A Review of Pecuniary Interest Tribunal Cases

One of the great changes wrought by the Local Government Act (1993) NSW, was the Pecuniary Interest Tribunal.  This Tribunal was conceived as a specialist Tribunal to deal with pecuniary interest allegations made against local government Councillors and personnel.  The Act decriminalised violations of the pecuniary interest provisions.  On proof of any allegation the Tribunal had available to it a wide range of actions from counselling the offender to disqualification from office (in the case of Councillors) for a period not exceeding five years[1] .  Since its inception the Tribunal has dealt with 24 cases and interpreted a number of pecuniary interest provisions in the Act.  This article deals with the major decisions of the Tribunal and the consequent interpretation of the relevant provisions.

Section 442

1       For the purposed of this Chapter, a pecuniary interest is an interest tat a person has in a matter because of the reasonable likelihood or expectation of appreciable financial gain or loss to the person or another person with whom the person is associated as provided in section 443.
2       A person does not have a pecuniary interest in a matter if the interest is so remote to insignificant that it could not reasonably be regarded as likely to influence any decision the person might make in relation to the matter or if the interest is of  the kind specified in section 448.

This section underwent examination in the matter of Councillor Graeme Frank Roberts of Hastings Council .  Councillor Roberts had spoken and voted in Committee and Council consideration of a development application relating to a shopping plaza on seven occasions.  During the period of the seven occasion his engineering firm had been asked by the engineering contractors to the development, to submit a company profile, an estimate of certain works, and finally a firm quote of the works.  The engineering contractors were located in Brisbane, the development being located in Port Macquarie.  The contractors needed an on site engineer to inspect works and certify those works.  From the initial contact requesting a company profile the purpose of the contractors was made clear.

The Councillor only declared a pecuniary interest when requested for a firm quote.  At that stage he formed the opinion that his firm had a reasonable chance of securing the work.  Prior to that he took the view that the firm had a chance of obtaining the work, but not an expectation.

The Tribunal took the view that 'expectation' in the section was not just 'probability',.  It includes prospects of financial gain or loss falling short of probability, but consisting of a reasonable chance of possibility.

In the Tribunal's view there was no point in having a provision such as S442(2) relating to an interest being too remote if S442(1) was confined to probability.  An interest that was not a probability

...would fail to be a pecuniary interest under subsection (1) with the result that the remoteness provision in subsection (2) would never be applicable to it; it would never have any work to do' .

At the stage where the company's profile was furnished the Tribunal held the interest was too remote to influence Councillor Robert's vote in respect of the development.  This view on examination may have resulted not so much because it was merely a company profile being requested.  The facts indicate that there were seven possible local firms that might have been approached for the work, the Brisbane contractors narrowing those firms to Councillor Robert's firm and another.  At that stage it is clear from the facts that Councillor Robert's was unaware that the number of firms had been narrowed to two.  If he did and given the fact that the details of the nature of the work involved were advised, then it might well be argued his interest was not too remote.  However once his firm was requested for an estimate of costs, there was 'a reasonable chance or possibility' of financial gain or loss that was likely to influence any decision Councillor Robert's might make relating to the matter before Council.  At that stage he had a pecuniary interest.

Whether a Councillor has a pecuniary interest must always be related to the decision before council.  If the outcome of the council decision results in a Councillor's financial prospects having a reasonable chance of advancing or deteriorating (compared with those prospects before the decision is taken) then the Councillor has a pecuniary interest.  As the Tribunal stated in the matter of Councillor Richard Harold Hampasum [4].

In considering whether or not they have a pecuniary interest in a matter it should assist a Councillor to relate his or her position to the possible outcomes of the question before the Council.  A Councillor should consider, whether as a result of any of the decisions which the Councillor might make on the particular question, his financial position or financial prospects will or may be better or worse then they were before the decision was made.  There may be other relevant questions to be considered also but at least this is a sound approach with which to begin.

Section 457 (Defence)
457    A person does not breach section 451 or 456 if the person did not know and could not reasonably be expected to have known that the matter under consideration at the meeting was a matter in which he or she had a pecuniary interest.

