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Potential Impacts of the Water Inquiry

Barrister Matthew Smith presents paper on the potential impacts of Stage 2 of the Water Inquiry, and Environmental Law Conference in Auckland, 20 March 2018

THOMSON REUTERS ENVIRONMENTAL LAW CONFERENCE 2018 – POTENTIAL IMPACTS OF STAGE 2 OF THE WATER INQUIRY

The Tribunal’s Water Inquiry: Background and context

For Treaty of Waitangi (“Treaty”) purposes, and generally, water is life. Quoting the Waitangi Tribunal (“Tribunal”) in its Stage 1 report in The National Freshwater & Geothermal Resources Inquiry (Wai 2358) (“the Water Inquiry”) (section 1.4.2, page 15):

Water is essential for the life, health, and wellbeing of all living things. It is essential for the spiritual, social, cultural, and economic wellbeing of indigenous peoples, who have unique relationships with it. And its use is also essential to many parts of the economy and to economic growth. … In the twenty-first century, the many competing uses of water have the potential to exceed the sustainable supply, even in water-rich countries such as New Zealand.

Hand in hand with this dilemma comes the commodification of water. So significant is this in the industrialised West that it has been called part of a ‘second enclosure movement’ in which many resources formerly considered ‘common’ are being privatised.…

… The extent of our future water problems should not be underestimated. The sustainability of ecosystems, water quality, access to water for a myriad of vital purposes, and the availability of sufficient fresh water for everyone’s needs; these are fundamental issues for all nations in the twenty-first century, including New Zealand.

These observations were made in the context of two related Treaty claims that together form the basis for the Water Inquiry.

The Tribunal claims

The first Treaty claim concerned the Crown’s policy to privatise up to 49% of four SOEs (Mighty River Power, Meridian, Genesis, and Solid Energy) without first protecting or providing for Māori rights in the water resources used by those companies. The second claim concerned the Crown’s RMA reforms, which were said to be proceeding in the absence of a settled regime to adequately recognise and provide for Māori rights and interests in water.

The common denominator to the two claims is water – both fresh water and geothermal.

In essence, the claimants in these claims argued that Māori have unsatisfied or unrecognised proprietary rights and interests in water, and that they are prejudiced by Crown policies that refuse to recognise those rights and interests or to compensate for their usurpation for commercial purposes. The claimants further argued that there is an ongoing breach of their residual proprietary rights, which were guaranteed and protected by the Treaty from 1840 onwards, and they sought, and seek, recognition of their rights and, where those rights cannot be fully restored, the claimants seek compensation from the Crown.

Under the Treaty of Waitangi Act 1975, Māori claimants may bring a claim to the Tribunal that any legislation, Crown policy, Crown action, or Crown omission (failure to act) is in 2 breach of the principles of the Treaty, and that they have been prejudiced thereby. If the Tribunal considers the claim to be well founded, it may make recommendations for the removal of the prejudice or to prevent any future prejudice. In the Water Inquiry, while the focal point of the claims is two particular Crown policies (the partial privatisation of the water-using SOEs and the resource management reforms), there is also a general dimension to the claims that is far wider than the two policies about which specific complaint is made. The claimants’ view is that the legal and political regimes under which water is used and managed in New Zealand are in breach of the principles of the Treaty, because they fail to protect or provide for Māori Treaty rights, and in particular for Māori proprietary rights.

Stage 1: MOM programme

In order to deal first with the most urgent part of the Water Inquiry, the Tribunal divided the hearing of the claims into two stages. Stage 1 dealt with the conversion of the SOEs into mixed ownership model (“MOM”) companies. The Tribunal agreed to prioritise this part of the Water Inquiry because of the then Government’s express desire to offer shares in Mighty River Power for sale in the third quarter of 2012. At Stage 1 the claim was essentially that if privatisation went ahead without first recognising (or preserving the Crown’s capacity to recognise) Māori rights in water, then the claimants would suffer irreversible prejudice.The claimants argued that it would be too late for the Crown to try to provide meaningful recognition of their commercial interests by way of shares in the MOM power companies, by a levy or royalty, or by some other means, after 49% of the shares in the MOM companies have been sold to private investors on the basis of a zero-cost for water.

The Tribunal’s generic finding in its Stage 1 report was that (section 2.8.3(3), page 81):

…Māori had rights and interests in their water bodies for which the closest English equivalent in 1840 was ownership rights, and that such rights were confirmed, guaranteed, and protected by the Treaty of Waitangi, save to the extent that there was an expectation in the Treaty that the waters would be shared with the incoming settlers. The nature and extent of the proprietary right was the exclusive right to control access to and use of the water while it was in their rohe.

