Trevor Le Lievre: The dam and conflicts of interest

The Central Hawke's Bay District Council's proposal to invest $5 million in the Ruataniwha dam has - as with most things pertaining to the dam - released a maelstrom of controversy, this time about what constitutes a conflict of interest. The issue of whether councillors voting to borrow and invest on behalf of ratepayers should declare any pecuniary interest in land or businesses which might potentially benefit from the dam was first formally raised in written submissions in June. A request subsequently lodged on June 30, under the Local Government Official Information and Meetings Act (1987) asking for a copy of the council's pecuniary interests register was rebuffed by chief executive John Freeman on grounds that no such register existed.
Clearly, however, the request piqued Mr Freeman's interest enough to seek clarification from both the Office of the Auditor General and Local Government New Zealand. By the time oral submissions commenced on July 3, he was in a position to open the meeting with the announcement that advice received cleared all councillors of any conflict.
By lunchtime he was qualifying this announcement with an update that he had received only oral and not written advice, and within 48 hours was reporting that Mayor Butler and his sister-in-law on the council, Sally Butler - cited by submitter Paula Fern as holding land interests in the irrigation zone valued at $10 million and $7 million respectively - were withdrawing from further deliberation and voting "in the interest of transparency and an act of good faith".
Another councillor, Andrew Watts, to his credit had already indicated he would withdraw on grounds of public statements made in support of the Ruataniwha dam.
This sequence of events reveals a council caught completely unawares and a chief executive as startled as a possum caught in the headlights. It also begs several questions. Firstly, could ratepayers legitimately question the collective wisdom of a council who did not prepare for this obvious line of questioning and, by implication, the level of risk analysis undertaken for the proposed major investment?
More broadly, what does constitute a conflict of interest, when should this be declared and what mitigating action might be taken? There exists a plethora of guidelines and case law dealing with this issue, the upshot of which is each circumstance must be assessed on a case-by-case basis.
The rule of thumb in identifying a conflict is to ascertain where an official's core public duty overlaps with another interest which might include personal financial affairs, another role, or something the official has said or done. The Office of the Auditor General provides case studies to guide identification. The hypothetical case of a land-owning public official who is involved in deciding a pipeline route is given. As one of the routes crosses his land and will affect both its pecuniary and natural amenity value, and the official has a personal stake in the decision, a conflict exists.
A further relevant example is that of an elected official who is involved in approving resource consent for a local development project - a skating rink. The official had previously made strong public statements opposing the rink, indicating that her mind was firmly made up and, accordingly, she is compromised.
In both these cases the officials, should they have proceeded in the decision-making process, would be vulnerable to action from two courts - the court of law and the court of public opinion. In the latter example above a legal challenge could be mounted by the developer on grounds of bias, as the councillor's predetermined view could be argued to have affected a fair and impartial hearing. In the former example circumstances exist which "could reasonably give rise to an expectation of financial gain or loss to the person concerned". Financial conflicts are treated more strictly than non-financial ones and at common law any such conflict generally triggers disqualification from participation in decision-making, as bias is automatically presumed.
The risks inherent to councils and by extension ratepayers in inviting legal action are clear in terms of both financial cost and institutional impact. However, a more pervasive risk exists in terms of undermining faith in our democratic system of governance.
Belief in the integrity of our public entities is fundamental to their efficacy and it is clearly corrosive where adverse public perception is allowed to surface. Accordingly, councils should be vigilant in considering how a situation may reasonably appear to an outside observer and have internal mechanisms in place to assist in this, a pecuniary register being one such tool at their disposal. There are two key principles here.
First, public decision-makers should always err on the side of openness. Once disclosed, scrutiny by those with the requisite expertise can be applied and judgment made about whether the scenario constitutes a conflict.
Secondly, public decision-makers should err on the side of caution when a potential conflict does arise. Several mitigating actions are available depending on the seriousness of the conflict. These range from taking no further action beyond declaring, to withdrawal or exclusion from the project in question, to resignation or dismissal from possibly the position held or the entity itself.
It is not apparent what the exact rationale or circumstances are behind the CHB District Council's actions in firstly not declaring, then declaring no conflict, then declaring the existence of conflicts of interest. However, it is evident that a serious conflict of interest has occurred in this case which has left them open to consequences from both the above courts.
#Dr Trevor Le Lievre lives in Waipukurau and holds a PhD in Political Science. He has published on governance issues and is keenly interested in local and central government politics."