In the case of Councillor Roberts, the Tribunal considered the defence in S 457.  It interpreted the section in the light of previous legislation and case law.  The Tribunal decided that the common law defence of "honest and reasonable mistake of fact" which was available under S46C of the Local Government Act 1919 (NSW) (as well as the specific statutory defence under S46G (2)) was no longer available under the Local Government Act 1993 (NSW).  This was because the common law defence was available in criminal matters (a breach of the pecuniary interests provisions in the former Act was a criminal offence), and a breach of the pecuniary interest provisions under the Local Government Act 1993 (NSW) is not a criminal offence[5] .  In addition from a construction of the relevant provisions of the Local Government Act 1993 (NSW), Chapter 14, and the comprehensive manner it details a system of dealing with pecuniary disclosure, "the legislative intention should be taken to be that any defences are to be found in the Act'[6] .  On that basis the defence in the Act is restricted to lack of knowledge of the facts that formed the basis of the pecuniary interest.  The defence is not constituted by a Councillor wrongly interpreting the facts and on the basis of that wrongful interpretation reaching a false conclusion there was no pecuniary bias.  It is in the ignorance of the facts that the defence will lie.  It will not lie in 'a mistaken view of the law or the legal effect of those facts'[7] .  This approach is consistent with that taken by the Count of Criminal Appeal in Strathfield Municipal Council v Elvy.[8] Commenting upon S46C of the Local Government Act 1919 (NSW) (the section being a predecessor to S457) in the light of its interpretation by the court below, Gleeson CJ stated[9]

....I cannot accept as a matter of construction of section 45C that the legislative contemplated that members of council being aware of the relevant primary facts giving rise to a pecuniary interest in a particular matter could then sit in judgement upon that issue for themselves, and make out a defence to a charge of a breach of section 45C based upon giving themselves the benefit of the doubt.

Consistent with prior  case law [10] non-compliance with pecuniary interest requirements will not be excused by good intentions, an absence of dishonesty, a misguided sense of public duty to participate in discussion notwithstanding the pecuniary interest or refusal to be influenced by the interest[11] .  So far as motivation is concerned it has never been a determining factor in dealing with pecuniary interest.  As Martin B stated in Nicholson v Fields[12]

There is no evidence in this case that the defendant entered into this contract from any bad motive; but that is not the question we are to try in this case.

With respect it is submitted the view of S457 taken by the Tribunal is correct.  The legislative interest, in view of the comprehensive manner it has dealt with pecuniary interest, was obviously to set up a code for that purpose.  Whilst it may seem unfair to some Councillors who feel they have special expertise to contribute in respect of a matter before council[13] (and may have been elected on that basis of that expertise), the law in this area has always been clear.  What is at issue is not just the Councillor's perception of that interest, but also that of the public

There is no doubt that the mischief Parliament is aiming at is that members of a local authority should not be, if they have any pecuniary interest direct or indirect, taking such a part in the discussion or voting which might indicate to the public that they were not acting in the public interest but that in their own pecuniary interest.[14]

Costs

The defence available under S457 was successfully enlisted by Councillor Diane Virginia Judge[15] the Tribunal concluding that at the time of the alleged offence she could not reasonably be expected to know that she had a pecuniary interest (the interest arising because of activity of the members of the real estate firm of which she was a member).  A claim for costs against the Director General for the unsuccessful prosecution of the breach against her was rejected by the Tribunal.

Legal Professional Privilege

Another matter that arose in Judge was the issue of legal professional privilege.  The Director-General had argued that the production of a statement taken from a potential witness for the purpose of litigation should not be required on the basis of legal professional privilege.  The Tribunal held that legal professional privilege was excluded under the legislation (Local Government Act 1993 (NSW)).  The only exception that existed was that found in S477(4).  This protected the disclosure of a privileged communication between a legal practitioner in that capacity and a person in respect of that person's appearance before the Tribunal and for the purpose of that person's appearance arising out of the provision of professional legal services[16] .

Section 443

Section 443 determines who has a pecuniary interest in a matter before council.  It sets out associated persons who might have an interest and certain exceptions.
1       For the purposed of this Chapter, a person has a pecuniary interest in a matter if the pecuniary interest is the interest of:
(a)     the person, or
(b)     another person which whom the person is associated as provided in this section.
2       A person is taken to have a pecuniary interest in a matter if:
(a)     the person's spouse or de facto partner or a relative of the person, or a partner or employer of the person, has a pecuniary interest in the matter; or
(b)     the person, or a nominee, partner or employer of the person, is a member of a company or other body that has a pecuniary interest in the matter.
3       However, a person is not taken to have a pecuniary interest in a matter as referred to in subsection (2);
(a)     if the person is unaware of the relevant pecuniary interest of the spouse, de facto partner, relative, partner, employer or company or other body; or
(b)     just because the person is a member of, or a delegate of a council to, a company or other body that has a pecuniary interest in the matter, so long as the person had no beneficial interest in any shares of the company or body.

