On 6 January 2016, the Minister for Local Government initiated a proposal to amalgamate Randwick, Waverley and Woollahra councils. During the ‘inquiry’ into that proposal, the Delegate responsible for examining and reporting on the proposal was asked if he had “received the KPMG material in its entirety”, being material relied upon by the Minister as an independent analysis of the proposal. The Delegate replied: “I’m afraid I can’t answer you”.

There has been considerable public scrutiny of the refusal by the Minister, and Delegates, to provide access to all the documents and internal working papers which formed part of KPMG’s independent modelling and analysis of the recent proposals to amalgamate and change the boundaries of local councils in NSW. In particular, questions have been raised by a number of NSW local councils about the legitimacy of an amalgamations process that prevented councils and the public from having access to the KPMG analysis and reports, when these documents were relied upon by the Minister to justify the financial benefits arising from the implementation of the amalgamation proposals.

The controversial role of the KPMG report was the focal point of a recent case commenced by Woollahra Municipal Council against the Minister, Woollahra Municipal Council v Minister for Local Government [2016] NSWLEC 86.

In short, the Court concluded that reports and information that the Minister relied upon to ‘initiate’ a proposal, are not necessarily relevant to the process to amalgamate and change the boundaries of local councils in the Local Government Act 1993 (LGA). Therefore, the failure to provide access to these documents did not invalidate the statutory amalgamation process initiated by the Minister and undertaken by the Delegates.

In this eAlert, we have provided a summary table of the claims made by Woollahra Council regarding the KPMG report, and Chief Justice Preston’s findings.

We understand that the Council has commenced an appeal in the Court of Appeal, and these issues are subject of other council initiated cases before Justice Moore.

We will continue to update you on the outcome of the appeal to the Court of Appeal, and the outcome of other amalgamation cases.

