Posted on August 31, 2012 by

‘Non-pecuniary’ conflicts of interest – abstain or explain…

A recent case in the Supreme Court of New South Wales has highlighted the importance
of avoiding or managing non-pecuniary conflicts of interests. Although the case involved a councillor, all persons bound by the Code of Conduct, including council staff and delegates (‘council officials’) should ensure that they understand their obligations in relation to identifying, disclosing and managing non-pecuniary conflicts of interests.

De Luca v Simpson [2012] NSWSC 960

Mr De Luca was a councillor at Warringah Council and at the time of the events giving rise to the case, was also employed as a Secretary/Research Assistant for a Member of the Legislative Council of New South Wales (Ms Ficarra). Although Mr De Luca was not technically employed by Ms Ficarra, he was attached to her office and she was in effect his manager.

On 2 June 2010, Ms Ficarra placed a number of questions on notice in the Legislative
Council of NSW that were critical of Warringah Council.

On 8 June 2010, Warringah Council met to debate council’s response. Mr De Luca participated in the debate and defended Ms Ficarra’s criticisms of council.  Mr De Luca was asked if he had a conflict of interest in the matter and he replied that he did not.

Sometime in the weeks following the Council meeting, a complaint was lodged against
Mr De Luca, alleging that he had breached the Code of Conduct by failing to declare a conflict of interest at the 8 June 2010 meeting.

The complaint was referred to a conduct reviewer (Ms Simpson), who, following investigation, found that Mr De Luca had a non-pecuniary conflict of interest which he failed to declare when council dealt with the motion regarding Ms Ficarra’s criticisms. Ms Simpson found that Mr De Luca had breached several provisions of Warringah Council’s Code of Conduct.

Mr De Luca subsequently instituted proceedings against Ms Simpson and Warringah
Council in the Supreme Court. Mr De Luca asked the Court to declare that Ms Simpson’s report was invalid, claiming that Ms Simpson had made errors in the processes giving rise to the report.

It was argued for Mr De Luca that his association with Ms Ficarra was not the kind of ‘private or personal interest’ that could give rise to a non-pecuniary conflict of interest under the Code of Conduct. In particular, it was contended that Ms Ficarra had no real ‘interest’ in the matter and therefore, the association between Mr De Luca and Ms Ficarra could not give rise to a conflict of interest. The only interest that Ms Ficarra could have had in the outcome of the council meeting was a ‘prurient’ or ‘political’ interest.

His Honour Justice Johnson did not accept the argument. His Honour found that consideration of whether a non-pecuniary conflict of interest arose did not depend on whether Ms Ficarra had anything to gain or lose from the motion before council, but rather,  on the association between Mr De Luca and Ms Ficarra, taking into account the context of the motion.

The relevant context was that Ms Ficarra had made a ‘strong Parliamentary attack’ on the council. The council met and proposed a ‘strong counter attack’ directed at Ms Ficarra. Mr De Luca had ‘participated fully in the debate to strongly defend Ms Ficarra’s criticism of the Council.’

His Honour went on to say that:

In a sense, the Plaintiff had a foot in each level of Government, State and Local, in a manner that was capable of giving rise to a non-pecuniary conflict of interest. This was not an arid discussion of a policy issue which was of interest to both levels of government. Rather, a heated debate took place in council where the Plaintiff felt the need to strongly defend Ms Ficarra with respect to her questions in the Legislative Council, where the Plaintiff himself worked closely with Ms Ficarra. [151]

Challenges to Ms Simpson’s decision on two other grounds were also dismissed by His
Honour.

Discussion

Johnson J’s decision reinforces that the obligation to declare a conflict of interest lies with the individual official. The case also indicates that the obligation to declare a conflict is a positive one. Even if others might be aware that a council official has a particular association or interest, it is still necessary to disclose the interest.

As noted above, context is also important in determining whether a conflict of interests
exists. In the present case, it was not the association between Mr De Luca and Ms Ficarra in and of itself that gave rise to the conflict of interest, but rather, that association in the context of the events at the June 8 meeting of the council.

It is not necessary for the person with whom the council official has an association to have something to gain or lose from the decision of council in order for a non-pecuniary conflict of interest to exist, although His Honour did go on to state that Ms Ficarra did have an interest in the outcome of the Council meeting of 8 June 2010, because her ‘reputation was capable of being adversely affected‘.

Finally, the decision in this case endorses an approach that focuses on the substance of an association or relationship, rather than its technical description or categorisation. As Johnson J pointed out, ‘the concept of non-pecuniary conflict of interest does not always lend itself to closed categories.’

Refresher: Non-pecuniary conflicts of interests and the Code of Conduct

A conflict of interests exists ‘where a reasonable and informed person would perceive that you could be influenced by a private interest when carrying out your public duty.’ A ‘private interest’ may be either ‘pecuniary’ or ‘non-pecuniary’.

‘Pecuniary’ interests are largely dealt with under the Local Government Act 1993, however the Act is silent on ‘non-pecuniary’ interests and the obligations in respect of these are set out under the Model Code of Conduct.

The Model Code of Conduct contains the following provisions regarding non-pecuniary conflicts of interests:

• non-pecuniary interests are ‘private or personal interests’ that ‘commonly arise out of family or personal relationship, or involvement in sporting, social or other cultural groups and associations’. (clause 7.10)
• if a council official has a non-pecuniary interest that conflicts with his or her
  public duty, the interest must be disclosed fully and in writing as soon as practicable. (clause 7.13)
• if the conflict of interests is ‘significant’, that is involving a close family relationship, close friendship or business relationship, or a strong affiliation with an organisation, then the council official (other than council staff members),
  must remove the source of the conflict or have no involvement in the matter.(clause 7.17)
• if the non-pecuniary conflict of interests is less than significant, the council official must provide an explanation of why he or she does not consider that further action is required. (clause 7.18)
• members of staff of council should discuss management of a non-pecuniary conflict of interests with their manager. (clause 7.19)

If a council official is unsure of whether or not they have a conflict of interests, clause 5.2 of the Model Code sets out six points that the official should consider.