In the case of Councillor John Frederick Miller,[17] the Councillor was the secretary of the Orange Chamber of Commerce and an employee/sub-editor of a local newspaper, the Central Western Daily.  The Chamber instigated a "Shop Orange" campaign to which the newspaper was prepared to donate $8000 of free advertising.  The whole campaign was dependent on a grant of $10,000 from the Orange City Council of which Councillor Miller was a member.  The Councillor voted on the issue of the $10,000 grant when it came before council, without declaring an interest.  There was no direct personal financial interest in the matter for the Councillor.  His position as Chamber secretary was unpaid.  However the Tribunal took the view that the Chamber was dedicated to the financial interests of its members in promoting their economic welfare and interests.  The benefit of a successful promotional campaign was measured in terms of money.  The interest of the Chamber was financial in character and its interest was a pecuniary interest.  The Councillor as secretary had a duty to promote the interests of the Chamber and seek its advancement over and above that of a mere member.  In that regard the public perception might be that the duty of the Councillor as secretary to the Chamber clashed with his duty as Councillor to the ratepayers.  Accordingly the Councillor was caught by the provisions of S443(2)(a)(b).  In his capacity as an employee of the newspaper he was also caught by S443(2)(a).  The newspaper had a financial interest in the outcome before council because dependent on the Council decision would be the advertising that would follow if the campaign went ahead.  And the campaign would only proceed if the Council made the grant.  The newspaper had a pecuniary interest and it followed that Miller as its employee had an interest.  Not so clear was the position of Councillor Graeme Leslie Wilton of Wollongong City Council[18] in relation to his position as Trustee of the Kembla Grange Recreation Trust.  The Trust made application for approval to conduct a weekly retail market on the Trust land, Kembla Grange Racecourse.  Illawarra Turf Club Limited had a licence from the Trust for twenty years to conduct race meetings on the Trust land.  The purpose of the application for markets was for the financial gain of the Club.  Councillor Wilton was a director of the Club and spoke in favour of approval of the application when it came before Council.  The Club had a pecuniary interest in the matter before Council.  Councillor Wilton's position so far as S443 was concerned fell into the category of a person associated with another person (the Club) S443(1)(b) and 'a member of a company' (the Club); S443(2)(b).  He was aware of the pecuniary interest (S443 (3)(a)) and he was a director of the company, not just a member (S433(3)(c).

However, the Councillor's position as a trustee of the Trust was not so clear and the Tribunal expressed no final view about this.  The Trust had a financial interest in the matter before council.  The Club, the Trust's licensee would benefit from a successful application.  Councillor Wilton speaking in favour of approval had highlighted the financial difficulties the Club.  A financially viable licensee was important for the Trust's balance sheet.  As a member of a body that had a financial interest in a matter before council, Councillor Wilton had a pecuniary interest in the matter [19].  However the Trust was a statutory body.  Section 443(3)(b) provides a person is not taken to have a pecuniary interest just because of membership of a statutory body.  Subsection (3)(c) provides a person is not taken to have a pecuniary interest in the matter before council just because of being a member of a body with the pecuniary interest in the matter, provided that person has no beneficial interest in the body.  These matters would seem to exempt Councillor Wilton.  However the Tribunal postulated that he might have an interest arising out of his Trust membership because of his dual membership of the Trust and The Club and their joint financial interest in seeking the development approval.  In relation to that postulation, any such interest, with respect, would arise and be attributed to his position in the Club.  Arguably Councillor Wilton would have a pecuniary interest arising out of the Trust not so much because of membership ('just because the person is a member') but because he was more than a 'member'.  His interest in the Trust as a Trustee went beyond the obligations of mere membership.  It may well be that the only members of the Trust were the Trustees, but their position as Trustees cast obligations and duties upon them that went beyond what might be expected of 'members' of an organisation.  The exemption in S443(3) is restricted to an interest arising 'just because' of membership.  Councillor Wilton's responsibilities went beyond those normally associated with membership of any organisation or body.  It is submitted that making this distinction between duties and obligations arising from mere membership and those arising from a position extending beyond membership, is consistent with the approach taken in the Act in S448.  In that section a distinction is drawn between a member of a club, and an office holder in a club, so far as disclosure of an interest is concerned.

