4 JUAN CARLOS OROZCO

The Australian courts, over many years, have developed rules to ensure that decision makers at the three tiers of government act fairly and without bias in making decisions which affect the rights and interests of members of the community. In common law, this can be described as procedural fairness, which establishes that those who are affected by decisions will be treated with fairness, including an open mind, free of bias or any preconceived notions. Councillors are required to hold or form views on matters that come before them in council or in special committees. However, there is an expectation that councils and individual

councillors will bring an open mind that is free from any perception of bias, notwithstanding that they have previously expressed a view.

In two legal cases, in 1998 and 2007, the Supreme Court of Victoria established that a council decision can be overturned if it was proven that a councillor or council, involved in decision making, had prejudged the matter and were not open to alternative viewpoints (Bycon Pty Ltd

v Moira Shire Council [1998] VSC 25 and Winky Pop Pty Ltd & Anor v Hobsons Bay City

Council [2007] VSC 468). In the former case, the council was approached by a developer for

a proposed supermarket, with one parcel of land ear-marked for development owned by council. The council negotiated the sale of the land to the developer without receiving any submissions from any other interested parties as required under Section 189 of the Local

Government Act (1989). It was held that the submission process, as required under Section

189 of the Act, had been rendered illusory, by the prejudgement of council. Vincent J. stated that:

… I am satisfied on the balance of probabilities and on the basis of the largely undisputed history of the matter, that by the time that the necessity to comply with that it is unrealistic to suggest that the subsequent formal compliance was anything other than mere ritual, designed to avoid a successful challenge being made to the proposed sale by the creation of an illusion that any submissions opposing the development had been seriously considered (Bycon Pty Ltd v Moira Shire Council [1998] VSC 25 at para 55).

In Winky Pop Pty Ltd v Hobson Bay Council [2007] a councillor lodged a submission in

relation to a proposed planning scheme amendment in a redevelopment area, which was subsequently referred to a review panel. The council subsequently considered the panel report and the first council motion was to prepare a revised version of the redevelopment strategy. This motion was defeated, with the councillor who had made the submission to the review panel voting with the majority to defeat it. The second motion was to prepare a revised development strategy, which effectively excluded the land owned by Winky Pop from the strategic redevelopment area. This motion succeeded, with the councillor who had appeared before the review panel again voting with the majority in support of the motion. Winky Pop challenged the validity of the two resolutions of the Hobson Bay City Council on the basis that the councillor, who had lodged a submission in relation to the development, was not entitled to vote on the motions and if he had not participated, the result would have been different. Kay J. held that:

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(3) Councillor Hemphill was affected by apparent bias in participating in, and voting on, those resolutions, in the sense that a fair minded and informed member of the public might entertain a reasonable apprehension that he might not have brought an impartial and unprejudiced mind to the resolution of the issues considered by the council on that day. Accordingly, the resolutions were so passed in breach of the rules of natural justice (Winky Pop Pty Ltd & Anor v Hobsons Bay City Council [2007] VSC 468 at para 66).

Winky Pop Pty Ltd v Hobson Bay Council [2007] established the tests for valid decision

making by councillors and councils. Kay J. noted that:

(1) In determining whether there was prejudgment on behalf of a councillor, it must be borne in mind that councils are democratically elected, and that councillors necessarily carry out political and legislative roles. Accordingly, a councillor is not necessarily disqualified from participating in a decision because the councillor, previously, has held and expressed views on the matter in question. (2) The appropriate test, taking into account the political and legislative nature of the role of a councillor, is whether the councillor, on the matter in question, is open to persuasion, notwithstanding his or her previously held and expressed views on the subject. In other words, to establish that a councillor is disqualified from participating on a decision on the basis of prejudgment, it must be shown that the councillor’s views were so demonstrably fixed that they were not open to being dislodged by reason or argument.

(3) It is not necessary to prove actual prejudgment on behalf of a councillor. It is sufficient if it is made to appear that a fair minded and informed member of the public might entertain a reasonable apprehension that the councillor was not open to persuasion on the matter in question, because of the councillor’s previously held and expressed views on the matter, or because of the councillor’s previous involvement in the issue in question (Winky Pop Pty Ltd & Anor v Hobsons Bay City Council [2007] VSC 468 at para 44).

