Conflict of interest: fail to declare and manage at your peril!
In this update, we analyse two New South Wales decisions about the Local Government Act 1993 (NSW) (LG Act) and compliance with obligations to declare and manage personal interests. While these decisions concern NSW Local Councillors and a former General Manager, there are lessons for all individuals dealing with the LG Act.
Eldridge v Wagga Wagga City Council
In the first decision of this update, the Supreme Court of New South Wales has affirmed the summary termination of a former General Manager of a Council terminated for serious non-compliance with conduct and disclosure obligations.
In 2016, Wagga Wagga City Council appointed Mr Eldridge (the Plaintiff) as its General Manager for a period of four years.
Prior to his appointment, the Plaintiff operated a number of local business, including a real estate business.
The Plaintiff was employed by Council pursuant to the ‘standard contract of employment’ for general managers as published by the Office of Local Government NSW. He was obliged during employment to comply with Council’s Code of Conduct and the LG Act.
Throughout the Plaintiff’s employment, issues arose with his compliance with those obligations. In particular, the Plaintiff did not declare or manage a pecuniary interest in a planning proposal that he and his son were involved in prior to his appointment to Council. In summary, the Court found that:
- the Plaintiff did not complete his pecuniary interest disclosures on time;
- once the Plaintiff completed those disclosures, he did not declare pecuniary interests he knowingly had, notably his son’s interest in the planning proposal, as was other important information;
- the Plaintiff misled Council when he represented that disclosures for all designated persons, including himself, had been completed; and
- the Plaintiff engaged in unauthorised outside work and misrepresented his whereabouts when doing so.
In early 2017, local media investigated and reported on the alleged pecuniary interest issue. In turn, Council conducted an investigation into the issue, as did the Independent Commission Against Corruption.
Following the investigation, the Plaintiff’s contract was summarily terminated for serious misconduct.
The Plaintiff challenged his dismissal, and sought over $1 million in damages from Council.
The contract was for a 4 year term, but expressly permitted early termination if the employee engaged in ‘serious or persistent breaches of any of the terms of the contract’, which relevantly included compliance with Council policies and the LG Act.
Council successfully defended the case. The Court provided useful remarks about the high standard required of senior officers of a local government entity.
The underlying facts of the litigation are interesting and unique. For the purposes this summary, we have limited our comment to the Court’s consideration of specific obligations.
The Court considered three obligations in particular:
- disclosure of pecuniary interests;
- conflicts of interests;
- outside work.
Disclosure of pecuniary interests
The LG Act required ‘designated persons’ to disclose ‘pecuniary interests’ in written returns to Council. The Plaintiff, as a general manager, was a ‘designated person’ and required to complete this process.
The Plaintiff did not complete and lodge his disclosure of pecuniary interest return for the financial year ending 2016 by September 2016 as required. Council staff reminded the Plaintiff to do so on several occasions. In addition to this, at a Council meeting in October 2016, the Plaintiff represented to Council that all such disclosures were complete when he had not lodged his own disclosure.
The Court considered that this was a breach of the Plaintiff’s contract and sufficiently serious to warrant summary dismissal, either because it was a serious breach or because it was a ‘persistent’ breach.
Once disclosures were made, the Plaintiff did not include all directorships and shareholdings of companies or refer to his son’s pecuniary interest in the planning proposal. Putting to one side the unusual nature of these proceedings, it is useful to highlight the Court’s comments that non-disclosure of directorships and shareholdings was a ‘very serious’ issue even if not deliberate, as it ‘made a mockery of the Council’s disclosure regime’.
Conflicts of interest
The Code of Conduct and Standard Contract required all Council staff, including the general manager, to declare and manage conflicts of interests.
In this matter, the Court found that the Plaintiff’s knowledge of and involvement in his son’s planning proposal existed before his appointment as general manager – but never disclosed. The Court found that the Plaintiff knew of the interest and took steps to deal with it as general manager, but did not comply with his obligations to declare and manage the conflict.
The Plaintiff failed to disclose a significant conflict of interest that he was fully aware of throughout his tenure as general manager of the Council.\
The Standard Contract prohibited the Plaintiff from not engaging, for remuneration, in private employment or contract work outside of Council without authorisation.
The Plaintiff conceded he had engaged in outside work when he undertook building management and consultancy work, but argued that a company received the remuneration for that work rather than him personally. The Court rejected this, finding that the prohibition applied where remuneration is ‘directly but also indirectly received’ for outside work.
