Māori Council case to go directly to Supreme Court

Leave has been granted for the New Zealand Māori Council to appeal directly to the Supreme Court in the litigation concerning the sale of shares in Mighty River Power.

High Court decision in Mighty River Power case

Justice Ronald Young has issued his decision in the High Court litigation brought by the New Zealand Māori Council to challenge the Government’s decision to proceed with the sale of shares in Mighty River Power (New Zealand Māori Council v Attorney-General, available on the Courts of NZ website).  Justice Young found that none of the decisions taken by the Crown to advance the sale of those shares were reviewable, that is, those decisions could not be reviewed by the courts.  Furthermore, Justice Young concluded that even if the decisions were reviewable, none of the grounds for review that were argued by the Māori Council would succeed.

The New Zealand Māori Council (joined by the Waikato River and Dams Claims Trust and the Pouakani Claims Trust) sought to challenge three key decisions made by the Crown:

(a)  the direction by the Cabinet to the Governor-General to bring into force by Order in Council the State-Owned Enterprises Amendment Act 2012. This has the effect of changing the status of Mighty River Power (‘MRP’) from an State-Owned Enterprise (SOE’) to a Mixed Ownership Model (‘MOM’) company; 

(b)  amending the constitution of MRP (and later the other SOE companies) which currently requires 100 per cent of the shares to be held by the Crown through the relevant Minister, to permit 49 per cent ownership by private persons; and 

(c)  offering for sale and selling up to 49 per cent of the shares in MRP.

The Māori Council contended that, with respect to each decision, the Crown must act in a manner that is not inconsistent with the principles of the Treaty of Waitangi.  This argument was premised on the decisions being subject to the Treaty principles provision in either s 9 of the SOE Act or s 45Q of the Public Finance Amendment Act.  According to this argument, ministerial action would be inconsistent with the Treaty if the Crown did not first implement protective mechanisms to provide for redress and protect Māori proprietary rights to water and geothermal resources before making any of the three decisions.

In the alternative, the Māori Council argued that:

• there was inadequate consultation in relation to these decisions, which was inconsistent with the principles of the Treaty;
• the Crown made an error of law by taking into account the idea that “no-one owns the water” when deciding whether its actions were consistent with Treaty principles;
• the Crown’s failure to wait for the completion of both stages of the Waitangi Tribunal inquiry was unreasonable;
• it was an error of fact or law to conclude that a sale of 49 per cent of the shares of MRP would not be inconsistent with Treaty principles;
• the intention to proceed with the sale of shares was a breach of a legitimate expectation held by Māori that the Crown would act with utmost good faith and actively protect Māori interests; and that
• the Crown had breached the requirements of natural justice by proceeding with the sale of shares before Māori claims to the water and geothermal resources could be properly heard.
• The Waikato River and Dams Claims Trust also argued that the Crown’s decision to proceed with the sale of shares in MRP is a breach of s64(3) of the Waikato-Tainui Raupatu Claims (Waikato River) Settlement Act 2010.

 However, Justice Young determined that the Crown’s argument was correct.  He found that the decision to bring into the State-Owned Enterprises Amendment Act into force, the ‘commencement decision’, was not subject to the Treaty provisions in either the SOE Act or the Public Finance Amendment Act.  The Crown argued that Parliament has enacted the State-Owned Enterprises Amendment Act, delegating the decision to bring it into force to the Executive but there is no discretion for the Executive to consider the policy decisions that underlie making MRP a MOM company.  Those policy matters have already been determined by Parliament, including the nature of the protection of Treaty principles that are required.  Justice Young notes that “Parliament’s intention in passing the SOE Amendment Act and the Public Finance Amendment Act was to ensure that those companies that are subject to the new MOM regime are not subject to the s 9 SOE Act Treaty compliance requirement but to the s 45Q Treaty compliance requirement”.  As an interesting side-note, Justice Young also points out that

“The Public Finance Amendment Act 2012 provides that MOM companies will be subject to a Treaty inconsistency rule (at s 45Q) but one which has narrower application than s 9 of the SOE Act.”