Section 446

A member of a council committee, other than a committee that is wholly advisory, must disclose pecuniary interests in accordance with section 451.

In the matter of Councillor Alan Leslie Bennett, Guiseppe Staltare and Bernadino Zappacosta of Griffith City Council,[20] the Councillors were members of a Planning Review Committee, reviewing council's policy on rural subdivision and the erection of dwelling on subdivided lots.  The committee recommended to Council that it relax its policy, thereby allowing for smaller rural allotments to be created with the right to erect dwellings on those allotments subject to specific conditions.  The effect of the recommendation was to increase the value of land which had the potential to be relevantly subdivided.  The three Councillors owned land the value of which would be increased on the adoption of the recommendation by Council.  They failed to declare any pecuniary interest at the Committee, and Council, consideration of the matter.

A defence raised by the Councillors was that the Planning Committee was wholly advisory and they were exempt from disclosure at the stage of the Committee considerations, under S446.  The Tribunal made no finding in regard to the submission that the relevant Planning and Review Committee was wholly advisory.  It found this unnecessary because it found that S446 did not apply to Councillors.  It drew this conclusion having regard to the legislative framework of the Act designating separate categories of person for disclosure (of which Councillors were one and members of a council committee were another).  The Tribunal also had regard to the words of the Attorney General in the Legislative Council in respect of the Section's amendment[21] with which the Tribunal's conclusion was consistent.  Further there was the obligation in S444 for Councillors to disclose interests.  This obligation was not overruled by S446.  The former section provides

A Councillor:
(a)      must prepare and submit written returns of interests in accordance with section 449; and
(b)      must disclose pecuniary interests in accordance with section 451.

Section 448

The following interests do not have to be disclosed for the purposes of this Chapter:
·        an interest as an elector
·        an interest as a ratepayer or person liable to pay a charge
·        an interest in any matter relating to the terms on which the provision of a service or the supply of goods or commodities is offered to the public or a section of the public that includes persons who are not subject to the Part
·        an interest as a member of a club or other organisation or association, unless the interest is a the holder of an office in the club or organisation (whether remunerated or not)
·        an interest of a member of a council committee as a person chose to represent the community or as a member of a non-profit organisation or other community or special interest group if the committee member has been appointed to represent the organisation or group on the committee.
·        an interest in a proposal relating to the making, amending, altering or repeal of an environmental planning instrument (other an instrument that effects a change of the permissible uses of:
(a)     land in which the person or another person with whom the person is associated as provided in section 443 has a proprietary interest (which, for the purposes of this paragraph, includes an entitlement to the land at law or in equity and any other interest or potential interest in the land arising out of any mortgage, lease, trust, option or contract, or otherwise), or
(b)     land adjoining, or adjacent to, or in proximity to land referred to in paragraph (a),
if the person or the other person with whom the person is associated would by reason of the proprietary interest have a pecuniary interest in the proposal).

Councillor Wilton[22] was caught under dot point 4 of S448 as the holder of an office (that of a director) in Illawarra Turf Club.  Councillor Miller[23] was also caught under the same stipulation as an office holder (secretary) in the organisation, Orange Chamber of Commerce and Industry.  Councillors Bennett Staltare and Zappacosta[24] fell into the last dot point in respect of their advocating a change to a local environment planning instrument to effect a change of permissible use, they being owners of land that would be increased in value by that change of use.  Another case affected by the section was that of Councillor William Peters Smits of Snowy River Shire Council.  The Councillor owned land with his wife that was subject to a revision of zoning under proposed amendments to a local environment plan.  The revision affected land other than the jointly owned Councillor's land.  The effect of the revision was to result in the zoning changing from rural 1(a) to zone 2 - village.  One aspect of the change of zoning was that any land affected by the change would have greater subdivision potential, and thereby be of greater value.  The Councillor voted in favour of the proposal and did not declare an interest.  He defended his actions on the basis that the increase value attributed to his land by the State Valuation Office was only 'a desk valuation' and that there were no comparable sales to verify the valuation; that he had no intention to subdivide because it would spoil the amenity of the land for himself and his family and if he did subdivide, the depressed state of the market meant there was no expectation of appreciable gain.  All this, he stated, meant his pecuniary interest was too remote[25] .  The increased value attributed to the land by the valuation was $7,000 representing only 2.3 percent of the total value of the land.  Councillor Smits contended that as 'a matter of objective judgement' and in his family circumstances (the desire to maintain the amenity of their land), any potential increase in value would not influence his decision in voting on the matter in Council.  The Tribunal reiterated its view that the criteria laid down in S442 are to be considered in an objective way whatever the factual situation.  In the present case the potential gain was not so insignificant that a reasonable person would disregard it as a circumstance likely to influence the decision-making process.  As the Tribunal stated[26]

