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KDC v A-G

LIABILITY OF OTHER PARTIES FOR ECOCARE LOSSES    09.07.2016

Auditor-General
There is virtually no chance of recovering any more money from the Auditor-General. The agreement between the parties with $4 million paid in damages was in full and final settlement.

However, in her statement of defence the A-G clearly points the finger at the negligence of others. Not only that, the report that she did on the EcoCare fiasco catalogues a litany of incompetence in respect of those involved.

One of the principal offenders is the KDC itself. In fact one of the defences of the A-G is that the KDC contributed to its own losses through its incompetence.

However, the KDC, whilst a corporation in perpetuity and able sue and be sued, can scarcely sue itself for negligence to recover damages that it was responsible for.

If the KDC was negligent then it must be the components that make up the KDC that should bear that responsibility. That means the CEO, the councillors and the advisers to the KDC, including its lawyers and consultants.

Councillors
T
he elected members make all the major decisions for a local authority. All of the illegal acts of the KDC followed resolutions of the elected councillors. As a result the KDC suffered severe losses.

The LGA – section 46 - provides for councillors to be held liable where they are responsible for a loss suffered by the council.

So why was no action taken against them?

Quite simply, any claim has to be triggered by – guess who? – the Auditor-General.

Despite the endemic unlawfulness of many local authorities, no action has been taken by the A-G under the LGA to recover losses caused by councillors since the LGA became operative in 2003.

In this instance the A-G reported in depth on the incompetence of the KDC, and pleaded its contributory negligence in the negligence claim, so there was plenty of evidence of negligence by the councillors.

However, when Matthew Palmer QC, on behalf of the MRRA, pressed the A-G to take action against the councillors under the LGA’s provisions, she declined. She stated that it would be difficult to establish liability.

That seems quite bizarre given the amount of evidence against the councillors that she amassed in her EcoCare report. It seems pretty clear that she was side-tracked by the defences available to councillors under the LGA

Defences under section 46
Subsection 46(4) of the LGA sets out the defences available to a councillor when charged with causing a loss.

For instance, if the loss occurred without the councillor’s knowledge, or with the councillor’s knowledge but against the councillor’s protest, or contrary to the manner in which the councillor voted on the matter.

Those defences would have been available to some of the “rebel” councillors especially where they voted against resolutions and had their vote recorded.

However, those who threw in their lot with Jack McKerchar hook, line and sinker – and that is most of them - would have had to rely on the “good faith” defence set out in section 46(4)(d) of the LGA.

Councillors would have to show that they acted in good faith and in reliance on reports, statements, information, professional advice etc supplied by an employee of the local authority or a professional adviser of expert.

But blind acceptance of such advice is not enough. The councillors have to believe on reasonable grounds that the employee of the local authority is reliable and competent in the matters concerned, or believe on reasonable grounds that the matter is within the professional adviser’s or expert’s professional or expert competence.

A successful defence under Section 46 requires that the councillors complied with both legs of the defence. They must have acted in good faith and in reliance on the reports statements etc.

In respect of relying on information reports etc, very little information flowed through to councillors under Jack McKerchar’s watch. In general councillors were denied access to even vital information by the CEO, and that included access to legal opinions. The startling thing is that most of the councillors accepted this situation, and at one stage even resolved by majority that councillors should have no access to legal opinions.

In one instance I personally advised all councillors that the CEO was misrepresenting the opinion of the KDC’ solicitors’ in respect of the legality of the unit of demand levy – and presented to them a letter from the solicitors proving it - but they still resolved to collect the unlawful charge. Being a united body and supporting the CEO, whether he was right or wrong, took precedence over any personal doubts or concerns.

In respect of the severance pay, for instance, there is ample evidence to show that well before an agreement was reached the councillors were fully aware of the unlawful actions of the CEO and therefore did not act in good faith in agreeing to his severance pay.

I spoke to several of them at the time and they acknowledged that they had become fully aware of the incompetence of the CEO but found it difficult to take any action against him because he was supported by the Mayor, the Council’s lawyers, the A-G and the Minister.

