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Complaint no. LA/SI/931 concerning an alleged contravention of the Councillors’ Code of Conduct by Councillor Caroline Miller of Shetland Islands Council

1. Complaint number LA/SI/931 alleged contraventions of the Councillors’ Code of Conduct (“the Code”) by Councillor Caroline Miller (“the respondent”).

2. It was alleged that the respondent had contravened the Code, in particular, the provisions set out in paragraph 3.20 on Dealings with the Council; paragraphs 3.21 and 3.22 on Responsibilities to the Council as a Member of the Public; and section 4 in so far as they relate to the Registration of Remunerated or Non-Financial interests.

3. The person complaining (“the complainant”) alleged that the respondent, used her position as a Councillor to seek preferential treatment for members of her family in relation to the repayment of an outstanding debt by Judane (Shetland) Ltd, a company of which her husband, Mr Frank Miller, and sister-in-law, Miss Judith Miller, were directors (the first allegation); participated in and consented to an arrangement by which sums due to the company which should have been applied to the repayment of loans provided by the Council or Shetland Development Trust were diverted to another account operated by her (the second allegation); failed to register the true nature of her position as an employee or director of Judane (Shetland) Ltd (the third allegation); and failed to register a remunerated or non-financial interest in a firm known as Northern Isles Knitwear to whose bank account the payments referred to in the second allegation above were made (the fourth allegation).

4. This complaint centred on the role played by the respondent as an elected member in relation to a company, Judane (Shetland) Ltd, of which her husband and sister-in-law were the sole directors and shareholders, and which was required to repay loans to Shetland Islands Trust, of which Shetland Islands Council was the sole trustee.

5. The essential question was whether the role of an elected member in assisting a spouse in a business which was indebted to a Trust of which the Council was sole trustee would potentially bring the member into conflict with the terms of the Code.  In the particular circumstances of this case several issues arose in relation to the accurate registration of the respondent’s role within the business; the non-registration of a business entity or bank account operated by the respondent to facilitate transactions which would normally pass through the Judane (Shetland) Ltd bank account; the extent to which continued representation of Judane (Shetland) Ltd in a legal claim against the Council impacted on her role when she became a councillor; and the extent to which her role within the company and its negotiations to achieve a commuted settlement of its indebtedness to Shetland Development Trust might be perceived as seeking to obtain preferential treatment by virtue of her role as an elected member.

6. The detail of the financial settlement between Judane (Shetland) Ltd and the Trust and Council relating to the outstanding loans and the claim arising from the planning issue fell outwith my remit as Chief Investigating Officer, and accordingly I considered the settlement only in so far as it was material to Code of Conduct issues.  In addition I was conscious of the fact that the respondent, while not herself a director, shareholder, or paid employee of the business in question, had, prior to her election, assisted in the business.  This included general matters such as the drafting of letters on behalf of her husband, and more specifically the pursuit of a claim against the Council in respect of a planning matter, and applying for planning permission to allow the factory premises to be used for retail purposes.  It was evident that Judane (Shetland) Ltd was a family business, the directors being the respondent’s husband and sister-in-law, with financial matters being handled in-house by the sister-in-law’s (then) fiancé.  General assistance given by a spouse to a family business and lack of paid employee status is not unusual in a marital relationship.  

7. The respondent’s leading role in pursuing the claim and applying for planning permission was undertaken prior to May 2007.  With her election however the situation altered materially in that the respondent’s responsibilities under the Councillors’ Code of Conduct took effect.  Initially she was required to consider her position as regards the register of interests in compliance with section 4 of the Code.  In particular the respondent was required to register her sources of remuneration (under Category One) and her non-financial interests (under Category Seven).

8. Thereafter the Code required the respondent to ensure that her actions as a councillor, and her personal circumstances, complied with the various requirements contained in the remaining sections of the Code.  This demands both objective and subjective consideration, since some conduct may give rise to a perception of impropriety and potentially breach the Code irrespective of the member’s intentions.

9. The following paragraphs detail my consideration of the discrete elements of the complaint. 

10. The First Allegation – Dealings with The Council

The complainant expressed a view that the respondent may have contravened paragraph 3.20 of the Code in seeking to include the planning claim against the Council as a factor in the negotiation of the settlement of the company’s indebtedness. 