4.3.6 Management of gifts

Provision in the Local Government Act (1989) relating to the management of receipts of gifts was amended in 2003, 2008 and 2010. In 2003, the threshold for disclosure for receiving gifts was reduced from $A2000 to $A500. In 2008, the threshold was further reduced to $A200 for all councillors, committee members and executive officers. In 2010, the amount was increased to $A500 under Section 78C of the Act. It required all councillors, committee members and executive officers to declare gifts with a cumulative value of $A500 or more, received from a person or persons in the five years preceding any decision, or the exercise of the power, duty or function (Local Government Victoria 2009a). Reasonable hospitality at an event or function where the mayor, councillors and staff members attend in an official capacity is considered to be legitimate, although the definition of ‘reasonable’ can be open to interpretation. The receipt of gifts and hospitality within local government can be problematic

and contentious. It is understood that gifts to councillors and staff of councils have previously included low monetary value for goods and services from a variety of sources, as well as hospitality and invitations to sponsorship events such as the theatre and sporting events. Hospitality and the supply of beverages essentially involves the ‘grooming’ of councillors and executive officers in order to facilitate the favourable purchasing of goods and services or perhaps a favourable service from the council in future. The practice of grooming is specifically designed to facilitate familiarity and a level of personal indebtedness on the part of the councillors and managers receiving gifts or corporate hospitality. From the perspective of the supplier providing the gifts and hospitality, it was about ‘relationship marketing’. However, the receipt of gifts can be challenging for a council from a reputation perspective in the eyes of stakeholders. In the public sector, the receipt of gifts and lavish hospitality is generally considered to be contrary to the principles of an open and transparent procurement process and principles of probity.

Codes of Conduct are generally in place in Australian state governments, for example

Victoria, which prohibit the receipt of gifts and hospitality above a nominal amount, usually $A50, although some public servants and agencies (e.g. Victorian Government Purchasing Board, Auditor-General, Victoria and the Ombudsman, Victoria) are prohibited from accepting any gifts or gratuities, as it would discredit their independence. Documented examples of some unethical and dishonest practices in councils have included attempted bribery, gifts of cash, in-kind gifts and hospitality (Independent Commission against Corruption 2009a, 2009b, 2008a, 2008b, 2007a, 2007b; Ombudsman, Victoria 2009c). Some lower level forms of financial misconduct are generally specific to the culture of a council, notwithstanding the ethical stance of a council that may be espoused, but not always practiced. A council’s organisational culture can be both determined and modelled by councillors and executive management (Lagan & Moran 2006). If councillors and executive management are unethical or dishonest, albeit at a low monetary level, it can set the tone and example for all other staff within council with regard to their relationships with suppliers and stakeholders.

4.4

Local government corruption and misconduct

Given the limited research into misconduct and corruption in local government, this thesis developed a taxonomy to interpret misconduct or corrupt conduct. As previously mentioned, forty-three investigation reports into local government from New South Wales, Queensland,

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Victoria, Western Australia, New Zealand and the United Kingdom were analysed using the taxonomy of: (1) council maladministration; (2) financial mismanagement; (3) corrupt or unethical conduct by councillors or staff; and (4) breach of statutory powers. The latter breach related generally to planning powers or inference by councillors in planning decisions, notwithstanding that a council was ultimately responsible for all planning decisions. The number of investigation reports are summarised in Table 4.2.

Table 4.2 Local government investigations in Victoria, New South Wales,

Queensland, Western Australia, New Zealand and the United Kingdom

Category Victoria New South Wales, Queensland and Western Australia

New Zealand and the United Kingdom

Subtotal

Council governance and maladministration 2 2 6 10 Financial mismanagement 3 3 5 11 Corrupt or unethical conduct by councillors or staff 5 10 2 17 Breach of statutory powers 4 nil 1 5 Totals 14 15 14 43

Source: Investigation Reports summarised in Appendices 1.1.1, 1.1.2 and 1.1.3.

In relation to Victoria, investigations reports from the Auditor-General, Ombudsman, Victoria and the Inspector of Municipal Administration are summarised in Appendix 1.1. For local government in New South Wales, Queensland and Western Australia, investigation reports from the Independent Commission Against Corruption, Crime and Misconduct Commission, Corruption and Crime Commission and the Department of Local Government are summarised in Appendix 1.2. Investigation reports from New Zealand and the United Kingdom by the Audit-Commission, United Kingdom and the Controller and Auditor- General, New Zealand are summarised in Appendix 1.3.

