Regulatory takings: The ace up the corporate sleeve

The Regulatory Standards Bill sets up a legal framework for corporations to challenge regulation that impacts their profits, with government and Māori possibly being responsible for compensation

Photo by Rebecca Bliklen on Unsplash

David Seymour will introduce his Regulatory Standards Bill to the House this week, where the first reading of the bill will be passed under urgency. There’s been a lot written about this bill. There are those of us, and I count myself among them, who feel that this bill is a huge threat to Aotearoa’s constitutional framework. In particular, the bill could enshrine in law a legal framework under which corporations could pursue legal action if government regulation threatens their profits. Although the proponents of the bill, Seymour, various NZ Initiative talking heads, and others, claim that the bill will simply put in place a system for sensible and transparent regulation, it is very clearly designed with business interests in mind, as various iterations of it have been backed by business and rejected by Parliament for over 20 years now.

Seymour’s press release claims, without any evidence, that New Zealand’s productivity issues are due to poor regulation, and that his bill will help us get our mojo back. It’s an absurd justification. Coming from Seymour, whose corporate ties trail him like a piece of toilet paper from the outhouse, this is laughably disingenuous.

The bill has been posted on Parliament’s website. You can read it here. For those who are unfamiliar with legal and legislative language (and I count myself among you), the bill is pretty tough to get through. But there are a few things I’d like to call attention to, and these are some of the things that were highlighted during the consultation process as being worrying. Now that they’ve been codified in an actual bill, we can discuss them and start thinking about what they would mean if the bill becomes law.

As I’ve said on here over and over again, I believe that ACT and Seymour’s primary agenda is to make it easier for corporations, both foreign and domestic, to maximize their profits here in Aotearoa. As was the case with the Treaty Principles Bill, and now with the Regulatory Standards Bill, one major factor standing in the way of corporate profits is government regulation of the legal use of land here in New Zealand.

For libertarians like Seymour, property is held sacred. It is the foundation of all other rights. And the government should not be able to tell you what you can do with your property. This position is debatable, but where it becomes worrying is when we consider the fact that political parties like ACT, who have the financial backing of a network of international business interests and wealthy individuals, are not legislating for the average citizen who owns a small parcel of land. They are making policy that favours large landowners, property developers, and international corporations, such as oil and gas, mining, and other extractive industries for whom a major hurdle is any kind of environmental protections.

Regulatory lawmaking such as the RSB has been used the world over as a pretext for corporate interests to be able to threaten or bring legal action against governments or other organizations that pose a threat to their profits. To understand how, we have to understand the concept of regulatory takings.

Regulatory takings refer to anything having to do with property that is taken from a property owner when the government confiscates property or regulates in such a way that property is impacted.

Let’s break it down using a simple example. If I buy a piece of land and the government comes in and takes it from me, a regulatory takings law would say that the government has to compensate me for taking my property.

Seems simple enough. And actually, on some level it makes sense. The government should not just be able to take someone’s property without compensating them for their loss or giving them a good reason for doing so. This easy and straightforward example is the kind of thing that Seymour uses when discussing his bill.

Who would argue against it?

Let’s dig a bit deeper.

Here in New Zealand, according to the Companies Act 1993 and the Interpretation Act 1999, corporations are considered legal entities akin to people. In other words, unless otherwise specified, corporations are subject to the same rights as people.

Can you see how this is starting to become a problem? Now we have a situation where, unless otherwise specified, regulatory takings are applied not only to people, but to corporations. What this means in practice is that if a government regulation infringes on a corporation’s ability to use or dispose of its property as it wishes, the government has to reimburse the corporation for the loss in profits.

On the face of it, this too might not seem so bad. But when you consider the fact that most of the regulations that impact corporate profits in the real world have to do with the government enacting policy that is in the public’s interest, you can see why corporations would favour a bill that had a regulatory takings clause.

Well, we don’t have to look very far in Seymour’s bill before we find such a clause. It’s in Part 2, Subpart 1. The section entitled Principles of responsible regulation. The third principle is called Taking of property and it reads

legislation should not take or impair, or authorise the taking or impairment of, property without the consent of the owner unless—

(i) there is a good justification for the taking or impairment; and

(ii) fair compensation for the taking or impairment is provided to the owner; and

(iii) the compensation is provided, to the extent practicable, by or on behalf of the persons who obtain the benefit of the taking or impairment

When applied to the corporate example, which is what Seymour and his corporate backers have in mind, this means that any legislation that compromises corporate profits—the most important property a corporation has—must compensate the corporation for the loss of profits. This means that if the government passes legislation that restricts a mining company’s ability to extract minerals or expand its operations on land it has been contracted to mine on, the mining company is entitled to government compensation for the loss of profits.