This is confirmation that the protection provided by s 9 of the SOE Act were not completely transferred to the new MOM companies, despite Government Ministers’ claims that the legislation would address Māori concerns by including a provision that reflected “the concepts of the existing section 9 of the SOEs Act”.

As regards to the decisions to amend the constitution of MRP (a precondition to the sale of the shares) and to offer up to 49 per cent of the shares for sale, Justice Young found that these decisions were not reviewable because they were the exercise of common law powers and not statutory powers.  This was a direct application of the principle from the 1996 Court of Appeal decision relating to the sale of shares in Radio New Zealand.

Justice Young also rejected the Māori Council’s argument that the sale of shares in MRP would materially affect the Crown’s ability to recognize Treaty rights and provide redress.  On this point, Justice Young comes to a different conclusion to the Waitangi Tribunal, which had determined that in relation to the shares plus concept, the Crown’s ability to recognize Māori rights would be compromised.  Justice Young thought that the shares plus concept would be unworkable and did not accept the Māori Council’s submission that if the Crown was to reject the shares plus option, it had an obligation as a reasonable Treaty partner to come up with an alternative scheme.

Predictably, the Government has welcomed the decision, while it is being reported that the Māori Council is preparing an appeal.

Iwi share offer

Last week the Government announced that iwi who are yet to settle their historical Treaty claims will be able to choose to take part of the value of their settlement as shares in the energy companies that are to be partially privatized.

A joint press statement by the Minister of Finance and the Minister for Treaty of Waitangi Negotiations states:

Each Iwi would be limited to 5 per cent, 10 per cent or 12.5 per cent of their likely total settlement, depending on their situation.     

• A 5 per cent maximum of their likely settlement would be available for Iwi not “local” to any of the power companies’ assets – for example, if there was no dam or other operating asset within the Iwi’s area. 
• A 10 per cent limit would apply to Iwi who are “local” to any of the companies. 
• A 12.5 per cent limit would apply to Iwi who are “local” to any of the companies, had reached an Agreement in Principle with the Crown, and had already agreed a quantum amount for settlement. 

As the Māori Council has noted, this does not address any claims to water, or alter the value of any settlement.  If iwi who have not yet settled do not take up this offer, they will receive cash or other assets instead of shares.

There are also some interesting quirks to this offer.  Iwi who take up this offer not be eligible for loyalty bonuses that will be available to individual New Zealanders who purchase shares.  And presumably iwi who have already reached an Agreement in Principle are eligible to use a greater percentage of the value of their settlement because there is some certainty around what that final value is, but it does rather look as though this is simply a reward for being cooperative.

In any case, the offer seems to be entirely politically motivated with the objective of dividing Māori on this issue and taking some of the sting out of opposition to the Government's rejection of the Waitangi Tribunal's recommendations.

The sale of shares in MRP and the Crown's ability to recognise Māori rights

Yesterday, the Prime Minister announced the next steps to for the partial privatization of Mighty River Power. This decision appears to be based on the Government’s position that in common law no one owns water, that Māori rights and interests are being addressed through other fora, and that the Crown’s ability to provide redress is not affected by the sale of shares in Mighty River Power.  Let’s consider each of these points.

In common law no one owns water.

It is arguable that this oversimplifies the common law position as well as misrepresenting the nature of the claim, but in any case, this is somewhat beside the point.  From a Treaty of Waitangi perspective, the key question is what rights were guaranteed by the Treaty, not what rights were recognized by the common law.  As the Tribunal pointed out:

“…Māori citizens were guaranteed the property they possessed in 1840.  That right of property was not constrained by what could be legally owned in England.  Rather it depended on what Māori possessed at the time in custom and in fact.”

