Kaipara council to sue ex-ceo & Audit NZ, looking at ex-mayors, councillors & consultants

Kaipara District Council’s commissioners resolved yesterday to take legal action against Government watchdog Audit NZ and against the council’s former chief executive, Jack McKerchar, over the Mangawhai community wastewater scheme.

Mr McKerchar resigned in 2011 with a financial settlement agreed by councillors, a year before the Government replaced them with the commissioners, headed by John Robertson.

The Mangawhai Ratepayers & Residents Association has appealed against the High Court decision of Justice Paul Heath in its claim against the council over the scheme. That case reached the courtroom in February, 2 months after Parliament had passed a local bill validating illegal action, which greatly reduced the association’s prospects of winning.

Mr Robertson said after a council meeting yesterday the council had decided not to pursue the former mayor & councillors because of the limited chances of success, but had asked the Auditor-general, Lyn Provost (appointed since the Mangawhai events began to unfold), to reconsider her decision not to hold any elected members to account.

The commissioners accepted a staff recommendation that there were sufficient grounds to mount a legal case against Audit NZ for negligence in the 3 years from 2006-09.

Mr Robertson said in a release: “In December 2013, the current Auditor-General, Lyn Provost, admitted that work undertaken for Kaipara prior to 2010 did not meet professional audit standards or the standards she herself expected. At community meetings, she apologised unreservedly to the people of Kaipara.”

Mr Robertson said the council had accepted her apology, but that was not enough: “The fact is, Kaipara District Council engaged Audit NZ to carry out a professional service for which Audit NZ was paid. The service the council received was extremely poor and there have been far-reaching consequences for this district.

“As a result of Audit NZ’s negligence, huge costs have been imposed on the Kaipara District Council & its ratepayers.

“The simple fact is that Audit NZ did not identify the Mangawhai community wastewater scheme project as a key audit risk, or even an area of focus. It should have done so, and that was made very clear in the report released by the current auditor-general last year.”

Mr Robertson said the council would initiate legal proceedings by the end of October.

The former chief executive, Mr McKerchar, left the council in October 2011 after reaching a financial settlement with the council. Mr Robertson said: “Since then, there have been repeated calls from Kaipara ratepayers to hold Mr McKerchar accountable for his role in the botched Mangawhai scheme.”

The commissioners noted yesterday that the statute of limitations meant the council could only try to hold Mr McKerchar to account for his actions during the last 6 years. Legal advice also suggested the settlement agreement Mr McKerchar signed with the former council mighty impact on the success of any legal action.

“Notwithstanding those issues, there is an important principle here. Some members of the community have noted that the council might not get much back from Mr McKerchar in monetary terms, but they still believe it is important that he is held to account, and we agree.

“Elected members & the Kaipara community should have been able to rely on the chief executive’s advice, but in a number of areas it was very poor.”

Mr Robertson said the report released by the auditor-general in December last year clearly identified a number of failings during the time Mr McKerchar led the council.

“In the timeframe we can focus on, the council failed to assess & set rates legally, it failed to ensure a number of statutory requirements were met and it failed to manage its finances prudently. Mr McKerchar should be held to account for his role in those failings.”

Mr Robertson said the council’s legal advisors would be instructed to begin action immediately.

The commissioners also accepted strong legal advice that there was no legal basis upon which the council could bring damages claims on behalf of the Kaipara community against former councillors. On that basis, Mr Robertson said the council would not be taking legal action against the former mayors & elected members involved with the Mangawhai scheme.

Mr Robertson said he accepted some people would be bitterly disappointed, as there had also been strong calls for those people to be held to account: “I accept their disappointment, but we have taken considerable legal advice and have weighed that advice up against the likelihood of the council being successful in any legal action. It seems highly unlikely that we would.

“We are not prepared to launch expensive legal proceedings without a reasonable chance of success.”

However, he said the commissioners would formally invite the auditor-general to reconsider her decision not to hold any elected members to account, particularly given the recent High Court decision which confirmed that the council failed to meet its statutory requirements in approving the Mangawhai scheme.

“There is now a formal declaration from the High Court confirming a number of previous council failings which didn’t exist when the auditor-general made her previous decision. The auditor-general has the best chance to initiate recovery action from former Kaipara elected members, and we will be asking her to review her earlier decision. Whether or not she does so is entirely up to her.”

The council will decide next month on whether or not it will take legal action against consultancies involved in the project, including the Beca consortium.

$58 million of the Kaipara District Council’s $80 million of projected 2015 debt is attributable to the Mangawhai EcoCare wastewater scheme & debt loaded against installing it.

Earlier stories:
28 July 2014: Judge tells Mangawhai ratepayers to pay up, also awards them indemnity costs in more elaborate decision
23 June 2014, 2-part story: Kaipara commissioners get debt report, obliged to adopt annual plan, and Mangawhai group says it will appeal case
2 questions for Kaipara: How to cut debt, and how to allocate it
30 May 2014: Commissioner says Mangawhai rates liability now “crystal clear”
28 May 2014: Judge to issue hamstrung Mangawhai ratepayer group indemnity costs, accepts new validation law, wants more debt options considered
30 April 2014: Mangawhai wastewater court decision scheduled for May
4 December 2013: Auditor-general releases Mangawhai report – and audience as disbelieving as ever
18 November 2013: Minister cites Kaipara debacle in move to new council finance rules
6 October 2013: Commissioners reject “unfair” Mangawhai ratepayer proposal, seek sewage options, adopt annual plan
25 September 2013: Kaipara commissioners seek help to fight ratepayers over illegal rate collection
20 September 2013: Kaipara commissioners try to sweet-talk ratepayer group as they appeal judicial review decision
30 August 2013: Kaipara commissioners fail to stop court challenge to Mangawhai debacle costs
19 August 2013: Judge to make quick decision on attempt to strike out Mangawhai ratepayers’ quest for judicial review
30 August 2012: Minister names 4 commissioners to run Kaipara council

Attribution: Council releases.

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