The standard laid down by section 442(2) is therefore to be applied hypothetically by considering the conduct to be expect of a reasonable person in the circumstances under consideration.

One matter that is raised by the Tribunal's statement is whether the 'circumstances under consideration' has regard to the financial worth of the Councillor.  If for example a hypothetical Councillor in Councillor Smit's situation was a billionaire who was capable of loosing millions in gambling sprees, a potential gain of seven thousand dollars from a  zoning change would be insignificant.  On the other hand abstracting from the financial circumstances of the hypothetical Councillor, a reasonable person would otherwise find it significant.  It is hardly likely that the legislative intended a finding on whether a Councillor had a pecuniary interest to be reduced to subjective circumstances such as the financial worth of the Councillor involved.  Such a course would hardly endear the process to public confidence.

The last dot point in S448 also had application in the matter of Councillor James Morrison Treloar of Tamworth City Council.  The Councillor had no direct interest in various properties and businesses, but he held shares in family companies and was the beneficiary of a trust which owned property and business in the Tamworth Central Business District.  Various members of his family including his father, brother, wife and children also held similar interests.  The Tamworth Local Environment Plan inter alia reinforced the Central Business District as the main business area in Tamworth.  Outside the business district the zoning prohibited major retail premises and major commercial premises.  A developer, McConaghy Developments Pty Ltd, lodged an application with the City Council to extend a shopping centre located 1.5km from the City Centre and for that purpose to rezone the land of the proposed development.  The developer produced a report from an economic assessor Leyshon Consulting to the effect that the impact of the development on turnover in the City Centre would be -10.3% reducing to -6.4% by 2006.  So far as Councillor Treloar's interests were concerned, his own research and inquiry revealed the impact of the development on those interests would be negligible.  However the Council commissioned a report which indicated the development's impact on the City and the Treloar interests could be significant.  Councillor Treloar voted against the development, motivated by his position as mayor and a perceived duty to participate in the debate.  His reliance on the Leyshon report and his own enquires and research lead him to believe he did not have an interest.  However the Tribunal viewed the report as tending to serve the interests of the developer and preferred the report obtained by Council.  That report seemingly did not feature in Councillor Treloar's considerations, its purport, to the effect, that the development would adversely impact on the value of the Treloar businesses and real estate holdings.

Councillor Treloar's interest not only arose from his own interest but also because of the interests of family members as associated persons under S443(2).  Further the Treloar's land and businesses were held to be sufficiently 'proximate' to the land of the proposed development for the purposes of the section.  In that regard the Tribunal rejected a submission that would have restricted the concept of 'proximate' as practically meaning adjacent or adjoining, 'for it is obvious if land is adjoining or adjacent to other land it must be in proximity to it'[27] other than stating that 'in regard to "proximity", " the word should be given a meaning appropriate to its context having regard to the purpose of the legislation, which is to preclude Councillors from voting where their pecuniary interest could be affected'.  The Tribunal made no attempt to define the parameters of when land might and might not be proximate.  However it would seem that if a change in use by virtue of an amendment to an environmental planning instrument affects adjoining, adjacent, or proximate land to that in which a Councillor has an interest or deemed interest, such that might bring to the Councillor an expectation of financial loss or gain, a pecuniary interest exists.  The only matter then to be determined is the issue of remoteness[28] .

