Agenda Item CCS19/070 : NSW Office of Local Government Discussion Paper A New Risk Management and Internal Audit Framework for Local Councils in NSW
Good Morning Councillors,
My presentation this morning relates to Agenda Item CCS19/070 regarding the NSW Office of Local Government Discussion Paper A New Risk Management and Internal Audit Framework for Local Councils in NSW currently on public exhibition.
Risk management for Councils is akin to risk management for corporations.
Councillors are analogous to company directors, as outlined in the Department of Local Government Councillor Handbook 2017 which states “Councillors comprise the governing body of a council in the same way that a Board of Directors is the governing body of a corporation”. The key difference is that Councillors obligations are towards residents and ratepayers, rather than for corporate shareholders.
The Office of Local Government Discussion Paper makes it clear that Council must discharge its risk management responsibilities across a wide range of potential issues. Factors to be taken into consideration include internal, political, economic, socio-cultural, technological, legal, and (notably for this presentation) “environmental trends and drivers that influence the Council’s operating environment” and which can be a source of risk.
Environmental risk therefore needs to be fully integrated within Council’s risk management and audit system. The system needs to be capable of identifying and responding to the occurrence of significant potential environmental risks including climate change related issues such as flooding from extreme weather events, coastal inundation from sea level rise and extreme storm events as well as increasing bushfire hazard (which is very pertinent to what is happening now down our east coast).
My presentation today is focussed on the important implications arising for Council’s public liability obligations, as well as Councillors own personal liability obligations, if responsibility for these risks are not effectively considered and discharged in Council’s decision-making. Particularly in those situations where it could be argued that Council has failed to heed the requirements to exercise a duty of care and to act in good faith when making their decisions. This links to Council’s public liability and insurance obligations and arrangements.
To clarify, an act is not done in “good faith” if it is done for an ulterior or improper purpose i.e. for a purpose other than for which the power was conferred. The defence of “good faith” cannot be used if, for example, a Council has made no real attempt to search its records, or it has no proper system to deal with requests for the type of information in question or if its information is outdated. The statutory concept of “good faith” requires more than honest ineptitude, which is why an effective risk and audit system is of critical importance.
Therefore Councillors need to realise that the “good faith” defence is usually interpreted very narrowly by courts and offers only very limited protection against actionable liability. This is highlighted in recent formal legal opinion from prominent mainstream legal firm Minter Ellison regarding the duties of corporate directors/Councillors with regard to climate change risk. Minter-Ellison conclude it would be difficult for a director/Councillor to escape liability for a foreseeable risk of harm to the company/Council on the basis that he or she did not believe in the reality of climate change. The Court will ask whether the director/Councillor should have known of the danger. This would involve an assessment of the conduct of the particular individual against the standard of a reasonable person, by reference to the prevailing state of knowledge.
The law has often had to deal with liability for negligence in the context of rapidly developing science. At one time, for example, knowledge was such that an employee could be exposed to asbestos without negligence. At a certain point, however, ignorant defendants become liable for those risks on the basis that a reasonable person would have known of them.
It may be helpful here to think of a hypothetical example where, a Council may have failed to update its disaster management plan within the specified timeframe for renewal. This would certainly not be helpful if the Council wanted to mount a good faith duty of care defence for any action against it in a court of law. .
However, if the same Council was also found to have also had an outdated drought water supply management plan, an outdated Bushfire Risk Management Plan, incomplete or outdated bushfire mapping, and had ignored expert statutory advice regarding planning matters in extremely hazardous bush fire prone land the matter would be more clear cut. Under circumstances such as these, it would be very difficult to conduct a legal defence based on good faith and duty of care provisions. The growing awareness and well documented understanding of the greatly increased bushfire risk we now face is exemplified through the 10 year period which has elapsed since the introduction of the “catastrophic” bushfire rating by relevant authorities in 2009. By now, a Council would be expected to have up-to-date systems in place to deal with such catastrophic levels of risk.
A key question arising from these hypothetical examples relates to what actions will be triggered when Council’s risk management and audit system has identified a significant probability of risk for Council. To be of practical utility, a risk management and audit system should trigger actions to forestall or rectify the identified risk – there is little point in identifying and documenting a risk if the management system and/or management itself does not respond to the risk identified by the system.
The above discussion and hypothetical example raise some significant risk management questions regarding Council’s existing and future risk management and audit framework, which are outlined below:
1. Has Council sought legal advice regarding the risk to its public liability insurance cover that may result from its failure to incorporate professional RFS planning advice, including a strategic bush fire study and up-to-date bushfire mapping, in the recent RLS planning proposal,?
2. If current insurance coverage is at risk, are individual Councillors and/or ratepayers potentially liable for future negligence claims arising from Council’s failure to heed the RFS advice?
3. How will Council’s existing and future risk and audit system monitor and respond to these significant types of risks?
These are important risk management questions which require a public response from Council so Eurobodalla residents and ratepayers know exactly where they stand in relation to exposure to future risks, as well as potential liability claims.
I would appreciate a timely answer to these questions and to those I posed at last week’s public access session on 3/12/19.