11. The respondent’s involvement in the claim against the Council predated her election to the Council and pursuit of the case was largely conducted by the company solicitors.  Correspondence from the previous Chief Executive, Mr Goodlad, as recently as December 2008 made it clear that the Council and its insurers wished to continue to defend the claim and were not minded to incorporate it in the debt settlement negotiations.

12. The respondent was present with her husband and the company accountant at a preliminary meeting with the Head of Legal and Administrative Services and Head of Economic Development to discuss the way forward for the settlement.  This was an exploratory discussion intended to identify the options.  She also accompanied her husband to the meeting at which the Heads of Agreement were to be considered but at the point that detailed discussions were about to begin the Head of Legal and Administrative Services instructed that the respondent leave to avoid any perception of conflict with her role as a councillor. 

13. I consider that participation by the respondent could have carried the potential to confuse her roles as a representative of Judane (Shetland) Ltd and as a councillor.  It is a matter of fact that the respondent only became a councillor in May 2007 and that thereafter she did not take part in any substantive discussions within the Council in relation to the continuing pursuit of the planning claim or the indebtedness of Judane (Shetland) Ltd.  The respondent did indeed resign from her ex-officio trusteeship of Shetland Development Trust in September 2007 due to her own perception that a conflict of interest could arise as a result of the issues between the Trust and Judane (Shetland) Ltd.  Although the respondent attended two meetings at which the basis of the proposed settlement was explored, there was no evidence that she sought preferential treatment as a result of her status as an elected member, and her participation was clearly by way of the continuing representation of Judane (Shetland) Ltd which she was pursuing in a private rather than Council capacity.  In so doing it would have been appropriate to recognise that this might not have been evident to the public, and that in reality the interests of the company could have been taken forward by other directors or officers, or their professional advisors, without her participation.  I considered however that there was insufficient evidence to support a conclusion that the respondent had breached the terms of paragraph 3.20 of the Councillors’ Code of Conduct, and I found accordingly.

14. The Second Allegation – Responsibilities to the Council as a Member of the Public

This aspect of the complaint, as initially expressed, relied upon an assertion that the respondent had a responsibility under the Code to persuade the directors of Judane (Shetland) Ltd to settle its outstanding debt to the Council within a short timeframe of her being elected.  The complainant asserted that in failing to persuade her spouse and sister-in-law the respondent had breached her responsibilities to the Council as a member of the public.  He further alleged that the channelling of Judane (Shetland) Ltd receipts through the Northern Isles Knitwear bank account, of which the respondent was the sole signatory, indicated that she had no intention of advancing the repayment of the company’s debt to the Council. As a matter of fact it should be noted that the Judane’s indebtedness was to Shetland Development Trust rather that the Council, and it is important to note this distinction in legal entities.

15. The point at issue here was whether a respondent who was not in debt to the Council could be liable under the terms of the Code for the debts of family members either as individuals or as directors of a company.  Paragraph 3.21 of the Code prohibits councillors from participating in certain decisions concerning Council Tax if they are themselves in arrears.  The paragraph goes on to say that similar considerations should apply in other forms of dealings between a councillor and the Council where indebtedness may arise.  The intention is to avoid the potential for public perception of abuse of position and poor leadership, and preserve public confidence.  In this case I was satisfied that it would be too wide an interpretation to consider that ‘other forms of dealings’ should apply to a debt arising from a company of which the councillor was not a director, or that the existence of a familial relationship with the directors placed a special responsibility on the respondent.  I did not accept the complainant’s view on this point. 

16. Paragraph 3.22 of the Code requires councillors who are in debt to the Council to put in place at the earliest opportunity arrangements for repayment.  However the thrust of this paragraph is directed at situations in which the debt is owed by the councillor in either a personal or business capacity.  This would clearly not apply to the situation of the respondent who in this case was not herself a party to the company’s liabilities.  The company’s debts had been frozen as far back as November 2004, and sporadic attempts had been made to resolve the debt since then with the potential being held out of a sale of the factory or compensation arising from the company’s claim against the Council achieving values which would have allowed full settlement.  I therefore considered that the respondent had not breached paragraphs 3.21 or 3.22 of the Code, and I found accordingly.  

17. The Third Allegation – Non-Registration of a Remunerated Interest in Judane (Shetland) Ltd

The complainant alleged that the respondent’s description of her role with Judane (Shetland) Ltd as a ‘consultant’ as recorded in Category Seven of her register of interests was insufficient.  The complainant had previously believed that the respondent was a director of that company but subsequently accepted that this was not the case.  He did however suggest that the respondent was acting as a shadow director in her representation of the company’s interests and the provision of loans to the company from her own resources.

