It is hard to judge on the bare facts. In general, councillors should be defended against libel or slander claims that arise through their work as councillors, provided they have not been reckless. This is why local council insurance policies normally cover defence of libel and slander claims. So, it might be argued that if the insurer considers the circumstances fall within the scope of the cover, then the councillor should be supported. However, there may be other facts that could alter this view.
It does appear that the councillor and her husband plainly fit the definition of having a pecuniary interest in the decision, and therefore should not have been involved in the decision or been present for the debate and vote. Although, to the best of my knowledge, their involvement does not invalidate the decision.
Although I generally dislike excluding the public, I would have thought that this could well be a case where the public should have been excluded so as to discuss a legal matter that is yet to be resolved.
There should not be an argument over declaration of interests at all. Councillors have no power to adjudicate over questions about the interests of fellow councillors nor any right to debate them. It may be legitimate to tactfully remind the council of the obligation to declare any interests and many councils have a standard agenda item for declarations. Councillors, or anyone else, can report claims of misbehaviour to the Monitoring Officer or to the police (in the case of criminal acts).