In my view the A-G would have a very strong case against those councillors who were directly responsible for the KDC’s losses. Given her own involvement in the matter, and given her reluctance to hold anyone but ratepayers responsible, it is unlikely that she is going to move on that matter.

In addition, her employer, Parliament, has made it perfectly clear, as the Court of Appeal noted, that ratepayers should be held responsible for the losses. That was the effect of Parliament validating the unlawful rates.

So where does that leave us?

At the Winston Peters meeting in Mangawhai a few weeks ago, Mayoral hopeful Greg Gent aske pertinently why councillors are not held responsible for the losses that they cause by their actions. He pointed out that company directors have much broader obligations.

He is absolutely right. In the recent Nathan case Heath J laid down in clear language the obligations of company directors. They cannot rely on reports and must satisfy themselves reasonably of the correctness of any decision.

Many of us hoped that in our legal actions against the KDC the courts would see councillors in the same light as company directors and state authoritatively what their obligations are.

An action under section 46 would have been the ideal platform to resolve the issue of councillors’ liability.

However, neither the commissioners nor their string-pullers – the government – was interested in holding the errant councillors responsible. As far as they were concerned the ratepayers would foot the bill and that was an end of the matter. A nominal, half-hearted pursuit of the A-G and CEO would be enough to satisfy the masses.

Moreover the government knew that making councillors actually responsible for their decisions and actions would destroy the structure of local government as the government sees it: amateur councillors with no legal liability bent to the will of big business, with ratepayers legally obliged to foot the bill for all the excesses and illegalities.

Holding councillors responsible would frighten the horses, with no one standing for council, and the party would be spoilt.

Could councillors still be sued?

The A-G may not be interested in pursuing the councillors but that could change if enough pressure was brought to bear.

The KDC has certainly suffered losses because of the actions of its councillors. Section 44 sets out the type of losses. The one that immediately strikes one is:

money belonging to, or administrable by, a local authority has been unlawfully expended:

Jack McKerchar’s severance pay was unlawful and the councillors who voted for it were responsible for that loss. It occurred in 2012 so it is not time-barred.

In my view, given the uncertainty of the case against Jack McKerchar in the Employment Court, the commissioners are obliged under their duty of care to report the loss to the A-G and pressure her to trigger an action under the LGA against liable councillors in respect of the severance payment and any other losses that fall within the time limit.

Given the reluctance of the A-G to pursue anyone else, the commissioners should also file an action in negligence against the errant councillors in the High Court. It may be too late to receive full damages for the losses they incurred, but the commissioners are duty bound to pursue every avenue that will relieve the burden placed on ratepayers.

CEO
What has surprised most people is the reluctance of the commissioners to pursue Jack McKerchar in any serious way.

The attempt to recover the severance pay through the Employment Relations Authority seems to be nothing more than a token gesture in response to what many see as gross negligence on a large scale.

In the KDC’s statement of claim against the A-G, cause of action 7 relates to the A-G’s failure to pick up the unlawful acts of Jack McKerchar which would have entitled the KDC to dismiss him without any severance pay.

It is also clear from the pleadings in that case that all the KDC’s failures to comply with the LGRA, the LGA and accountancy procedures are all the responsibility of the KDC’s chief executive officer, Jack McKerchar. He was the one who advised the councillors, cajoled them into passing the appropriate resolutions, and then carried out the unlawful acts.

When the A-G accuses the KDC of contributory negligence it is the negligence of Jack McKerchar that she is primarily talking about.

The EcoCare report from the OAG is largely a litany of incompetence and negligence on the part of Jack McKerchar

So, why did the Honest John not commence proceedings in the name of the KDC against Jack McKerchar for negligence? He had a cast-iron case and oodles of evidence. It is most likely that the CEO would have had professional indemnity insurance, and, even if he didn’t, he would still have been worth pursuing.