You can see how this type of regulatory takings clause sets the balance of legal power heavily on the side of corporations and against the public good. This kind of “takings” can be applied to any kind of regulation in the interest of the public. Companies that have their carbon emissions targeted by government can claim a loss of property if they are unable to operate at capacity. An agribusiness corporation can claim a loss of property if the government regulates them against polluting waterways or groundwater with their pesticide runoff. A fossil fuel company can claim property loss if the government attempts to tax use of fossil fuels in vehicles as a way of reducing emissions. A commercial fishing company can claim property loss if the government puts restrictions on their fishing activity. A logging company can claim loss of property if the government restricts their forestry in order to encourage conservation or protect endangered species. A tobacco company can claim property infringement if a government attempts to regulate its marketing or packaging to include health warnings.

Lest I be accused of being paranoid or making stuff up, all of these examples or similar cases have happened before. Corporations routinely sue governments who attempt to regulate against their corporate interests and it is legislation like the RSB, with broadly-defined and general statements about regulatory takings that makes it possible. The loose definitions are often politically purposeful to encourage legal action to test the judicial appetite for corporate lawsuits.¹

More worrying is the little bit of the definition that says that “the compensation is provided, to the extent practicable, by or on behalf of the persons who obtain the benefit of the taking or impairment.” This seems also to make sense on the face of it, as the government should be responsible for compensating someone if they benefit from taking their property.

But in the context of Aotearoa, where laws and legal rulings against corporations are often made due to breaches of the Treaty of Waitangi, what this means is that the group that benefits from this type of legislation or settlements is Māori. In other words, this little addendum opens up the legal threat that any decision or regulation that impacts corporate profits in favour of Māori could result in Māori being legally obligated to compensate the corporation for the loss of its profits. Moreover, activist groups or coalitions that spearhead action or protest or support legislation that limits the action of corporations can also be held liable in these types of lawsuits. These types of lawsuits are routinely lodged against indigenous groups by oil and gas, mining, and logging companies.

Finally, because the bill is retroactive, all legislation that has impacted corporate profits could be on the table in terms of legal action (although the bill does state that Treaty settlements are not impacted). These examples only touch the surface of the many ways that corporations can and have used legal action to attack indigenous rights and governments that enact policy in the public interest. As these corporations and their financial backers have deep deep pockets, governments and indigenous groups are often forced to spend millions of dollars to litigate these cases, resulting in depleted funds and resources to counter future legal action. And there is always another legal action around the corner. Corporate greed will not be sated.

Now, Seymour and his backers will call these types of concerns ridiculous and try to assuage them by insisting that the bill merely puts in place a framework for good regulation. And anyway, the recommendations of its Regulatory Board are not even binding. But that really doesn’t matter because all corporations need is for Seymour’s hand-picked board to produce a report that says that the government’s legislation or regulation does not accord with their best-practice principles and they will have all the legal pretext they need to bring a lawsuit. And we can be sure that Seymour’s board will oblige, as it has granted itself sweeping powers to compel government and non-government organizations to provide information for its reports. Basically, you’ve got a government agency which has as a goal protecting corporate interests from government interference.

So in summary, the RSB sets up a framework for corporations to bring legal action against the government for any legislation that impacts their profits if they can claim that their property rights are being infringed. Furthermore, in cases where legislation imposes regulation or limits a corporation’s profits due to protecting the rights of Māori, Māori may be legally liable for compensating the corporation for its loss of profits. Finally, although non-binding, the recommendations and reports of the Regulatory Board can be used as legal pretext for corporate lawsuits. While many of these legal actions may not eventuate, this legislative environment will result in what is known as “regulatory chilling”. This is a phenomenon where governments and other agencies are hesitant to enact appropriate regulation in the public good for fear of legal action by corporations and therefore corporations can extract and exploit more viciously.

We need to ask ourselves if this is the kind of regulatory framework that we want here in Aotearoa. We need to make it clear that we see through Seymour’s given reasons for the bill and demand that Luxon kills it or that the final bill includes language that precisely specifies the extent to which corporations are eligible to claim regulatory takings. If he won’t, we need to give him political hell. The future of our country may literally depend on it.

1. New Zealand, unlike other countries like the US, does not have a constitutional “takings” clause so it has been difficult for corporations to justify or have a chance of winning these types of lawsuits. If the RSB passes, it will put in place such a clause, giving legal pretext for such actions.