Are your section 41 committees complying with the new conflict of interest provisions?

23 May 2016

Kelledy Jones Lawyers has been closely monitoring the passage and enactment of the recent amendments made to the Local Government Act 1999 (“the LG Act”), as set out in the Local Government (Accountability and Governance) Amendment Act 2015.

In particular, we have widely published on the amendments made to the conflict of interest provisions, we have provided extensive advice to numerous councils on this topic and we have delivered, or are in the process of delivering, in excess of 40 workshops on the topic to elected members, committee members and board members of subsidiaries. In short, our collective knowledge in this area is extensive, and unrivalled.

We have recently become aware of a position that has been proposed with regards to the application of the conflict of interest provisions and, in particular, the material conflict of interest provisions, as they may apply to a member of a “special purpose” committee established under section 41 of the LG Act. In this regard it is important to note that section 75B(1) of the LG Act applies the conflict of interest provisions to a council committee as if it were the council and to a member of a committee as if they were a member of the council.

“Special purpose” committees are those committees established by councils to enhance and promote a specific area, activity or precinct. Commonly, the membership of such committees includes a majority of persons who could be said to benefit from most, if not all, of the matters discussed, and recommendations made, to the council. Accordingly, it is our position that most, if not all, of that category of member will be captured by the material conflict of interest provisions and the committee would be inquorate for the majority of the agenda items to be discussed.

This is the position, regardless of whether the committee is making decisions under delegations which have been conferred on it by the council or is making decisions without any delegated powers, meaning that its decisions are recommendations to the council. The amended conflict of interest provisions operate at the time a matter is to be discussed at a meeting and the outcome of the consideration of that discussion is an agreed position of the committee to make a recommendation to the council.

It has, however, been suggested that a section 41 committee that does not enjoy delegated powers and hence is only involved in making recommendations to a council, will not be captured by the conflict of interest provisions. We do not agree with this proposition – which, as readers will observe, is entirely inconsistent with section 75B(1) of the LG Act.

It is important to note that a qualification of this nature or, indeed, any qualification, does not exist in the LG Act and, relevantly, the majority of section 41 committees do not have delegated powers. The necessary consequence of the alternative approach, as above, would be that, despite the impact upon the final decision of the council, the conflict of interest provisions would largely have no application at the majority of council committees! This is, of course, contrary to the stipulation in the LG Act and the very clear stated intent of the Parliament. Accordingly, we consider that it would, at the very least, be extremely unwise for a council (and committee members) to adopt this position, particularly in light of the fact that a breach of the material conflict of interest provisions is a criminal offence.

Given the significance and importance of this issue, Kelledy Jones Lawyers has obtained advice from Senior Counsel on the matter. That advice has confirmed our position, as evidenced by the following extracts:

• “I do not consider that one can simply say that because the function is recommendatory that no benefit would be received or detriment sustained and the provision could never apply. I consider it unlikely that this would have been intended by the legislature. If, for instance, that were the case, it would mean that Council members would not be precluded by section 73 from voting on the commencement or recommendation of a plan amendment process involving the rezoning of land owned by them as ultimately the decision is made by the Minister. I consider that this construction is unlikely having regard to the purpose of the provision”;
• “In my view the mere fact that a resolution is recommendatory does not mean that its carriage or defeat may not confer an advantage or a detriment”;
• “On balance, I consider that the making of a recommendation may give rise to a section 73 interest”.

Whilst a committee member will not be taken to have a material conflict of interest if the relevant benefit or loss would be enjoyed or suffered in common with all or a substantial proportion of the ratepayers, electors or residents of the council area, it is important to note that this is significantly different to the “substantial class” test that was prescribed for the purposes of the previous conflict of interest provisions. That is, while committee members may have been able to argue under the now repealed provisions that the matter related to a proposal that would see a benefit or loss enjoyed or suffered in common with a “substantial class” of persons (being, for example, all other precinct traders or landlords), this provision has been repealed and the new successor provision applies to a “substantial proportion of the ratepayers, electors or residents of the council area.” This is a much higher test and is unlikely to be met by having regard to all of the relevant landlords and traders of a particular precinct.

Unfortunately, in the absence of a specific legislative amendment to enable committee members to remain or, for example, by prescribing certain matters as “ordinary business” under the Local Government (General) Regulations 2013 (“the Regulations”), committees must operate within the full operative parameters of the amended provisions. This will, of course, make it impossible for certain committees (dependent upon membership and purpose) to engage in discussions for the purposes of making decisions, whether under delegated authority, or even as a recommendation to the council, where the process involves both a discussion and a decision/outcome which will result in a benefit or a loss for any of the prescribed persons.

We have raised these issues with the Office for Local Government (“the OLG”), as it seems this is one (of a number) of unintended operational consequences of the amended conflict of interest provisions. Whilst the OLG has confirmed to us that the specific operation of (in particular) the material conflict of interest provisions on a section 41 committee (as well as a section 42 subsidiary and a section 43 regional subsidiary), had not been considered in this manner, these issues having now been raised, the impact is consistent with the desired policy position for the operation of the provisions, particularly with regards to “special purpose” section 41 committees. We do not understand the Minister to be looking to amend the provisions as they apply to section 41 committees, however, he may consider amendments as they apply to subsidiaries.

While the Minister is currently considering amendments to what ought to be prescribed for the purposes of “ordinary business” in the Regulations, we recommend that councils in this position lobby for the discussions and recommendations of a committee established under section 41 of the LG Act be prescribed within “ordinary business”. This will address the significant issues identified above and will ensure the continued operation of similarly established section 41 committees.

Otherwise, if a council wishes to retain a special purpose committee, with a majority of members that will be captured by the material conflict of interest provisions, then either the membership will need to change, or, if the committee were to retain its current membership, the nature of the committee would need to change. That is, it would need to change its status from a section 41 committee and become an “advisory” group or similar convened by a senior Council officer who writes reports to be presented to the council for its consideration and decision.

If you have any questions please contact either Michael Kelledy on 8113 7103, 0417 653 417 mkelledy@kelledyjones.com.au or Natasha Jones on 8113 7102, 0419 864 531 or njones@kelledyjones.com.au or Tracy Riddle on 8113 7106, 0431 867 523 or triddle@kelledyjones.com.au