18. The complainant and appointed directors, her husband and sister-in-law, all refuted that suggestion.  The respondent stated in her draft but apparently unsent response to the complainant that she initially became involved with Judane’s affairs in relation to the claim against the Council, the planning application for change of use, and liaison with the company’s legal advisors to support the family through a very traumatic and stressful period.   

19. The Code makes no reference to ‘shadow directors’ – a term defined in the Companies Act as a person in accordance with whose directions or instructions the directors of a company are accustomed to act.  In this case I considered that the roles performed were of a discrete nature confined to the specific issues of the claim against the Council, the planning application and subsequent appeal (which were in fact pursued in her own name).  The planning application and appeal were concluded in May 2007, coinciding with the respondent’s election to the Council. Thereafter her actions in relation to the company were restricted to the continuing resolution of the claim which had now passed from the Council to its insurers, the use of the Northern Isles Knitwear bank account to facilitate the settlement of Judane (Shetland) Ltd liabilities, an initial meeting with the Council Chief Executive to explore options for a settlement, and subsequent meetings with Council officers.  This limited involvement in relation to matters not directly related to the company’s trading activities, the absence of evidence and refutation that the appointed directors followed the respondent’s directions, and the closeness of the family relationship which existed between the respondent, her husband, and sister-in-law, led me to conclude that the respondent’s role did not amount to a shadow directorship in terms of the Companies Act definition.

20. The Code defines remuneration as including any salary, wage, share of profits, fee, expenses, other monetary benefit or benefit in kind.  If any of these forms of reward existed as a return for services delivered in the course of the respondent’s employment (as opposed to her marital relationship) the  respondent would have been required to register her role in relation to Judane (Shetland) Ltd as remuneration within Category One of her register of interests.  The respondent denied that she submitted any invoices or received any monetary reward for her services during her period as an elected member and no evidence was adduced to counter that statement.  Certainly no payment was made to her through either the Judane (Shetland) Ltd bank account with the Royal Bank of Scotland or the Northern Isles Knitwear account maintained at the Clydesdale Bank.  Indeed it was evident that sums were paid jointly by the respondent and her husband to support the ability of Judane (Shetland) Ltd to pay its creditors. These payments were categorised within the company accounts as directors loans but I did not consider that this was in itself sufficient to justify a conclusion that the respondent should be regarded in that capacity.   To be clear on this point no evidence was adduced to establish that the respondent had received any remuneration from Judane (Shetland) Ltd during her period of service as an elected member and as such no requirement for registration under Category One arose.

21. On being elected to the Council the respondent discussed her involvement in Judane (Shetland) Ltd with the Monitoring Officer.  He was satisfied that it did not fall within Category One but took the view that it should be registered as a non-financial interest in Category Seven.  The term ‘consultant’ was agreed as being descriptive of her role, although in a later note the Monitoring Officer suggested that ‘agent’ would have been more appropriate.   Registration of a non-financial interest also requires a description of the nature of that interest.  In the circumstances of this case I did not consider that ‘consultant’ entirely sufficed to fulfil that requirement and a further description to show the extent or limitation of her role – which at that point was restricted to the pursuit of the planning claim – would have been appropriate. In the circumstances of this case I considered that the use of the term ‘consultant’ was reasonable for the purposes of registration although an expanded entry would have more appropriately defined her role.

22. I considered the extent to which the respondent registered, sought, and was given advice by the appropriate officer as to her registration of this interest, and also took into account her withdrawal from discussion of issues relating to Judane (Shetland) Ltd within Shetland Development Trust and the Development Committee.  In all the circumstances, while I took the view that her registration of the Judane interest should have been more descriptive to fully meet the requirements of the Code, it was not such as to constitute a breach of paragraph 4.1 and I found accordingly.

23. The Fourth Allegation – Non-Registration of a Remunerated or Non-Financial Interest in Northern Isles Knitwear

This allegation was founded on articles in the local press on 16 December 2009 which referred to a claim by the former tenant of the Judane (Shetland) Ltd factory, Mr Chris Hodge, that he made rental payments to an account held by the respondent under the name Northern Isles Knitwear.  On checking the respondent’s registered interests the complainant noted that no reference was made to Northern Isles Knitwear under any of the registration categories.  He concluded that, if Mr Hodge’s claim was accurate, this omission would place the respondent in breach of section 4 of the Code.

