eltham County Council (1985) 5 NZAR 257 (HC)
In this case, the Court considered whether a council's chairman and deputy chairman had financial interests in a decision to establish a rural water supply scheme in an area where they both owned land. The Court did not make findings on their interests, but importantly observed that:
The situation contemplated by the Local Authorities (Members' Interests) Act is a particular formalised illustration of the rule that persons charged with an obligation to make decisions should not be affected by a personal motive.
The Court rejected an argument that the relevant "public" with which to compare the members' interests was the group of landowners affected by the scheme. With rather limited reference to previous cases, the judgment used the general rules of natural justice as the base on which to state a test for compliance with the non-participation rule in section 6(1) of the Act:
[W]ould an informed objective bystander form an opinion that there was a likelihood that bias existed?
Calvert & Co v Dunedin City Council [1993] 2 NZLR 460 (HC)
In this case, the Court considered the procedures adopted at meetings for determining directors' fees to be paid in relation to four local authority trading enterprises. The directors had previously been appointed and included various members of Dunedin City Council.
The Council considered reports on the setting of directors' fees generally and a specific motion that, if passed, would have required councillor directors to remit their directors' fees to the Council and receive in lieu a payment from the Council based on the usual allowances paid for local authority meetings.
That motion was dealt with by debating it separately in relation to each local authority trading enterprise.
Councillor directors withdrew when the part of the motion that concerned the local authority trading enterprise of which they were directors was debated and voted on, but took part in debate and voted on those parts of the motion that concerned local authority trading enterprises of which they were not directors.
The Court held that the non-participation rule in section 6 of the Act was breached when councillor directors discussed and voted on:
- a report containing opinions and recommendations about the range of directors' fees that should be payable on the basis that it amounted to a direct financial interest; and
- motions affecting directors' fees for local authority trading enterprises to which they were not appointed on that basis that it amounted to an indirect financial interest.
The vote of a particular councillor, in effect, put their stamp of approval on the method by which the directors' fees had been calculated. That stamp of approval called for a consistent approach and vote by other councillor director members.
The length of some meetings, and the memoranda and resolutions, tended to confirm that the councillor directors were, in effect, acting in harmony in the approach taken by the Council towards directors' fees.
Certainly, the interest of those councillor directors was greater than that of the public at large.
Auditor-General v Christensen [2004] DCR 524
In this case, a member was unsuccessfully prosecuted for breaching the non-participation rule in section 6 of the Act, with the Court ruling that the matter under discussion fell within one of the exceptions to the rule.
The local authority was considering a proposal to set up a booking system for the provision of sewerage connections to those seeking to subdivide land, giving priority to subdividers who paid cash in advance. The member owned a land development company that carried out subdivisions. Despite this, the member spoke against the proposed booking system.
When prosecuted for doing so, the Court accepted that the member had a financial interest in the decision because the booking system would have had a financial effect on him (if the booking system was implemented, he would either have to make a cash payment in advance to guarantee a connection or take the risk that another subdivider would take priority).
However, the Court ruled that the financial interest was too remote for criminal liability because, at the stage at which discussions were taking place, no one could say with confidence what the fate of the proposal would be; whether there would be actual financial advantage depended on the decision of others on the proposal.
In any event, the Court also ruled that the decision fell within the exception in section 6(3)(e) of the Act, which provides that the non-participation rule does not apply to decisions relating to the preparation of district schemes.43
Cases that consider financial interests in local government in other jurisdictions
Whether you have a financial interest if you vote to your potential disadvantage
In Brown and Others v Director of Public Prosecutions [1956] 2 All ER 189; [1956] 2 QB 369, an English court ruled that members of a local authority who were tenants in houses owned by the local authority had a financial interest in decisions made on the level of rents for council houses where there were subtenants or lodgers.
The Court said that members had a financial interest in the matter even though they voted to their potential disadvantage.
The Court also ruled that members had a financial interest even if, at that time of the decision, they did not have subtenants or lodgers, because the houses were potential income-producing assets and the possibility existed of sub-letting or taking in lodgers in the future.
Whether your intentions are relevant in determining whether you have a financial interest
In Rands v Oldroyd [1958] 3 All ER 344; [1959] 1 QB 204, a member of an English borough council who spoke to a motion about the letting of contracts for building council housing was ruled to have an indirect financial interest in the decision because he was managing director and majority shareholder of a building company that had a history of building for the council.
It did not matter that, when appointed to the relevant committee, he decided that his company would not tender in the future for any building contracts with the council; the Court said that the company was at all times in a position to be invited to tender for building work for the council and to tender for such work in the future if it desired, thus creating an indirect financial interest.
Whether your motives and good faith are relevant in determining whether you have a financial interest
In Re Wanamaker and Patterson (1973) 37 DLR (3d) 575, the mayor of a town council in Alberta, Canada, who also owned a coin laundry business in the town's shopping centre, was ruled to have an indirect financial interest in a decision on roads surrounding the centre.
In his capacity as a member of the council, he proposed and voted on resolutions designed to secure the approval of the Minister of Highways for a project to make a cut in the median strip of a provincial highway in order to provide access for traffic on the highway to the shopping centre. Since the effect of the improved access to the shopping centre would be to increase the number of customers going to the shopping centre, which would be reflected in increased use of the coin laundry, the mayor would financially benefit, and consequently the question was one in which he had an indirect financial interest.
It did not matter that he might have been acting in good faith and in the interests of the municipality.
Whether you have a financial interest if you are considering a matter in which one of your competitors has an interest
In R (James Robert Developments Ltd) v Holderness Borough Council (1993) 66 P & CR 46, the English Court of Appeal ruled that a member did not have a direct or indirect financial interest in development applications merely because he was a rival builder to the applicants.
Example of financial interest as a result of potential effect of decision on land value
In R v Secretary of State for the Environment, ex parte Kirkstall Valley Campaign [1996] 3 All ER 304, an English court considered financial interests of the chairman of an urban development authority relating to a rugby club that wanted to relocate its main sports field.
The rugby club wished to sell its main sports field and move to another location nearby but could realistically do so only if it obtained a commercial site value for its existing site. Planning permission was therefore sought from the local urban development authority to allow the large-scale commercial development of the land.
At the same time, the club had also identified the desired location for its proposed new facilities: a piece of open land next to a large private property owned by the chairman.
The chairman's land was "green belt" land and it was well known that he believed his land should be rezoned for housing development (but any rezoning decision would be the responsibility of another council).
The Court found that the chairman had an undisguised interest, worth a great deal of money to him and his family, in getting his private land rezoned. It also found that a powerful argument in favour of this would have been if the neighbouring site was developed into a rugby stadium.
Because it was common knowledge that this was unlikely to occur unless the club was able to secure a commercial sale price for its existing site, the Court held that this meant the chairman had – at that time – a financial interest in the planning application about the club's existing site. The Court implicitly rejected an argument that his interest was too remote or insignificant.
However, the club later abandoned its proposed new location near the chairman's land. Furthermore, a fresh development proposal was submitted in respect of the club's existing site. The Court held that the chairman did not have a financial interest in the authority's later decisions about the existing site. His former interest did not negatively affect the authority's subsequent decisions.
43: For our commentary on the court's decision, see Office of the Auditor-General (2005), The Local Authorities (Members' Interests) Act 1968: Issues and options for reform, Wellington, at oag.parliament.nz.