6 June 2007

Personal liablity of elected members

ThePress: "Council feels 'gun to head' over Central Plains water" Interesting to see the old chestnut of personal liability for councillors being wheeled out (I'm pretty sure that what the reports are suggesting). It may surprise some people but there is a rather nasty provision in the Local Government Act that makes elected members potentially liable for losses. That said, the threshold for liability is relatively high and is subject to various "outs", liability only arises if the Auditor-General makes an adverse report, and - as far as I am aware - it's never been used in New Zealand. It's equivalent has been used in the UK but has since been repealed. Below is an extract on this issue from a paper I have written previously on personal liability of members: Personal liability of members Under s 43(1) of the LGA 2002, members of a local authority are indemnified by the local authority for any liability if they acted in good faith and in pursuance of the responsibilities or powers of the local authority:[1]
(1) A member of a local authority (or a committee, community board, or other subordinate decision-making body of that local authority) is indemnified by that local authority, whether or not that member was elected to that local authority or community board under the Local Electoral Act 2001 or appointed by the local authority, for— (a) costs and damages for any civil liability arising from any action brought by a third party if the member was acting in good faith and in pursuance (or intended pursuance) of the responsibilities or powers of the local authority (or committee, community board, or other subordinate decision-making body of that local authority); and (b) costs arising from any successfully defended criminal action relating to acts or omissions in his or her capacity as a member.
This indemnity does not apply to directors of council-controlled organisations.[2] However, members may be (jointly and severally) liable for the losses of local authorities in the following cases:[3] · money belonging to, or administrable by, a local authority has been unlawfully expended - an asset has been unlawfully sold or otherwise disposed of by the local authority - a liability has been unlawfully incurred by the local authority; or - a local authority has intentionally or negligently failed to enforce the collection of money it is lawfully entitled to receive. Individual members are not liable if they establish that the act or failure to act that resulted in loss occurred:[4] - without their knowledge; - with their knowledge but against their protests; - contrary to the manner in which they voted on the issue. More generally, members are not liable if they establish that in the circumstances, they acted in good faith and in reliance on reports, information, or professional or expert given by: - an employee of the local authority whom they reasonably believed was reliable and competent in relation to the matters concerned; - a professional adviser or expert in relation to matters that they reasonably believed to be within the person’s professional or expert competence.[5] Members are only liable for the losses if the Auditor-General issues a report on those losses to the Minister of Local Government.[6] The Crown is entitled to take proceedings against members to recover the losses, which when recovered are payable to the local authority. In Porter v Magill [2002] 1 All ER 465, Lord Bingham summarised the principles underlying the equivalent provision in English law as follows: - Powers conferred on a local authority may be exercised for the public purpose for which the powers were conferred and not otherwise. - Such powers are exercised by or on the delegation of councillors. It is misconduct in a councillor to exercise or be party to the exercise of such powers otherwise than for the public purpose for which the powers were conferred. - If the councillors misconduct themselves knowingly or recklessly it is regarded by the law as wilful misconduct. - If the wilful misconduct of a councillor is found to have caused loss to a local authority the councillor is liable to make good such loss to the council. - Powers conferred on a local authority may not lawfully be exercised to promote the electoral advantage of a political party. In that case, the House of Lords endorsed the finding of the auditor that targeted (discounted) sales of council-owned properties in marginal wards (based on the belief that the owner-occupiers were more likely to vote for the ruling group’s party) was unlawful. The surcharge requiring payment of the difference between the full market value of the properties and the discounted prices received (about £15.47m) was upheld. [1] Section 43(1), LGA 2002. [2] Section 43(3), LGA 2002. [3] Section 44(1), LGA 2002. [4] Section 44(6)(a)-(c), LGA 2002. [5] Section 44(6)(d), LGA 2002 [6] Sections 44 and 46, LGA 2002.

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Course Outline

Lord Justice Lawton in Maxwell v Department of Trade and Industry [1974] 2 All ER 122 said:

"From time to time ... lawyers and judges have tried to define what constitutes fairness. Like defining an elephant, it is not easy to do, although fairness in practice has the elephantine quality of being easy to recognise. As a result of these efforts a word in common usage has acquired the trappings of legalism: 'acting fairly' has become 'acting in accordance with the rules of natural justice', and on occasion has been dressed up with Latin tags. This phrase in my opinion serves no useful purpose and in recent years it has encouraged lawyers to try to put those who hold inquiries into legal straitjackets.... For the purposes of my judgment I intend to ask myself this simple question: did the [decision-maker] act fairly towards the plaintiff?"


This course examines the elephantine concept of fairness in the law, along with other contemporary legal issues.

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