Submission 1: Reasonable public notice of the inquiry not given
Statutory Requirement: Section 263(3) of the LGA imposes a duty to give reasonable public notice of the holding of an inquiry.
Council’s Submission Finding
The obligation to give notice of the holding of the inquiry required the Delegate to also give notice of the basis upon which the proposal was made, including ‘the complete material relied upon in respect of the KPMG analysis’ and to make such information publicly available. This is necessary to enable the public to properly address the proposal and provide meaningful submissions. The requirement to give notice does not require the public to be given notice of the basis on which the proposal was made. The requirement to give notice also does not require that any documentation on which the proposal was based, in this case the various analysis undertaken by KPMG, be placed on public exhibition so as to enable submissions to be made on it.
Submission 2: There was no valid inquiry
Statutory requirement: Section 263(2) and (2A) of the LGA requires that either the Boundaries Commission or Departmental Chief Executive hold an ‘inquiry’ for the purpose of exercising its functions to examine and report on the matter.
Submission Finding
The entire process of ‘examining and reporting’ should have been carried out in public at the inquiry. An inquiry is required to be active and transparent. The Delegate could not satisfy this duty by simply accepting the broad propositions contained in the Minister’s proposal document (and other documents provided to the Delegate). There was insufficient information made available to the public to enable any inquiry to be conducted into the financial results that KPMG report stated would flow from the amalgamation, or the assumptions upon which those results were based. To be transparent, the Delegate was required to closely scrutinise the assumptions in the KPMG report, ask questions about it, and elicit information.Instead, the Delegate was passive, and at one point said he was “here only to listen”.The Council also criticised the process because it was alleged that there were private meetings after the inquiry at which information about the proposal and the KPMG analysis was received but from which the public were precluded from attending. An ‘inquiry’ under section 263 does not require ‘a structure and forensic process similar to that of an administrative tribunal’. An ‘inquiry’ also does not entail ‘the entire process at which materials are advanced and arguments are made in relation to an amalgamation proposal’.Because section 263 is silent as to the procedure to be followed at the inquiry, the person holding the inquiry has discretion as to how it should be conducted.Therefore, section 263 does not require that information obtained by the Boundaries Commission or Departmental Chief Executive be publicly disclosed and publicly adduced at an inquiry.Accordingly, it was not incumbent on the Delegate to make the KPMG report publicly available for it to be the subject of public scrutiny at the ‘inquiry’.
Submission 3: The challenge to the examination and report
Statutory Requirement: Section 263(1) of the LGA requires the Boundaries Commission or Department Chief Executive to examine and report on the Minister’s proposal. Section 263(3) of the LGA sets out the factors which must be considered, which includes the financial advantages and disadvantages of the proposal.
Submission Finding
There were two grounds of challenge:
  • In order for the Delegate to examine the proposal, the Delegate was required to ‘scrutinise, test and interrogate’ the claims made by the Minister, particularly the claimed financial benefits set out in the KPMG analysis. The Council claimed that the Delegate simply assumed the correctness that the amalgamation would lead to more than $124M in net financial savings over 20 years. The process of “examination” is impossible where the Delegate is denied access to the material and modelling information that is relied upon to support the claims made about the financial sensibility of the amalgamation. The Council claimed that it could be inferred that there was only a superficial review of the KPMG figures.
  • The Delegate failed to have regard to the mandatory reconsideration in section 263(3)(a) which required an examination of the financial advantages and disadvantages of the proposal. The Delegate did not consider the financial advantages and disadvantages of the “areas concerned” and in particular did not consider the advantages and disadvantages to the residents and ratepayers of the Woollahra local government area.
Regarding these two grounds of challenge:
  • the Delegate was not legally obliged to scrutinise, test and interrogate the claims made by the Minister and KPMG in the proposal document accompanying the referral of the proposal or other KPMG documents or to scrutinise, or otherwise address the appropriateness of, KPMG’s assumptions, methodologies or conclusions. The KPMG Reports stood in no privileged position compared to other material that was received by the Delegate, such as submissions from the Woollahra Council. If the Delegate was not required to individually scrutinise all submissions that were received otherwise (such as from residents and the Council) then it follows that it was not required to so scrutinise the KPMG report. The Delegate was entitled to find facts and draw inferences in his sole discretion. The Delegate may draw conclusions and place weight on the submissions that he chooses.
  • s 263(3)(a) is drafted at a high level of generality, and did not require the Delegate to break up the financial advantages and disadvantages to the residents and ratepayers of each of the individual areas of Randwick, Waverly and Woollahra.
Submission 4: The Boundaries Commission failed to validly review and comment on the Delegate’s report
Statutory Requirement: If the Minister refers an amalgamation proposal to the Departmental Chief Executive, pursuant to section 218F(6)(a) of the LGA the Departmental Chief Executive must furnish the Departmental Chief Executive’s report to the Boundaries commission for review and comment. The Boundaries Commission must review the report and send its comments to the Minister pursuant to section 218(6)(b) of the LGA.
Submission Finding
The Council claimed that the Boundaries Commission should have expressed its own view as to the merits of the proposal and re-examined the advantages and disadvantages identified in the report would merit the implementation of the proposal with or without modification.The Boundaries Commission imposed upon itself a self-limiting ordinance of merely considering whether or not the Delegate had complied with its statutory obligations. The Department Chief Executive is required to ‘examine and report’ on the Minister’s Proposal; the Boundaries Commission is required to ‘review the report and send its comments’ to the Minister.In doing so, the Commission looked at whether the Delegate had “adequately considered” all of the factors required of it.This was all that the Commission was required to do. There was no minimum content requirement in respect of the comments that the Commission made.
Submission 5: The Delegate denied Woollahra Council procedural fairness
Submission Finding
The Council claimed that the duty to accord procedural fairness required the Delegate to give Woollahra Council a reasonably opportunity to address the factors in section 263(3). To do this, the Delegate was required to give Woollahra Council an opportunity to deal with information that was credible, relevant and significant to the decision made. This included providing:
  • the KPMG analysis as well as all documents underpinning the KPMG analysis
  • the submissions of Waverly and Randwick Councils
  • the SGS Economics and Planning report relied upon by Waverly and Randwick Councils.
There was no denial of procedural fairness.Whilst there was a duty to accord procedural fairness, that duty did not extend to require the Boundaries Commission or Departmental Chief Executive to disclose all adverse information that is credible, relevant and significant to the examination and report on the proposal.Some of the KPMG documents which the Council claimed it should have had also not been provided to the Delegate. The Delegate was not under an obligation to disclose documents it did not have.Further the KPMG information that was disclosed was ‘adverse’ to Woollahra Council. What was not disclosed were KPMG’s internal workings and calculations. The Court concluded that the duty to afford procedural fairness did not extend to the disclosure of KPMG’s internal workings and calculations.
Submission 6: The Boundaries Commission denied Woollahra Council procedural fairness
Submission Finding
The Council submitted it was denied procedural fairness by the Boundaries Commission as a result of the Boundaries Commission’s failure to afford it, as an entity directly affected by the amalgamation proposal, a reasonable opportunity to respond to the Delegate’s report and have this response considered as part of the Boundaries Commission’s review and comment. This submission was rejected. The LGA does not require the Boundaries Commission to receive public or Council comments on the Department Chief Executive’s report.
Submission 7: The Boundaries Commission made misleading statements, invalidating the amalgamation process
Submission Finding
The Minister had publicly stated that the proposals were supported by ‘independent’ analysis and modelling by KPMG. KPMG’s analysis and modelling was not independent and this invalidated the statutory amalgamation process.Had the Delegate and the public known that the KPMG reports were not independent, the public and the Delegate would have given the KPMG material a greater level of scrutiny. The Court found that the Minister’s statements were not false and misleading – KPMG exercised its professional judgement in undertaking its analysis and drafting its report.Even if the statements were false and misleading, that would not have the legal consequence of invalidating any step in the amalgamation process. The allegedly misleading statements were not in any notice required to be given under the LGA or in any document required to be produced or publicly exhibited by the LGA.