4.4.1 Council governance and maladministration

Breaches of council governance processes or council maladministration related to ten of the forty-three investigations reports examined. There were two reports in Victoria (Appendix

1.1) two in New South Wales, Queensland and Western Australia (Appendix 1.2) and in New Zealand and the United Kingdom (Appendix 1.3).

i. Local government in Victoria

As noted in Appendix.1.1, the two investigations in Victoria related to the dysfunctionality of council and the breakdown of relationships with councillors in Glen Eira City Council (Inspector of Municipal Administration 2005) and the misconduct of council officers in the Shire of Melton (Ombudsman, Victoria 2005). In the former investigation, the Inspector of Municipal Administration (2005) noted a total breakdown in relationships between councillors including their incapacity and unwillingness to pursue remedial action. He concluded that their conduct was characterised by hostile and acrimonious behaviours, including the denigration of councillor colleagues, which inhibited and retarded the decision- making capacity of council.

The maladministration of the Shire of Melton differed from the Glen Eira City Council, as it was caused in part by council officers, notwithstanding that councillors were ultimately responsible for the actions of officers. The Ombudsman, Victoria (2005) noted that the former chief executive: (1) breached the recruitment provisions of the Local Government Act

(1989) by not advertising employment vacancies; (2) failed to maintain full and accurate

council records in accordance with his statutory duties; and (3) purchased and disposed of assets without following due process as required in the Local Government Act (1989). The major criticism in the report related to council’s mismanagement of the processes associated with attracting business and development into the shire. It was identified that the payment of incentives to businesses was poorly structured and managed and there had been a failure to obtain cost contributions from landholders in relation to road construction (of benefit to landholders) and obtain subdivision infrastructure cost contributions from developers.

ii. Local government in New South Wales

From investigations in New South Wales (Appendix 1.2) the outcomes of investigation into Brewarrina Shire Council was similar to the Shire of Melton. In this case, the Department of Local Government (2005) concluded there was a need to improve systems of internal control and polices and there were major difficulties in recruiting and retaining qualified staff. The investigation concluded that whilst there was no compelling evidence to dismiss council, it

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had a poor relationship with the Ngemba Community Working Party (part of the local Aboriginal community), which was caused in part by the Ngemba Community Working Party’s inability to recognise the role of the local government council and its resource constraints. The investigation into the Broken Hill Council was similar to Glen Eira City Council in Victoria as: (1) councillors were unwilling or unable to exercise their responsibilities and accountabilities; (2) the mayor failed to demonstrate his capacity to fulfill his duties; and (3) relationships between councillors and staff had broken down.

iii. Local government in the United Kingdom

The three investigations in the United Kingdom (Appendix 1.3) related to: (1) unlawful

payments and procedural deficiencies in the council’s decision-making ability (Bude Stratton

Town Council, Audit-Commission, United Kingdom 2007b); (2) conflict of interest

(Chipping Campden Town Council, Audit-Commission, United Kingdom 2007d); and (3)

termination of the chief executive of the council (Doncaster Metropolitan Borough Council,

Audit-Commission, United Kingdom 2008a).

The Bude Stratton Town Council had established a subsidiary company, Bude-Stratton Heritage Trust, with a number of councillors being members of the Bude-Stratton Heritage Trust. It was concluded that the Bude-Stratton Town Council had exceeded its statutory powers by establishing a museum. When the Bude-Stratton Town Council resolved to provide a grant of ₤86,000, it did not adequately record its intention to do so in the council agenda and consequentially the payment was considered to be void. The two councillors who were members of the Bude-Stratton Heritage Trust had a conflict of interest, when both councillors participated in the council’s decision to award a grant to the Trust.

