Your Questions Answered - Settlement will see debt reduction

 

Last week the Kaipara District Council and the Controller and Auditor General agreed to settle the claim by the Council against the Auditor General in connection with historic audit issues.

The settlement resulted in a payment to the Council of $5.375 million (including GST if any) to be paid to the Council this month. The settlement is full and final.

The settlement was facilitated by Hon Rodney Hansen QC, a retired High Court judge, acting as a mediator. He has opined that the settlement is a reasonable one for the two parties to enter into.

The settlement comes after the Council filed proceedings in the High Court against the Auditor General in 2014. In 2015, the parties agreed to a mediation of their dispute. This mediation resulted in the settlement.

The claim by Council related to alleged negligence by Audit New Zealand, a business unit of the Controller and Auditor General, when performing audits for the Council over the years that the Mangawhai Community Wastewater Scheme was being planned and built.

The Auditor General offered an unreserved apology for some audit failings to the Kaipara District in her Inquiry Report of 2013. However she disputed the Council’s claim for damages. She considered that it was the Council that had the responsibility to comply with its statutory obligations, and that its failure to do so was not attributable to her office.

While Commissioners agreed that some fault lay with other parties, they felt that those conducting audits should not be exonerated from contributing in a financial sense.

Either party could have walked from mediation. Had mediation failed, this would have taken us back to the High Court. Leaving the Court to determine the outcome carries risk to the Council and incurs further legal costs.

Council may have succeeded in the High Court and been awarded damages under or over the amount of this settlement. Alternatively, Council may have lost the case and thus been denied damages. If Council had lost the case, we may have been directed by the Court to make a payment to cover the Auditor General’s legal costs.

All three Commissioners worked through the potential outcomes carefully and rather than face the risks of a Court judgment and having taken advice, negotiated the settlement of $5.375 million.

For Kaipara, this is a significant receipt. This settlement will be applied to debt reduction. It will bring Council’s debt down below $70 million. In 2012, when elected members stood aside in favour of Commissioners, Council’s debt stood at $80 million.

As well as dropping debt levels, the settlement will also of course reduce Council’s debt servicing costs.

The settlement meets three key goals. First, we wanted to seek a financial recovery on behalf of Kaipara ratepayers. That has been achieved by way of the settlement, though liability has not been admitted. Secondly, we wanted to recover some of Council’s costs. That has been achieved. Thirdly, we wanted to reduce risks of failure in the Courts. Mediation removed that risk.

Our legal team was critical to the delivery of this result. The team was led by David Goddard QC. He was assisted by Simpson Grierson.

We acknowledge the invaluable assistance of the mediator, Hon Rodney Hansen QC.

This conclusion has taken two years to reach. Commissioners have been unable to keep you informed as matters progressed. To do so would have breached mediation protocol and risked Council’s ability to secure a monetary settlement.