Maori do have rights and interests in water, and these will continue to be addressed through a range of processes such as Treaty settlements, the Government’s Fresh Start for Fresh Water programme and dialogue with iwi leaders.

The Waitangi Tribunal explained in its 2011 report on the Wai 262 inquiry – Ko Aotearoa Tēnei – that delivering exclusive or shared decision-making powers to Māori in relation to water bodies does not depend on historical breaches of Treaty principles and Māori ought not to be made to expend the potential of their Treaty settlement packages on having these rights and interests recognized.

And when the Tribunal granted an urgent hearing of this claim it found that dialogue with iwi leaders was not an alternative remedy for the claimants because the claimant, the Māori Council was not a party to that dialogue.  In any case, that dialogue appeared to be proceeding on the basis that Māori rights would not be affected by the outcomes of freshwater management reforms, whereas the claimants argued that Māori rights in water needed to be defined before any effects on them could be considered.

The partial sale of Mighty River Power does not impact on the Crown’s ability to recognise Maori rights and interests in water

Underlying this statement is the Government’s rejection of the ‘shares plus’ concept outlined in the Waitangi Tribunal’s interim report.  The Prime Minister’s statement says:

Financial redress and input into resource management decisions can be provided in other – and in some cases better – ways. 

Appointing directors and exercising shareholder voting rights can also be achieved in other ways with the Crown, which will remain the controlling shareholder. 

The Crown does not believe that providing iwi with special rights in making management decisions will work well and most submitters who considered the idea agreed. 

‘Shares plus’ would create a potential conflict of interest within and between different iwi groups. And it would potentially weaken existing relationships between iwi groups and the SOEs.

Whereas, the Tribunal found that:

“…a commercial option for rights recognition or redress (where recognition is not possible) is essential.  That commercial option or options should, as far as possible, provide for the Māori development right.” 

“In our view, the Crown is correct that it will still be able to provide many such options after the sale of shares in the MOM companies.  We think that the claimants’ evidence has shown that it will be significantly more difficult for the Crown to do so once it has introduced thousands of ‘mum and dad’ investors into the political mix.  We suspect that the Crown’s evidence underestimated the political obstacle that these new interests will put in the way of a tax, levy, royalty, or resource rental for the use of water to generate electricity.” 

“But there is one area in which the Crown will not be able to provide appropriate rights recognition or redress after the partial privatization, and that is in the area that we have termed ‘shares plus’: the provision of shares or special classes of shares which, in conjunction with amended company constitutions and shareholders’ agreements, could provide Māori with a meaningful form of commercial rights recognition.  As we have found, ‘shares plus’ are not ‘fungible’ and company law would in practical terms prevent the Crown from providing this form of rights recognition after the introduction of private shareholdings, certainly after the sale of more than 25 per cent of shares and arguably before that too.”

Well, I expect we will soon see what the courts think about this issue.  In the meantime, we know that the Waitangi Tribunal, having heard evidence from expert witnesses presented by the Crown and claimants, came to the considered view that the sale of Mighty River Power will have an impact on the Crown’s ability to recognise Māori rights and interests in water bodies. 

Utmost good faith?

On Monday, John Key announced that the public offering of up to 49 per cent of shares in Mighty River Power will be delayed until early next year.  This will allow consultation to take place with Māori over the ‘shares plus’ concept raised by the Waitangi Tribunal as a possible means of recognizing Māori residual proprietary interests in water bodies.  This might look like the Government is trying to find a way of recognizing those interests, but, judging by the wording of Key’s statement, it seems as though there may be real questions as to whether the Government is engaging in this process in good faith.