The lack of motivation behind the failure to pursue Jack McKerchar appears to come from the same sentiments that resulted in councillors being let off the hook. The commissioners are government appointed and government driven and it is of utmost importance to the government that those who run local government are seen to be out of reach of the law. John Key is insistent that those who feed at the trough, the elite, the establishment, or whatever you like to call them, are not to be held responsible for their actions.

COMMISSIONERS
The government appointed commissioners have shown a remarkable resistance to pursuing those responsible for the EcoCare losses, despite there being plenty of evidence to support claims of negligence.

Whilst acting under government instructions and according to terms of reference, the commissioners are still obliged to act in good faith and as fiduciaries of ratepayers.

The question that has to be asked is whether John Robertson and Peter Winder have breached their duty of care to ratepayers, and whether the new council, once elected, should sue them for negligence for failing to pursue those who caused the EcoCare losses.

Protected transactions
It is worth raising the question of whether the EcoCare loan agreements were in fact “protected transactions” under the LGA. The MRRA were prevented from raising the issue in the High Court case of 2014 subsequent to the passing of the Validation Act because it would have meant adjourning the hearing.

However, Heath J expressed surprise in the High Court that when the commissioners took over the KDC in 2012 they failed to consider options in respect of the EcoCare loans.

One of the options was querying whether the loans were protected transactions and therefore protected by the LGA. The loans could only be protected transactions if the lender acted in good faith.

The evidence is strong that all the parties to the loans and their lawyers and their consultants were aware, or should have been aware, of the unlawfulness of the loans because of the failure to consult with ratepayers, but went ahead anyway.

The whole arrangement smacks of an arrangement where all the parties knew that the law was being completely ignored.

It also suggests a culture accepted by everyone involved with local authorities, including consultants and lawyers, and clearly the courts as well, that local authorities are “untouchable” irrespective of what the law says.

The commissioners had fiduciary obligations to ratepayers and should have pursued the bad faith argument with the banks in question and negotiated a settlement with them. After all the loans were bought at a massive discount from ABNAmro, no doubt because their legality was suspect.

By their failure to act the commissioners forfeited the opportunity to recover some of the EcoCare losses by reducing the liability to its banks.

A-G
The delay in pursuing the A-G was inexplicable. The commissioners would have been well aware of the Limitation Act, and deliberately delayed taking action knowing that any claim against the A-G would be substantially prejudiced.

That delay probably cost the ratepayers of Kaipara tens of millions of dollars.

Councillors and CEO
The errant councillors were let off the hook completely. For some inexplicable reason no negligence claim was filed against the CEO, only a trivial and questionable claim with the Employment Relations Authority.

Again, ratepayers were deprived the opportunity of recovering some of the losses that they were forced to pay.

Consultant’s and lawyers
The commissioners also decided not to pursue the CKDC’s lawyers Bell Gully, or the KDC’s consultant Beca for their role in the EcoCare losses.

One has to wonder how the EcoCare project ever proceeded in flagrant breach of the law when the KDC was supposedly being advised by top-class advisers who should have fully aware of the requirements of the Local Government Act.

Expert receivers
There is little doubt in my mind that expert receivers who were intent on recovering the losses suffered by the KDC would have used the mountain of evidence to obtain substantial payments from many of the parties involved.

The threat of legal proceedings, the threat of a High Court finding of negligence, and the ensuing spectre of reputational damage is an important weapon in a receiver’s armoury.

The KDC’s professional consultants, if a claim had been made out against them, would have been reluctant to risk a court case.

In respect of the A-G, the government had to avoid a court finding of negligence at all costs. It would have undermined the credibility of the Office of the Auditor-General and would have spelt the end of the career for Lyn Provost.

Because of that, an out of court settlement with no admission of liability should have secured a bonus settlement figure, not the derisory amount that the commissioners agreed to.

RELEASE OF THE PROCEEDINGS
There was a bit of a battle over the public release of the KDC proceedings against the Auditor-General. Initially both the KDC and the A-G were reluctant to agree to the release.