The Court described this as a serious breach that justified the Plaintiff’s termination.
What did the Court find in this case?
The Court found that:
‘In accepting his appointment to the Council, Mr Eldridge presented himself as one committed to, expert in and cognisant of his responsibilities and indeed obligations to adhere to the regime of corporate governance to which Councillors and Council officers are subject. His failure to adhere to those obligations was serious and not trivial.’
The Court has confirmed that breaches of obligations under the Standard Contract, Code of Conduct or the LG Act can be sufficiently serious to justify disciplinary action up to summary termination even if not deliberate, or persistent or where remuneration is received indirectly. In doing so, the Court has cast a wide net over conduct that could justify termination of senior officers of local government entities.
Turning to obligations on Councillors…
More recently, the New South Wales Civil and Administrative Tribunal (Tribunal) has also offered guidance on breaches of similar obligations by Councillors. On one occasion, it found that a mayor, who moved a motion in his own personal interest, engaged in misconduct by failing to declare or manage the conflict of interest.
On 4 May 2021, the Tribunal found that Mayor Darcy Byrne, Mayor of Inner West Council, breached the Council’s Code of Conduct and had engaged in misconduct, as defined in section 440F(1)(b) of the LG Act: Deputy Secretary, Local Government, Planning and Policy v Byrne  NSWCATOD 53.
In August 2018, the Council considered and approved an amendment to the Marrickville Development Control Plan (DCP) for the Victoria Road Precinct.
Pauline Lockie, an independent Councillor, posted on her Facebook page soon after, stating she was:
‘appalled that other Councillors ignored strong legal and planning advice from our own staff in favour of developers – and that the Mayor was the one pushing this.’
Councillor Colin Hesse, a Greens party Councillor, posted a comment on Councillor Lockie’s post speaking against the decision and referring to a Council media release as a ‘promotion from the developers’. Other individuals also posted comments.
On 26 March 2019, Mayor Byrne alleged that Councillors Lockie and Hesse had defamed him by making those comments.
That day, Council met and Mayor Byrne moved in a Council motion that Councillors who ‘have made potentially defamatory statements and imputations about other Councillors or who through those comments may have brought the Council into disrepute to withdraw these comments and apologise’.
The motion was moved, but the motion was ultimately adjourned to 9 April 2019.
When the meeting resumed on 9 April 2019, Councillors Hesse and Lockie declared a ‘significant, pecuniary interest’ and excused themselves from related discussion and voting on the matter.
The motion as moved by Mayor Byrne was carried. At a subsequent Council meeting, Councillor Lockie delivered a public apology. However, Councillor Hesse did not.
Allegation of misconduct
The Applicant, a state body regulator for local government, initiated proceedings under the LG Act alleging that Councillor Byrne had engaged in misconduct. Misconduct is specifically defined in section 440F and can include failing to comply with an applicable requirement of a code of conduct.
The Tribunal found that Mayor Byrne had failed to declare (or manage), in accordance with his obligations under the code of conduct, a significant, non-pecuniary conflict of interest when he moved, and voted in favour of, the motion to force Councillors Hesse and Lockie to withdraw and apologise for the posts he claimed defamed him.
Ultimately, the Tribunal found the Mayor ‘sought to vindicate his reputation and the public perception of his character, which he considered had been impugned or harmed by the Facebook posts. This interest was more than a personal view or opinion, and was a private interest.
Whether or not disciplinary action will be ordered remains to be decided by the Tribunal.
However, in the meantime, the Tribunal’s clear finding that Councillors will have a personal interest that must be declared and managed when seeking to defend their reputation is potentially wide-reaching.
On one view, it limits the actions that Councillors can take at Council level to argue points about their reputation and personal political interests even though other Councillors’ actions may give rise to some damage to others’ reputations or interests. The Tribunal’s decision draws a line underneath this kind of conduct where appropriate steps aren’t taken to declare or manage conflicts of interest.
Key take away points
The rigours of the LG Act are enforceable in different forums, and the conduct which the Act regulates is wide-ranging.
For further information on any of the issues raised in this alert, please contact:
- Amber Sharp on +61 2 8241 5608
- Kerry O’Brien on +61 2 8241 5617
Kerry O’Brien acted for the Wagga Wagga City Council until November 2020, prior to the hearing of the matter. Kerry joined McCullough Robertson in November 2020.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.