Section 451

1       A Councillor or a member of a council committee who has a pecuniary interest in any matter with which the council is concerned and who is present at a meeting of the council or committee at which the matter is being considered must disclose the interest to the meeting as soon as practicable.
2       The Councillor or member must not take part in the consideration or discussion of the matter.
3       The Councillor or member must not vote on any question relating to the matter.

Disclosure
Councillors are obliged to disclose pecuniary interest in written returns[29] and at council meetings[30] .  A disclosure of a pecuniary interest in a written return is not sufficient disclosure to satisfy the obligation under S451 to disclose that interest in a meeting[31] .

Silence and Voting
It was held by the Tribunal in the matter of Councillor Burrell[32] that the expression 'must not vote on any question'[32] was to be construed 'as contemplating a conscious and deliberate act of voting on a question[34] .  One of the issues in the Burrell matter was whether in failing to notify the meeting that he was abstaining from voting because of pecuniary interest in the matter at hand, the Councillor was deemed to have voted against it.  The Tribunal concluded more than a 'notional or deemed' vote was required to breach the relevant provision particularly if it was shown that the notional or deemed vote was 'in fact contrary to the will and intention of the Councillor'[35] .  This did not mean that a Councillor's silence when a vote was taken might not indicate a vote on the issue.  It would depend on the circumstance.  If the Councillor knew that his or her silence when a vote was taken was indicative of a vote for either the affirmative or negative and maintained the silence aware of how it would be accepted, then the silence might well be regarded as a deliberative vote.  It would depend on the Councillor's state of mind.  However ordinarily 'a conscious and deliberate act of voting on a question'[36] would be required.  On the other hand a Councillor seeking refuge in silence to avoid the implications of voting on an issue where a pecuniary interest was involved would be acting imprudently.

Declaration of Interest
In Councillor Burrell's matter, his brother-in-law (Jackson) had applied for a rezoning of land for subdivision.  When the matter came before council for approval, Councillor Burrell declared an interest and left the chamber.  Council approved the application, but did not formalise the change as it was in the process of preparing a Local Environment Plan.  It was decided to incorporate the Jackson-approval-procedural matters in the Local Environment Plan.  Under the proposed Local Environment Plan the Jackson land in its original zone would be zone 1(r).  The rezoning would place the land in zone 1(s).  When the matter of the rezoning of the Jackson land later came before council as an amendment to the non-adopted Local Environment Plan, Councillor Burrell did not declare an interest.  (Nor did he vote on the matter, his silence raising the issue previously referred to).  He argued that his non-declaration arose because he had previously declared an interest when the matter had been dealt with; its later incorporation into the Local Environmental Plan was merely a 'machinery' matter.  The substance of the matter, he argued, had been dealt with previously.  However the Tribunal pointed out that the Councillor did in fact have a pecuniary interest in the matter before council and that interest required declaration.

The requirement of the declaration of interest is strict.  Even when a Councillor has a statutory clearance under S452 on an issue despite a pecuniary interest, the declaration of that interest should be made.  In the matter of Councillor Hapasum,[37] the Councillor participated in the discussion and voted on questions relating to the reimbursement to him of certain expenses.  Section 452 sets out a number of exceptions when participation in discussion and voting on an issue, will be permitted despite a Councillor's pecuniary interest.  These include

The payment of fees and expenses and the provision of facilities to Councillors (including the Mayor)[38]

The Tribunal found that S452 proceeds on the basis that a Councillor has a pecuniary interest in the matter before council.  In that regard, unless otherwise excused, the Councillor would be required to comply with S451 (which of course requires disclosure of an interest).

S452 begins

Section 451 does not prevent a person from taking part in the consideration or discussion of, or voting on, any of the following questions:

and thereafter follows various matters including the question of payment of fees and expenses referred to above.  The Tribunal took a literal interpretation S452.  Whilst it excused a Councillor from compliance with S451 in respect of participation and discussion, it did not excuse a Councillor from a declaration of a pecuniary interest contained in S451.  Accordingly the Councillor had failed to comply with the section by not declaring an interest.  However on the basis that such a declaration would 'be a mere formality and the failure of a Councillor to make it would occasion no advantage to the Councillor or disadvantage to the fellow Councillors', the Tribunal took no further action.

A review of Pecuniary Interest Tribunal Cases 2001 May  Local Government Law Journal