Introduction

During the New Zealand 2011 general election the National Party campaigned on an economic policy that would bring about the partial sale of five state enterprises: Mighty River Power, Genesis Energy, Meridian Energy, Solid Energy and Air New Zealand.(1) As state enterprises, they were required by law to be wholly owned by the crown. Following its election, the government began the process of restructuring the crown's ownership of the first of these state enterprises, Mighty River Power. It passed legislation permitting the crown to sell up to 49% of the company's shares.(2)

The New Zealand Maori Council, the Waikato River and Dams Claim Trust and the Pouakani Claims Trust were concerned that the introduction of private shareholders into state enterprises would impede claims that Maori are in the process of bringing against the crown regarding their rights in New Zealand's waters. The waters specifically at issue are those used for the generation of electricity and are subject to longstanding claims of Treaty of Waitangi breach.(3) In November 2012 these parties brought an application for judicial review of the the prospective sale of shares and of the crown's proposed order in council that would bring the aforementioned legislation into effect. Their application was dismissed by the High Court. The Supreme Court granted leave to hear an appeal directly, because of the urgency in finalising the planned public offering of shares.

Background

The breach claims are based on failures to protect Maori in their "full exclusive and undisturbed possession" of their water properties as guaranteed by the Treaty of Waitangi. The Waitangi Tribunal, in an urgent interim determination, found that in 1840 Maori had interests in these waters in the nature of ownership. The tribunal further accepted that there was a nexus between these treaty claims and the shareholding in the state enterprises, because the water used for generating purposes "underpins what gives the shares in those companies their value". The tribunal recommended that the crown and Maori should consult on how Maori proprietary interests could be provided through shares in Mighty River Power with amplified rights. It considered that, while ordinary shares could be provided after the partial privatisation, what it called 'shares plus'(4) could be available only as a remedy if changes to the company constitution were undertaken before the float of shares.

Following consultation, the crown decided that it would proceed with the sales as planned. The Maori Council then applied to the High Court seeking declarations that the proposed crown actions were contrary to Section 9 of the State-owned Enterprises Act 1986 and Section 45Q of the Public Finance Act 1989, both of which prevent the crown from acting inconsistently with treaty principles. They claimed that the changes in ownership would be in breach of the treaty, as they would prejudice Maori claims to the waters.

The High Court dismissed the application, holding that the changes to the ownership of Mighty River Power are the consequence of an act of Parliament, which cannot be questioned in the courts for compliance with the treaty. In addition, the judge held that the proposed actions of the crown were not, in any event, inconsistent with treaty principles, because the sale of 49% of shares in Mighty River Power would not materially prejudice Maori claims and interests in water.

Supreme Court decision

On appeal before the Supreme Court, five issues were argued:

• Could the proposed sale of shares be judicially reviewed for breach of treaty principles?
• Could the Cabinet's decision to bring into effect legislation making Mighty River Power a mixed ownership company be judicially reviewed for inconsistency with treaty principles?
• Was the crown's consultation with Maori adequate to comply with treaty principles?
• Was the proposed sale of shares in breach of Section 64 of the Waikato-Tainui Raupatu Claims (Waikato River) Settlement Act 2010?(5)
• Was the proposed sale of shares inconsistent with the principles of the treaty?

The court was unanimous on all questions on appeal, its reasons being expressed in a single opinion.

The two questions concerning the jurisdiction of the High Court to review the order in council and the proposed sale of a minority interest in Mighty River Power turned on the interpretation of amendments made in 2012 to the State-Owned Enterprises Act and the Public Finance Act, and on the meaning and application of the treaty compliance provisions in Sections 9 and 45Q of those acts, respectively. In considering the application of the treaty compliance sections, the court followed and confirmed the approach taken by the Court of Appeal in 1987 in the State-Owned Enterprises case.(6)

Overturning the High Court on this point, the Supreme Court concluded that all crown actions in relation to the ownership of mixed-ownership model companies are subject to Section 45Q. While the amendment to the State-Owned Enterprises Act permitted the sale of shares, those sales had to be conducted in accordance with Section 45Q. Accordingly, the proposed sale of shares was held to be reviewable for consistency with the treaty principles.

The court held that the crown's consultation was not shown to be inadequate, stating that neither the timing nor the subject of the consultations was unlawful. The crown's rejection of the tribunal's proposed 'shares plus' scheme did not mean that the consultation was empty or pre-determined. In addition, it held that there was no breach of Section 64 of the Waikato River Settlement Act, because Mighty River Power was not disposing of its water permits or other interests in the river.

Because of its determination that judicial review was available, the court went on to consider whether the proposed share sale was inconsistent with treaty principles.(7) The sales would be inconsistent with treaty principles if they would "impair, to a material extent, the Crown's ability to take the reasonable action which it is under an obligation to undertake in order to comply with the principles of the Treaty".(8) The court accepted that the sale would provide some impediment to reparation for treaty claims regarding the waters subject to permits held by Mighty River Power. Whether the impediment was material was treated by the court as requiring contextual assessment. Factors of significance included:

• crown acknowledgement that Maori have rights and interests in relation to water;
• assurances given by ministers that Maori claims to water will not be prejudiced by the sale;
• the change in the legislative and social landscape, with the court stating that "in the current legal and social environment Maori can be confident that their claims will be addressed"; and
• the reality of the generating infrastructure and its importance for the country.

In light of this assessment, the court held that the retention by the crown of 51% of the shares meant that it retained substantial power to provide remedies to Maori. In this context, the Supreme Court concluded that the partial privatisation of Mighty River Power would not impair to a material extent the crown's ability to remedy any treaty breach in respect of Maori interests in the rivers and lakes used by the hydro-power stations. The court held that there was no logical reason why the crown should have to retain a particular asset against its will that was unconnected to the underlying claims. The appeal was accordingly dismissed.

Comment

This decision is of importance because it clears the way not only for the crown sale of Mighty River Power shares, but also for similar sales planned for Meridian Energy and Genesis Energy. The shares in Mighty River Power have since been offered to the public.

In addition, although the appellants failed in their attempt to halt the sale, they succeeded on an important point of principle – namely, that the crown was bound to comply with the principles of the treaty before deciding to sell the shares.

The future of Maori claims for breaches of their property rights in water and how this will affect state enterprises remains to be seen; yet it seems clear that action can be expected soon, with the court concluding that "it appears from the policy initiatives and from the assurances given in the litigation that the message that there is need for action on these claims has been accepted".

Endnotes

(1) The debt problems surrounding Solid Energy have caused it to be taken off the list of possible sales.

(2) The State-Owned Enterprises Amendment Act 2012.

(3) The Treaty of Waitangi is the founding document of New Zealand, signed on February 6 1840. It is an agreement that was entered into by representatives of the British crown and of Maori iwi (tribes) and hapu (sub-tribes).

(4) Effectively shares, plus additional authority in relation to the company.

(5) This act requires engagement with Waikato-Tainui where the crown, a crown entity, a state enterprise or a mixed-ownership model company disposes of an interest in the Waikato River.

(6) New Zealand Maori Council v Attorney General [1987] 1 NZLR 641 (HC).

(7) The appellants' claim that they would be prejudiced through the proposed share sale was the basis on which they claimed inconsistency with the treaty principles. In those circumstances, the court found it unnecessary to determine separately whether the proposed order in council could also be reviewed for consistency with the treaty principles.

(8) New Zealand Maori Council v Attorney General [1994] 1 NZLR 513 (PC) [Broadcasting Assets case].