by Linda O’Reilly – Brookfields Lawyers
The risks of being an elected member.
Most elected members are aware of the constraints placed on them under the Local Authorities (Members’ Interests) Act 1968 (LAMIA). While often unclear on the details, they know that certain contracts between themselves and the local authority they serve may disqualify them from office, and that they must not vote on a matter in which they have a pecuniary interest.
They are less likely to be aware of sections 43 to 47 of the Local Government Act 2002 (LGA), and the extent of potential responsibility for a loss arising from their poor governance or decision-making.
I remind readers that LAMIA states that a concern or interest in a contract, or contracts, exceeding $25,000 in any financial year will disqualify a person from membership of the local authority to which that contract applies.
Further, a member must not vote or take part in the discussion of any matter before the local authority in which he/she has, directly or indirectly, any pecuniary (financial) interest other than an interest in common with the public. Conviction in the latter case carries a fine of only $100 but will result in expulsion from the council.
However, having these basics covered is not enough. Members of local authorities can be held liable for their actions and decisions outside of the narrow confines of LAMIA.
The LGA contains some protection for elected members. Section 43 gives indemnity for costs and damages arising from third-party actions if the member acts in good faith, and “in pursuance (or intended pursuance) of the responsibilities or powers” of the local authority.
There is also indemnity for costs arising from any successfully-defended criminal action arising from acts or omissions in their capacity as a member.
THE CROWN MAY COLLECT THE ENTIRE AMOUNT FROM ANY ONE OF THE MEMBERS.
But this indemnity does not extend to the situation where the Auditor-General has made a report on an unrecovered loss in one of the following circumstances:
• money belonging to, or administrable by, a local authority has been unlawfully expended;
• an asset has been unlawfully sold or otherwise disposed of by the local authority;
• a liability has been unlawfully incurred by the local authority; or
• a local authority has intentionally or negligently failed to enforce the collection of money it is lawfully entitled to receive.
In these cases, the Auditor-General may make a report on the loss and include recommendations for its recovery to the Minister of Local Government. Such a loss is recoverable as a debt due to the Crown from each member of the local authority jointly and severally, which means that each elected member may be either individually or mutually responsible for that debt.
The Crown may collect the entire amount from any one of the members, or from any and all in various amounts until the debt is paid in full. This is a sobering prospect for any elected member tempted to throw caution to the wind in pursuit of grandiose goals.
There are defences against collection of a loss from members. But the burden of proof is on the member to prove that the act or failure causing the loss occurred:
• without his/her knowledge; or
• with knowledge but against his/her protest; or
• contrary to the manner in which she/he voted on the issue; or
• in circumstances where she/he acted in good faith and reliance on reports, statements, financial data, or other information prepared or supplied, or on professional or expert advice given, by:
– an employee of the local authority whom he/she believed on reasonable grounds to be reliable and competent in relation to the matters concerned:
– a professional adviser or expert in relation to matters that she/he believed on reasonable grounds to be within the person’s professional or expert competence.
I note in closing that the final bullet point explains that the officers are not wasting council money in seeking advice on difficult issues; they may be covering members’ backs.
This article was first published in the December 2018 issue of NZ Local Government Magazine.