Submissions were made on both sides and eventually both sides agreed to be bound by the decision of the High Court.

The High Court decided to authorise the release.

Here are some of the points raised in the submissions:

Jeremy Browne for the MRRA argued:

The KDC has “a fiduciary duty to the ratepayers to have regard to their interests”. In real terms, The KDC is made up of ratepayers and the KDC, via the government appointed Commissioners, must act in the best interest of ratepayers.

It is noted that many of the speeches during Parliamentary debate of this Act expressed the hope that the Auditor-General would be pursued for the obvious failure to pick up on the serious irregularities with the EcoCare scheme.

The only parties pursued on the ratepayer’s behalf are the Auditor-General and the former CEO (who is being pursued in relation to employment matters only).

The Auditor-General admitted shortcomings. As a public watchdog, the Auditor-General should not be able to seek the shelter of the court to conceal details of a claim where its shortcomings were exposed.

The lawyers for the A-G argued the following in a memorandum to the Court:

It is unlikely that providing the pleadings to MRRA will enable the MRRA’s members to understand better the basis for settlement, and whether it was appropriate in the circumstances, because the proceeding was settled at an early stage following a mediation. The allegations and responses in the pleadings remain untested, and the confidential matters canvassed at a mediation are not always reflected in the pleadings themselves. The pleadings are therefore of limited utility for the MRRA to understand the basis and rationale for settlement.

Chapman Tripp then went on to argue:

In addition, the court may consider that there is a material risk of inaccurate or unfair reporting of the contents of the pleadings (which are of course only unproven allegations) given the MRRA’s stated intention of making the papers available to its members and therefore (in effect) to the public.

Justice Brown in the High Court decided as follows:

On balance I consider that it is appropriate to release copies of the pleadings. However I emphasise the point made in the defendant’s memorandum that the allegations in the pleadings are unproven and care will need to be taken in any publication to ensure there is accurate and fair reporting of those pleadings.

THE PLEADINGS

The pleadings consist of two documents: the KDC’s statement of claim (SOC) and the A-G’s statement of defence (SOD).

PRINCIPLES OF LIABILITY

Before considering the documents it is worth explaining the legal basis of liability in a case like this when an entity with a legal obligation (the principal) appoints another person or body (the agent) to act on its behalf.

Liability of the A-G
The action commenced by the KDC was against THE CONTROLLER AND AUDITOR-GENERAL – which is the A-G’s full title.

The actual audit of the KDC was not carried out by the A-G herself but by staff members of Audit New Zealand, which is the operating arm of the Office of the Auditor-General (Para 42 SOC).

However, under the basic principles of the law of agency, the Auditor-General, as the contracting principal, is responsible for the actions of her employees, agents and sub-contractors.

We all heard Lynn Provost proclaiming in Mangawhai when she released her EcoCare report in December 2013 (and apologised to ratepayers) that she was not going to take responsibility for the failures of others in respect of the audit. Well she clearly doesn’t know the law because those who stuffed up were her employees and the buck stops with her. As the statement of claim states, her duty of care owed by the A-G to the KDC was non-delegable (Para 100 SOC).

More than that, as watch dog of the local government sector she was personally supplied with legal submissions to the effect that the KDC was setting rates in breach of the Local Government (Rating) Act in early 2010. She knew of the non-compliance but she refused to act.

She argued, in spite of the obvious, blatant and ongoing breaches, that it was for the courts to decide whether rates were lawful or not. That comment, of course made a mockery of her role as watch-dog, abdicating any responsibility, and effectively fiddling with legal niceties whilst Kaipara was pillaged.

She could have called on the Crown Law Office to consider the legality of the rates and issued an ultimatum to the KDC. She sat on her hands and did nothing.

So the liability for incompetence or negligence sits squarely on the shoulders of the Auditor-General. But does the buck really stop there?

The responsibility of Parliament
The Controller and Auditor-General is described in the statement of claim as an “Officer of Parliament” (Para 3 SOD). She is appointed by Parliament; her role and obligations are laid down by Parliament under the Public Audit Act 2001; and she serves Parliament not only as auditor for all local authorities but as a watchdog for the local government.