The investigation of the Chipping Campden Town Council (Audit-Commission, United Kingdom 2007d) was similar to the Bude-Stratton Town Council, to the extent that it related to payments to the Peelers Trust, with two council members being members. The investigation concluded that councillors who were trustees had participated in discussions of grants at meetings of the Chipping Campden Town Council and had voted on the resolution to authorise payments after cheques had been issued. The Audit-Commission, United Kingdom concluded that this was a conflict of interest. The investigation of the Doncaster Metropolitan Borough Council (Audit-Commission, United Kingdom 2008a) concerned the termination of the chief executive officer. The report noted that the breakdown in the

relationship between the mayor and the former chief executive officer were caused in part by tensions between councillors and the local Labor Party (Audit-Commission, United Kingdom 2008a, p. 6). The review concluded that: (1) the performance management system for the chief executive officer was not fully established; (2) there were weaknesses in the investigatory process; and (3) there was a breach of confidentiality in information by councillors about the case.

iv. Local government in New Zealand

The three investigation reports of local government in New Zealand (Appendix 1.3) related to: (1) funding and the management arrangements for proposed infrastructure assets

Dunedin City Council and Otago Regional Council, (Controller and Auditor-General, New Zealand 2007b); Taupo District Council, (Controller and Auditor-General, New Zealand 2002); and (2) dysfunctionality at the West Coast Development Trust (Controller and Auditor- General, New Zealand 2008a).

The objectives of the investigation into funding for the proposed stadium by the Dunedin City Council and the Otago Regional Council were to provide assurances to the community that proposed funding arrangements with the Lake Taupo Development Trust were commercially sound. The investigation concluded that the allegations of misconduct were unfounded and that councils’ funding arrangements were appropriate for preliminary stages of the project. The Controller and Auditor-General, New Zealand recommended that a formal and robust funding framework be established or both councils make a commitment to fund the construction phase.

The investigation of the Taupo District Council concerned the establishment of an interim board of the Lake Taupo Development Trust. The report noted that the appointment of councillors as trustees gave rise to a conflict of interest between being a councillor and a director of the Lake Taupo Development Trust. The other inquiry into the West Coast Development Trust noted that allegations of misconduct were unfounded and that other allegations were based on minor administrative or procedural errors or occasional errors of judgement. The major problem was that the Trust was dysfunctional at a governance level and trustees did not work together effectively. There was an atmosphere of suspicion and distrust, which manifested in hostility and accusations. The outcomes resonated with those from the Glen Eira City Council investigation (Inspector of Municipal Administration 2005).

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4.4.2 Financial mismanagement

The second most prevalent theme was financial mismanagement. Common themes from the Victorian investigations are summarised in Appendix 1.1 and include:

• financial mismanagement of the budgetary processes and financial reporting, for example, Surf Coast Shire Council (Inspector of Municipal Administration 2002);

• mismanagement of the sale of council assets, for example, the East Gippsland Shire Council (Auditor-General, Victoria 2005a); and

• mismanagement of procurement, including tendering arrangements as required under the

Local Government Act (1989), for example, Warrnambool City Council (Auditor-General, Victoria 2005d).

From Appendix 1.2, the financial mismanagement in local government in New South Wales was similar, although two of the major inquiries related to financial mismanagement of large infrastructure projects, for example, the ‘Oasis Project’ and ‘Woodward Park’ in the Liverpool City Council (Department of Local Government, 2004a) and the mismanagement of the ‘Glasshouse’ project by the Port Macquarie-Hastings Council (Department of Local Government 2008a). The investigation into the Rylstone Shire Council (Department of Local Government 2004b) concluded that council were inadequate managers. The major difference which distinguished that investigation from investigations in Victoria was the level of negligence. Council was aware of its precarious financial position in 2002, but there was reluctance to address the issue. Financial mismanagement investigations from local government in the United Kingdom (Appendix 1.3) centred upon:

• mismanagement of procurement, including tendering arrangements, for example, City of Bradford Metropolitan District Council (Audit-Commission 2006b); Leicester City Council (Audit-Commission, United Kingdom 2007a); and Marlborough Town Council (Audit- Commission, United Kingdom 2005);

• financial mismanagement of the council, for example, Epworth Town Council (Audit- Commission, United Kingdom 2008b); and

• mismanagement of council’s bank deposits in Iceland by the North East Lincolnshire Council (Audit-Commission, United Kingdom 2009b).

4.4.3 Corruption and misconduct by councillors and staff

4.4.3.1 Victoria

As summarised in Appendix 1.1, there were four investigations in Victoria in relation to