Turning to the MOM programme, the Tribunal reasoned that its finding as to the nature and extent of Māori rights and interests in water bodies meant that a commercial option for rights recognition or redress (where recognition is not possible) was essential, and that that commercial option or options should, as far as possible, provide for the Māori development right guaranteed by the Treaty. Against this background, the Tribunal accepted the arguments for the Crown that it would still be able to provide many such options after the sale of shares in the MOM companies as before (section 3.9.2, page 142):

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 it will not be impossible for the Crown to introduce this kind of rights recognition or redress after the partial privatisation of the MOM companies. As the Crown says, it will have to balance the interests concerned (including the possibility of consumer price rises) in a Treatycompliant manner. But we note the Crown’s own evidence and submissions that it may be possible to provide a commercial option that does not affect profit or result in price rises.

… We accept the Crown’s assurances, given as part of our inquiry, that it is open to discussing the possibility of Māori proprietary rights (short of full ownership), that it will not be ‘chilled’ by the possibility of overseas investors’ claims, and that the MOM policy will not prevent it from providing appropriate rights recognition once the rights have been clarified.…

But there is one area in which the Crown will not be able to provide appropriate rights recognition or redress after the partial privatisation, 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.…

In respect of the ‘shares plus’ option provided, the Tribunal found (section 3.9.3, page 143):

We have found that there is a nexus between ‘shares plus’ and Māori rights in the water bodies used by the power-generating companies. We have found that company law will in practical terms prevent the Crown from providing or recovering the asset sought – ‘shares plus’ – after partial privatisation of the companies. The Crown will therefore be unable to carry out its Treaty duty to actively protect Māori property rights and to remedy well-founded claims if it proceeds with its share sale without first creating an agreed mechanism to preserve its ability to recognise Māori rights and remedy their breach. We find that the Crown will be in breach of Treaty principles if it so proceeds.

The Tribunal in light of this finding recommended that the Crown urgently convene a national hui to determine a way forward (section 3.9.4, page 143). Accordingly, the Tribunal recommended “that the sale be delayed while the Treaty partners negotiate a solution to this dilemma” (section 3.9.4, page 143). The Tribunal recognised that the negotiations would need to be limited because of urgency and that it “would not be possible to devise a comprehensive scheme for the recognition of Māori rights in water in the time available”.

The Crown accepted the Tribunal’s recommendation that it investigate the “shares plus” option and it undertook consultation with Māori on the suggestion. Ultimately, after considering the submissions and discussion at the hui and after receiving advice from officials, Ministers concluded that the Crown’s capacity to recognise rights and to provide redress would not be impaired by the proposed share sale. On the other hand, it appeared to the Crown that the Tribunal’s suggestion would significantly erode value in initial public offerings of shares. For these reasons, the Crown announced on 15 October 2012 that it had decided to go ahead with the IPO without adapting the shareholder structure.

That Crown decision was challenged by way of a judicial review proceeding, culminating in the decision of the Supreme Court in the Mixed Ownership Model case (New Zealand Maori Council v Attorney-General [2013] NZSC 6, [2013] 3 NZLR 31). The Supreme Court decided that the Crown would not act in breach of the principles of the Treaty in implementing the MOM programme, in significant part because of assurances given by the Deputy Prime Minister and the Attorney-General in their evidence in the proceeding that the mixed ownership companies programme would not compromise the Government’s work to achieve recognition of and redress for Māori rights and interests in fresh water and 4 geothermal resources, and that the MOM programme (including any potential sale to foreign investors) would not have any “chilling effect” on the willingness of the Crown to provide appropriate rights recognition and redress (Judgment, paras [148]-[150]).

Following delivery of this judgment, shares in MOM companies were sold on the market.