So, surely it follows under the law of agency that Parliament is responsible for the negligence of the Auditor-General because she is its employee.

Unfortunately in our legislative system Parliament cannot be sued, so the legal buck does stop with the Auditor-General. But we have to remember that there is a wealth of evidence that points to the incompetence of the Auditor-General, her Office and Audit New Zealand. It was spelt out in detail in her own report following the Kaipara inquiry and MPs were not hesitant in criticising her performance in the House

Although legal liability for her actions cannot be visited on Parliament, one would have thought that such an abject failure to perform such a vital role in our democratic government would have resulted in Parliament, her boss, accepting some moral responsibility by acknowledging her failures and taking action against her pursuant to its statutory powers.

Unfortunately, whilst Parliament is talked about in hallowed tones when considering the legal principles behind our democracy, the reality is that it is often no more than an undemocratic autocracy driven by petty and political motivations.

The dumping of the unlawful debt on Kaipara ratepayers, and gazumping the MRRA court action virtually on the steps of the court, sums up the integrity of that institution.

Not a murmur has been heard from Parliament about the negligence of its favourite daughter.

Looking at the big picture from Wellington's point of view, it was absolutely vital to Lyn Provost personally, to the Office of the Auditor-General, and to Parliament that the KDC claim was settled without any formal finding of negligence.

Puffed-up allegations against the A-G in Parliament by guilt-ridden MPs tying to justify their spiteful and unconscionable treatment of Kaipara ratepayers in passing the Validation Bill are past history and long forgotten. Mike Sabin’s sabre-rattling and demand for $50 million compensation got swallowed up in his own political demise. The media couldn’t give a damn and has ignored the issue, whilst the ratepayers of Kaipara are simply irrelevant to the government.

A settlement of the claim with no admission of liability meant that the whole thing could be simply and quietly swept under the carpet. It would be as if it never happened.

BUT, a finding of negligence in the High Court would have changed all that. The lid would have come off Pandora’s Box.

It would have struck at the heart of the reputation and integrity of the Office of the Auditor-General. Lynn Provost herself would have been gone by lunchtime. Questions would have been asked about other local authorities and possible unlawful acts that had been missed by the auditors.

Local government and its regulatory processes would have been under a very unwelcome laser light

INDEMNITY INSURANCE

This is an issue that is relevant.

The Auditor-General has professional indemnity insurance to cover claims such as the KDC claim.

When she was in Mangawhai in December 2013 she was asked that specific question and confirmed that she held insurance.

In such situations, because it is the insurance company that pays any damages, it is the insurance company that effectively runs the legal defence. So any defences raised are the best legal defences that it can muster to try and reduce its own liability for damages.

The insurance company’s motives are purely financial and the equity or fairness of the case has absolutely no relevance.

On the other hand it is, or at least should be, the aim of the KDC’s lawyers to undermine any technical defences raised and ensure that the maximum amount of damages is agreed to or awarded.

STATEMENT OF CLAIM

The plaintiff is the KDC and the defendant is the Controller and Auditor-General

The responsibilities of the Auditor-General are set out in para 48 SOC. The sorry litany of incompetence is set out in full detail in paras 53 to 98 SOC.

Causes of action

There are four basic causes of action against the Auditor-General and for each one there are separate claims in negligence and under the Fair Trading Act.

1. Negligence in respect of Modification 1. (Para 99)

This refers to the secret modification to the Project Deed that virtually doubled the price of EcoCare and supposedly increased its capacity.

Damages to be quantified after an inquiry into the damages suffered

2. Breach of the Fair Trading Act in respect of Modification 1 (Para 104)

This involves misleading or deceptive conduct in breach of section 9 of the Act.

Damages to be quantified after an inquiry into the damages suffered.

3. Negligence in respect of commercial acceptance of EcoCare (Para 107)

Commercial acceptance was acknowledgment that the Ecocare plant was completed and that the contract price was payable.