24. The respondent explained the background to her use of the Northern Isles Knitwear name and its use for VAT registration in connection with the crofting activities run by her husband and herself. Those activities were undertaken under the name F and C Miller and the respondent had included that partnership within her register of interests.  Northern Isles Knitwear existed only as a bank account and was not a trading entity in itself.  The respondent derived no income from the account and as such I was satisfied that no requirement to register it as a remunerated interest arose under Category One.

25. The complainant suggested that use of the Northern Isles Knitwear account as a means of settling the debts of Judane (Shetland) Ltd gave rise to a non-financial interest which should have been registered to provide transparency.  The respondent pointed to the fact that she was neither a director, shareholder or employee of Judane (Shetland) Ltd and that her involvement with that company had already been made public by the registration, under Category Seven, of her unpaid consultancy status.

26. In the context of the continuing indebtedness to the Trust, the use of the Northern Isles Knitwear bank account which had not been disclosed to the Trust could have given rise to a suspicion that this was a deliberate rather than inadvertent omission.  If a requirement existed for notifying and obtaining the agreement of Shetland Development Trust to this arrangement, and I saw no evidence for such a requirement, this responsibility fell on the directors of Judane (Shetland) Ltd rather than the respondent. Nevertheless the use of the Northern Isles Knitwear account was sanctioned by the respondent and was then brought into the overall compass of the administrative and financial arrangements of Judane (Shetland) Ltd.  I also noted that the respondent was not entirely divorced from the transactions passing through the Northern Isles Knitwear account since she contributed significant payments into the account jointly with her husband which were subsequently applied to the settlement of Judane (Shetland) Ltd liabilities. 

27. Paragraph 4.21 of the Code refers to ‘significant non-financial interests’ as ‘those which members of the public might reasonably think could influence your actions, speeches or votes in the Council’.  Examples are given of membership or office-bearing roles in public bodies, clubs, societies or other organisations. The use of the Northern Isles Knitwear account to service transactions on behalf of Judane (Shetland) Ltd created a linkage which amounted in effect to the former being absorbed into the administrative structure of the latter.  It would of course have been possible for the directors themselves to have created a new account to achieve the settlement of liabilities other than those due to the Royal Bank of Scotland.  In this case however the respondent - no doubt as a matter of convenience - permitted a trading account of which she was the sole signatory to be used.

28. It did not necessarily follow that the use of this bank account in itself constituted a registerable interest.  The account was established and used primarily as a means of facilitating banking transactions in relation to the crofting business carried on jointly by the respondent and her husband.  That business was included in the respondent’s register of interest.  As a matter of convenience the account came to be used to facilitate Judane (Shetland) Ltd transactions, and in particular the payment of that company’s debts, which would not have been possible once the company’s account was placed under a reducing balance basis by the Royal Bank of Scotland.  No evidence was found to show that the use of the Northern Isles Knitwear account, which was known to the Royal Bank of Scotland, was the subject of Council debate, or that this was anything other than a commercial device to overcome an administrative difficulty.    The lack of an explanation at an earlier stage, specifically in response to the complainant’s quite reasonable letter to the respondent of 27 October 2009, or to previous press enquiries, were unfortunate in that they contributed to a perceived lack of transparency. 

29. I considered that the Northern Isles Knitwear bank account during the period of its use to service Judane (Shetland) Ltd transactions was an integral part of that company’s financial arrangements.  The link between the respondent and Judane (Shetland) Ltd was included in Councillor Miller’s registered interests, albeit the nature of her involvement would have been more illuminating, and that in the particular circumstances of this case the use of a bank account under a different name would not have given rise to a requirement to register it as either a remunerated interest, which patently it was not, or a non-financial interest.  I therefore concluded that the respondent had not breached paragraph 4.1 of the Code in this respect, and I found accordingly.

30. In conclusion I noted that the respondent opted to exclude herself from consideration of matters relating to Judane (Shetland) Ltd as both a Trustee of Shetland Development Trust, and as a member of the Council’s Development Committee.  I considered that the respondent had appropriately declared her interest when required by section 5 of the Code and withdrawn from meetings at which the company’s affairs were considered.

31. Having considered the information that arose from my investigation, I concluded that Councillor Caroline Miller had not contravened the Councillors’ Code of Conduct.

D Stuart Allan

Chief Investigating Officer

44 Drumsheugh Gardens

Edinburgh

EH3 7SW

4 June 2010