Stage 2: Water reforms

The Tribunal in its Stage 1 report indicated that the question of whether the present degree of recognition accorded to Māori rights and interests in water, including in the RMA, is in breach of the Treaty, is a matter for Stage 2 (section 3.2, page 88). Without preempting the outcome of Stage 2, the Tribunal went on to observe (Letter of Transmittal, page 236):

In our view, the recognition of the just rights of Māori in their water bodies can no longer be delayed. The Crown admitted in our hearing that it has known of these claims for many years, and has left them unresolved. The issue of ‘ownership of water’ was advanced by the Crown as a deal breaker but it need not be. Māori do not claim to own all water everywhere. Their claim is that they have residuary proprietary interests in particular water bodies. We know in the twenty-first century that New Zealand is a stronger country partly because of its increasing commitment to biculturalism and to the mutual respect and accommodation of Māori and non-Māori rights and interests. Māori culture cannot be relegated and the rights that arise from that culture cannot be ignored. Māori are the Crown’s Treaty partner, and not just another interest group. The Crown’s balancing of interests must be fair and Treaty compliant. Māori Treaty rights cannot be balanced out of existence. The closest English equivalent in 1840 was ownership; the closest New Zealand law equivalent today is residuary proprietary rights. It is long overdue for the Crown Treaty partner to recognise its obligation to seek a mutually agreed and beneficial resolution with its Māori Treaty partner.

Stage 2 of the Tribunal’s inquiry may assist with that task. As we noted, the extent to which the residual proprietary rights of Māori should now be recognised – where such recognition is possible –is a matter that will be covered in more detail in stage 2, where we consider a framework for how Māori rights in water can be reconciled with the legitimate rights and interests of others.

And further (section 3.9.1, page 137):

For the appropriate recognition of tino rangatiratanga and kaitiakitanga, as guaranteed in the Māori version of article 2 [of the Treaty], it is absolutely essential that the Māori role in water governance and management must be adequately provided for – a matter which will be considered in more depth in stage 2 of our inquiry. But the Māori ‘say’ in management must certainly be commensurate with their Treaty rights and responsibilities. For the avoidance of any conflict, the Treaty partners owe each other duties of reasonableness, cooperation, and good faith in the exercise of their respective article 1 and article 2 rights and obligations.

Stage 2 of the Water Inquiry is ongoing.

At the time of writing there have been two hearing weeks for evidence, and a third hearing week is scheduled for August 2018.

The Tribunal’s Water Inquiry: Possible impacts

It is not my intention in this paper to identify or to attempt to summarise the large amount of tangata whenua and expert witness evidence that has been filed for Stage 2 of the Water Inquiry. Nor do I propose to predict what findings or recommendations the Tribunal might make in its Stage 2 report. That too would not be appropriate. Instead I propose to highlight what the impacts of Stage 2 of the Water Inquiry might be, by reference to the kinds of issues that have been raised in the evidence that has been filed to date in Stage 2.

Before identifying some of those issues, it is important to acknowledge that coming up with any answers in this area is hard – both conceptually and practically. The more one looks at what is in place today, what has been tried in the past and what has been and is being tried overseas, the more one sees that there is no ‘one right answer’, in terms of how in practical terms indigenous rights and interests in water translate into substantive and procedural rights recognised and provided for in statutes, planning instruments and administrative practices.

In this area of the law, as in others, context is everything and facts matter.

Against that background, I begin with a more general observation. It is that, to my knowledge, the Water Inquiry is unique in at least one significant way. It is its national focus. Rather than looking at a discrete water-related issue or issues through a local lens (as an Environment Court appeal might in respect of a resource consent application) or through a regional lens (as a Board or a Commission of Inquiry might in respect of its terms of reference), the Tribunal is inquiring into the state of water across the country, and how Māori rights and interests in water are and should be recognized in contemporary New Zealand.

There is an obvious constitutional dimension to such an inquiry. But there is also a broader practical relevance to an inquiry that has a national focus like Stage 2 of the Water Inquiry. It lies in the fact that the Tribunal, presented with evidence relating to a range of towns, cities and regions across New Zealand, and with the benefit of an analysis of issues from a range of different perspectives (including scientific, economic, comparative and historical), is uniquely placed through Stage 2 to help us to identify and to understand good and bad features of the status quo and, in light of that, Treaty-consistent reform options.

The first way in which the Tribunal might do that is to identify common practices, or themes, evident in water law, policy and practice in New Zealand, and how they have contributed, and are contributing, to the effectiveness (or not) of our existing regulatory framework at achieving the outcomes we have or aspire for that regulatory framework.

In that regard, I do not think that it can today be doubted that, at the national level, if our measurement tool for success in this area is the quality of our fresh water resources, our existing regulatory framework has failed us. The Tribunal in Stage 2 of the Water Inquiry might help to shed light on why – and to identify, and perhaps even to attempt to apportion some responsibility between, the different causes for the failure that sadly we see all around us in the degradation of our lakes and rivers and of the estuaries and seas they feed into.