Damages to be quantified after an inquiry into the damages suffered

4. Fair Trading Act in respect of commercial acceptance of EcoCare (Para 112)

This involves misleading or deceptive conduct in breach of section 9 of the Act.

Damages were to be quantified after an inquiry into the damages suffered

5. Negligence in respect of rates and other matters requiring validation (Para 115)

Particulars of some of the losses are set out:

• $145,946.78 expenditure in respect of the Validation Act.

• $528,940.88 defending the judicial review proceedings

• $9 million in respect of reduced services.

• Other losses to be quantified following discovery.

The first two items were claimed as damages with the rest of the damages to be quantified following an inquiry into the damages suffered.

6. Fair Trading Act in respect of rates and other matters requiring validating (Para 130)

Another section 9 claim on the same basis as 5.

Damages claimed as in 5. Above.

7. Negligence in respect of Jack McKerchar (Para 133)

The argument here is that if the auditor had acted properly then Jack McKerchar could have been dismissed without making a severance payment of $240,000.

Damages to be quantified after an inquiry into the damages suffered

8. Fair Trading Act in respect of Jack McKerchar (Para 138)

Another section 9 claim on the same basis as 7.

Damages claimed as in 7. Above.

Damages
The statement of claim is the document that commences the proceedings and outlines the basis on which damages are claimed but the actual amount claimed cannot be arrived at until full details of the case and the resulting losses emerge. The amount of damages has not been quantified. This could only be done following discovery and once all the facts and information were disclosed.

So, whilst there was talk of $50 million in compensation from former MP Mike Sabin, there is no legal basis for that figure. Having said that, the losses suffered by the KDC because of the alleged negligence of the A-G are clearly considerable.

STATEMENT OF DEFENCE

Paragraphs 1 to 98 SOD contain the usual admissions and denial in respect of the claims set out in the statement of claim.

The A-G gives a blanket denial of liability and offers two affirmative defences:

1. Contributory negligence
If the A-G is held liable then she seeks a reduction of damages because of the KDC’s own responsibility for some of the losses.

2. Limitation period
It seems that the action against the A-G was triggered on 3 March 2014 and the A-G claims that under the Limitation Act claims for damages prior to 3 March 2008 (6 years) are time-barred

3. Fair Trading Act Limitation
The A-G pleads that more than 3 years has elapsed since the damage was, or ought to have been, discovered. This time limit is set out in section 43A of the Act

Contributory negligence
The A-G points the finger at the KDC and says that it had legal obligations to ensure that it acted in compliance with the LGA, the LGRA, sound accounting practices etc and failed to do so. Whilst an auditor has certain obligations the auditor relies on information provided by the local authority and which is certified as being correct. The local authority is primarily responsible for complying with the law.

The A-G quotes instances. In Para 91(c) : She was aware of the possibility that rates were set in a manner and on a basis that was inconsistent with the LGRA because of letters received from Legal Eagle and others in 2010. The KDC was advised, sought legal advice, was advised to check the documentation, and the KDC CEO advised its lawyers that the rates had been set in accordance with the LGRA (Para 91(c)).  That was, of course, completely incorrect.

There is no doubt that the KDC itself was utterly inept and to some extent a victim of its own incompetence.

So how do we square off the liability of the A-G against the liability of the KDC?

It seems to me from what was said by Honest John when the settlement was announced that the plea of contributory negligence was instrumental in substantially reducing the amount of damages to be paid by the A-G.

But was it really a relevant consideration?

There is no doubt that contributory negligence is relevant in many situations where the parties are all negligent to a greater or lesser extent. For instance, in respect of the EcoCare debacle the KDC CEO, the councillors, the KDC consultants, the KDC lawyers could all be individually liable to some extent, based on their contribution to the losses.

The A-G was different. She had a statutory role as the auditor and watchdog for the KDC. It was her job to identify non-compliance with the law and take action.