First of all, Key’s statement focuses on setting out reasons why the Government opposes the ‘shares plus’ concept (which the Tribunal suggested could be used to recognize Māori residual proprietary interests through shares in the power-generating companies that carried with them a significant degree of control over the operations of the company).  Neither the formal statement nor Key’s responses to questions on Monday suggest that the Government is entering into this process with the aim of finding a way to implement the ‘shares plus’ concept.  Key’s statement that ‘ministers have today decided that taking some time to talk about ‘shares plus’ with relevant iwi is the prudent thing to do’ sounds to me as though the process will be one in which the Government will tell Māori why the ‘shares plus’ concept will not be accepted.  This is reinforced by reports that “Mr Key made it clear yesterday that the consultation period was not likely to see the Government change its mind, but was required to strengthen the Government's legal position”. This sounds like it will be an awful lot like the “consultation” around the inclusion of a Treaty of Waitangi provision in the legislation enabling the partial privatization of the state-owned power generating companies. That process was about Government ministers telling Māori what was going to happen. It was not about listening to Māori who consistently stated that they did not want the partial privatization to proceed without Māori rights being protected.  It is difficult to see how this could be construed as engaging in good faith, as pointed out in the NZ Herald editorial today. It strikes me that a little bit more listening and compromise early on in the process might have enabled the Government to avoid some of the difficulties it is now encountering in this process.

And the reasons for opposing the ‘shares plus’ concept are little more than political spin.  Key’s statement notes “Almost every form of redress to Maori that could be covered by ‘shares plus’ can be achieved in other ways”.  This is true.  But this is not a reason to oppose the ‘shares plus’ option.  Implicit in that statement is that there are some forms of redress that cannot be achieved in other ways.  If the Government wants to push ahead with the partial privatization without first resolving issues relating to Māori rights to water bodies then it ought to ensure it retains the ability to provide all forms of redress that might be required to provide reparation.  Key also says that ‘shares plus’ is unworkable and backs that up with this example:  “if some Maori shareholders had the ability to make decisions on strategic issues, under well-established law, those shareholders must act in the interests of the whole company and not simply as a representative of Maori”.  I am sure that Māori shareholders with enhanced decision-making authority could continue to make decisions in the best interests of the whole company at the same time as ensuring that Māori perspectives are given voice in that decision-making.

Key also stated “Following consultation with iwi earlier this year, a careful and deliberate decision was made to ensure that the Crown’s obligations under the Treaty continue to rest with the Crown, not with the companies.”  This makes it sound as though this was the outcome Māori had sought through the “consultation” process.  This could not be further from the truth.  Māori consistently told the Crown that the Treaty protections would be watered-down if they did not continue to apply to 100 per cent of the company.  The Government’s decision on this issue was made despite what Māori had said during the consultation, not because of what was said. 

The Government has also ignored other key elements of the Waitangi Tribunal’s recommendations.  In particular, the Government is sticking to its line that the partial sale of Mighty River Power will not affect the Crown’s ability to recognize Māori rights and interests in water.  The Tribunal notes that the Crown’s preferred options for rights recognition fall short of the Treaty guarantees because they do not recognize the proprietary element of Māori rights and do not provide for commercial or economic benefits that accrue because of the proprietary character of the rights in question.  The Tribunal found that, as the sole shareholder, the Crown now has flexibility to provide for the ‘shares plus’ option that will be lost once the partial privatization has taken place, noting

That would mean that the ability to negotiate remedy agreements with Māori would be lost if those potential remedies were by way of share issues or the transfer of existing shares on terms involving any form of preference as to voting rights, capital or income distributions, pre-emptive rights, or appointment of directors, to name but some possible remedy considerations.

The Tribunal also recommended that the Crown urgently convene a national hui ‘in conjunction with iwi leaders, the New Zealand Māori Council, and the parties who asserted an interest in this claim’, but the Government has rejected this idea in favour of much more limited discussions with specific iwi.  Furthermore, now that a national hui has been called, under the auspices of the Māori King, Key has made it clear that the Government and National Party MPs will not attend.  Rejecting the forum for consultation recommended by the Tribunal and clearly preferred by no less a figure than King Tuheitia raises yet another question mark over the Government’s claim to be engaging ‘in good faith’.