For instance, are our national bottom lines too low, or under-inclusive in terms of what they measure and by what techniques? Is there a problem in the number of, or the (lack of) conditions associated with, take and use rights we are conferring through resource consents? To what extent are our monitoring techniques fit for purpose and accurate? Are the right 6 bodies and people being charged with, and budgeted for, undertaking the compliance and enforcement actions that are necessary to ensure a culture of compliance with planning rules, or conditions of resource consents? To the extent that the allocation of monitoring or enforcement responsibilities is a part of the problem, is the issue a lack of will, a lack of sufficiently qualified personnel, budgetary constraints, or some combination of all of those things?

These are all hard and, in some respects, controversial questions. But unless and until we seriously grapple with them, it is difficult to see water quality improving. And, correspondingly, it is difficult to see Māori rights and interests in water being meaningfully recognised and provided for in our framework for fresh water and geothermal resources.

If it identifies and considers issues of those kinds, the Tribunal would be uniquely placed to ask to what extent can, and should, Māori rights and interests in water be given effect today, including in response to, and as an antidote for, problems of the kind I have signaled above. By way of example, are there Māori rights (and associated customary activities) that require fresh water to be safe or useable for particular purposes (such as clean water for food gathering practices)? If there are, how do those rights impact on the ways in which, and the levels at which, water quality ‘bottom lines’ are set in particular catchments? Similarly, are there Māori rights (and associated customary activities) that require a certain quantity of fresh water to be available in a particular catchment (so as to support papakainga)? If there are, how do those Māori rights impact on the way in which water take or use rights are allocated, both in catchments that are not fully allocated and in those that are? What about in times of water scarcity – should water allocations for Māori rights (and associated customary activities) be reduced at proportionately the same rate as all other existing use rights, or should a different approach be taken to them? More generally, what rights do hapū that will be affected by activities upstream or downstream have to decide whether and if so on what terms those activities should be undertaken? And are the existing processes to that end, including the recently enacted Mana Whakahono a Rohe: Iwi participation arrangements, fit for purpose, and sufficient, to give effect to all relevant Māori rights and interests in fresh water and geothermal resources?

There is also the issue of commercial exploitation of and profit from water resources. While the RMA states in section 122 that resource consents do not confer property rights, from a practical and economic perspective that formal legal position is difficult to square with reality on the ground. Many water take or use rights conferred by resource consents are tradeable, and they have a market value as such. Properties with water take or use rights have a greater value than (neighbouring) properties without such rights, as is illustrated for instance in the dairy farms that have water available for use in irrigation. And rights granted by resource consent to contain and commodify water, most obviously in the case of water bottling enterprises, have a significant commercial value. And yet none of these rights-holders pay any resource rental or royalty for the commercially valuable rights they have and exploit. Any further light the Tribunal’s processes can shed on these realities, and any identification by it of overseas models and their strengths, weaknesses and fit in a New Zealand setting, is likely to be of immense assistance as these issues assume greater significance for us all.

Finally, there is the regulatory design issue of whether water laws and policies should be embedded within a common environmental law framework, as they currently are under and through the mechanisms of the RMA, or whether stand-alone water laws might be better – including in their ability to recognise and provide for Māori rights and interests. This is 7 another issue where overseas positions differ, and which the Tribunal might be able to assess from a comparative perspective, to the end of seeking to chart a course appropriate for us.

In that, and indeed all relevant areas, the Tribunal’s role is limited by the statute that confers its jurisdiction, the Treaty of Waitangi Act. It relevantly provides in section 6 that:

(3) If the Tribunal finds that any claim submitted to it under this section is wellfounded it may, if it thinks fit having regard to all the circumstances of the case, recommend to the Crown that action be taken to compensate for or remove the prejudice or to prevent other persons from being similarly affected in the future.

(4) A recommendation under subsection (3) may be in general terms or may indicate in specific terms the action which, in the opinion of the Tribunal, the Crown should take.

Findings and recommendations of the Tribunal are taken seriously by the Crown, and can be in the case of the Stage 2 report expected to be appropriately responded to by Ministers.

At a time when the new Government continues to contemplate reforming the RMA generally, and reforming water law and policy more particularly, a timely published Stage 2 report of the Tribunal can be expected to be read closely by those entrusted with policy work in those areas. It also has the potential to be a resource of great assistance to people outside of government ministries who have a stake in, or are interested in the outcomes of, work to improve the quality of the fresh water resources that New Zealand is so lucky to have.

Matthew Smith
Thorndon Chambers
27 February 2018

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