If local authorities complied with their obligations that are set out in law then there would be no need for auditors or watchdogs. They would be superfluous. The role of auditor and watchdog is therefore predicated on the assumption that local authorities will fail to comply with the law and that there has to be a third party that must act as a policeman to ensure compliance.

The obligation of a local authority to comply with the law therefore had no bearing on the obligations of the A-G to act as auditor and watchdog.

The criminal law places obligations and restraints on all citizens, but we still have a police force to ensure that everyone stays on the straight and narrow. If a policeman fails to perform his duties as required in respect of an offender, he can scarcely plead that the offender is partially responsible because he committed the offence.

The gross negligence of the council certainly resulted in massive losses BUT such losses would not have happened at all if the A-G had done her job properly. That it’s the very reason why Parliament has an Auditor-General, to protect ratepayers and their money from unlawful activity.

The incompetence of the KDC was therefore an irrelevant consideration and the contributory negligence argument should have been a red-herring.

Limitation period
It is interesting that Honest John did not refer to this defence when announcing the settlement of the claim. That is not surprising given that the commissioners and the A-G have both been accused of deliberately dragging the chain on bringing proceedings so that any claim would have the limitation period of six years to contend with.

And that turned out to be correct.

I am not an expert on the Limitation Act, but it appears that the Limitation Act of 2010 does not apply to actions giving rise to liability prior to 2010. Those are covered by the Limitation Act 1950. However that Act has a “longstop” period. Any claim in respect of an action or omission prior to 1 January 2011 can be filed prior to 31 December 2015 or 15 years after the date of the action omission, whichever is the later.

Commissioners’ delay
One would expect that the lawyers for the KDC would have picked some substantial holes in the A-G’s claim that the proceedings were time-barred. However, the issue for ratepayers is much simpler.

The Simpson Grierson Salter report of early 2012 stated that the EcoCare rates would likely be declared unlawful by the court. When the commissioners took office in October that year it was absolutely clear that there had been gross incompetence on the part of the KDC (that was why commissioners were appointed) and it was equally clear that the KDC’s auditor, the A-G, had been negligent in failing to pick up the substantial legal non-compliance of the KDC.

At that stage the commissioners should have instructed lawyers to launch a claim against the A-G to stop the limitation period running. If they had done this in late 2012 the claim for damages could have gone back to late 2006.

It may well be that they were instructed by the government not to take any action, but that does not help their situation. The commissioners had a duty of care to ratepayers and a statutory obligation to act in the best interests of ratepayers (not the government) and should clearly have taken decisive action to stop time running on any claim against the A-G..

Rather than initiate action the commissioners decided to wait until the A-G issued her report on the Kaipara debacle. This included the role her Office and Audit New Zealand played. There was, of course, a fundamental conflict of interest and it was inexcusable that the commissioners opted to wait for the report rather than filing proceedings.

The inquiry was announced in February 2012 and dragged on, and on, and on. The report was finally made public on 3 December 2013.

Ratepayers were well aware that the limitation period was running and every day the report was delayed the liability of the A-G was accordingly reduced. The report took nearly two years to complete with the result that the A-G argued that the KDC claims were time-barred.

Whether the KDC and the A-G came to an arrangement in respect of the delay, to minimise the liability of the A-G, is unknown. That was certainly the general view around Kaipara. It was felt that the delay in filing proceedings was deliberate and the eventual filing of proceedings was no more than a sop to placate locals with the outcome being an engineered settlement for a nominal amount with a no-liability acknowledgement for the A-G. In other words, a slap on the wrist with a wet bus ticket.

Fair Trading Limitation
I have no experience in Fair Trading Act cases but it would seem that the 3 year time limit under section 43A would defeat any claim against the A-G under that Act.

If that is the case then one wonders why the KDC’s lawyers chose to argue it in the first place.

SUMMARY
The chance to hold the A-G to account has now gone.  All claims have been settled.  But that should not be the end of the matter.  There are options to sue others who may be responsible for the losses suffered by the KDC and I will look at those in the next post.