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West Coast Forests Discussed On Breakfast TV

Media release - West Coast forests
- From "Peter K. Russell"


Breakfast Show, TV1 8.43am 4 April 2000
Mike Hosking & Mei Chen

MH Now there have been protests as only the West Coast of the South Island can produce in the past week, as formed by the government's decision to stop beech logging and the High Court's decision last week to agree with it. So how does this decision stack up, what does it mean for the government, for West Coasters and the state owned enterprise Timberlands? Mai Chen is with us.... Now I'm no legal expert, but as I understand it in this country the government makes the law and if the government wnats to make a new law it can, and taking it to court's not going to achieve anything. Is that correct?

MC The difficulty Mike is that when you contract with the government this is not like contracting with any private party. And I think the lesson to be learnt from this case is that when you are contracting with the government you have to understand that a state owned enterprise like Timberlands is subject to direction via the ministers, who are the shareholders in this case. And if those mnisters change because there is a change of government, and as a consequence of that their policy changes, then it doesnt matter that you have a contract. That contract can be over-ridden by statutory obligation, and that is what makes dealing with the government so dangerous.

MH As is pointed out in the SOE Act, section 13, 'ministers from time to time direct the board to omit from a statement of corporate intent a provision relating to the nature and scope of the activities to be undertaken'. In other words they can do what they like.

MC Well that's right Mike. And in this case the court said, 'well did they follow the procedures, did they consult the board?' Yes, I know the board's saying 'well we're not very happy about this direction', but the reality was that on that fateful day Mike, on the 10th of December the very day the Labour-Alliance government was sworn in, those shareholding ministers met with the board, and despite the fact that the board came out of that meeting fighting, during the meeting it appears that they said 'ministers, we want to be accomodating of the government's new policy, and if the new policy is that you want beech logging stopped, we don't think there are going to be any problems with that'.

MH And that is the consultation is it, as opposed to the consultation with the West Coasters, who will assume then I guess that they didn't talk to them before they changed their mind, they simply talked to Timberlands?

MC Mmm, and I think that's the difficulty, because when private people say 'well hang, on we enter into contracts all the time, and the whole point of entering into a contract is that you and I have an agreement, and because of this agreement I had with you to do beech logging I went out there and I bought $60,000 worth of plant. Now that may not be a lot to you, but it's a lot for a small company like me'. And what they're saying is 'where will I end up on this contract government? And as a consequence we're out of pocket. Now what about compensation?' And the difficulty Mike is that when you're dealing with the government in this way, when you're dealing with an SOE, and that SOE can be subject to changed directions by a change of government and a change of policy, then the difficulty is that you may well end up out of pocket and there is no requirement for consultation under section 14. When a ministerial direction comes on that may result in hurting private individuals, there is no requirement to give compensation.

MH Furthermore though, the SOE did have a force majeure clause in there, which as I understand it basically means 'we're a government run organisation, rules can change and here's the clause that gets us out of it'.

MC That's it. Well mike, you see the thing is that whenever you are dealing with an SOE or a Crown entity you should be looking at that contract. And if for example I am advising a private company that is dealing with the government I always say 'be careful'. You have to consider the risks of going and spending a lot of money and then the government changes. In this case the court said there were unusually broad force majeure clauses, and specifically with respect to Timberlands it said that force majeure change of circumstance can include a change of government policy in a direction that changes the scope of the s.c.i..

MH I was going to ask about pre-election policy. That actually doesn't matter though, in fact I suppose you could say that 'we forewarned you', so it wasn't a total surprise, but even though, you don't even have to tell them that do you?

MC Well, you don't have to tell them that except that you have to look at the timing when that force majeure clause was put in. If you look at the scope of events you will see that those force majeure clauses were put into the contracts just before the elections. Essentially what happened was, in mid August, now remember the elections took pace in November, in mid August of last year, the then minister of SOEs, the Honourable Tony Ryall, said 'oh, I think we will in principle say yes to these beech logging contracts'. Now, you know it was controversial, one could argue that that was within the three month period prior to the election when really they should have said 'well, maybe we shouldn't take any decisions'. But two weeks after Ryall made that announcement Labour released its policy and it said 'no beech logging', and we will use legislation if necessary to repeal the West Coast Accord and there will be no compensation. But Mike, you and I were discussing during the ad break whether or not this litigation was worthwhile at all. And I guess from the perspective of the lawyers trying to perhaps put a good spin on what is otherwise a complete loss, one would have to say that the hundred million dollars compensation package, which has been offered by the Crown is pretty phenomonal. That has to be the biggest package of regional development assistance offered to the fewest number of people in New Zealand's history.

MH Is it guilt money though?

MC Well, it's an important precedent Mike. Remember, the ACC reforms have just rolled back the ability of private insurance companies to sign out insurance contracts. No compensation. I mean we've had some companies say 'hey, we've spent a hundred million getting into this, it's going to cost us another hundred million to get out of this'. The government said 'tough - you knew the policy was going to change, live with it'. Now the difficulty here is that if you offer a hundred million to the West Coast Mike, what sort of a precedent does that create? The govt changes policy all over the place.

MH Yeah, but it depends on how many businesses it affects. I mean it's a very rare day to close down a major source of income for an entire region based on philosophy isn't it?

MC WelI I guess Mike that's precisely what this government will argue. They will say 'ah, this is not a precedent for the run of the mill change of policy. This is a very unusual circumstance because this was one of the major resources and a major source of employment on the West Coast'.

MH Yeah, but... [unclear] that interested me most was that there comes a point, this is in the decision by the way, there comes a point where public policies are so significant and appropriate... [unclear] by those elected by the community, that the court should defer to their decision except in clear and extreme circumstances. So what they're saying is it's too big for the court.

MC ... That is a very, very interesting statement and the reason is because there is a distinction between what the courts can look at, and what they can't look at. At the end of the day it is the executive branch of 0government that is there to determine policy and to look at political considerations. The court is not there to make policy, and they're not there to judge policy either. They're there to judge the law, and what they're saying is 'look, at the end of the day this was a matter of high public policy. It was a matter of high politics. It's about a new government's policy. It's too big for us. We're not here to judge that. That's up to them. If we want to get elected we'll run for parliament, but we're judges and we're just here to see, did they obey the law?' And in this case they said they clearly did.

MH And the reason I raise that is that my understanding is that they're still talking on the West Coast about more court action. They cannot take the government to court if they want to change the law!

MC It is true, and I guess for that reason, had I been asked to advise these people I would have said 'look, you're chances in this particular case I would have thought would have been no higher than about five to ten percent'. Mike, when lawyers advise their clients they only give them four statements. They say it's either poor, 25% or less; fair, sort of 50:50; reasonable, about 60, 65; or very reasonable, and that's 75% or above. And in this case I would have said 'poor'. And that's the difficulty. You know, at the end of the day Mike, the saying is true, 'you can't fight City Hall', and at the end of the day it is the government who can change the law on you and they can change the policy. Now you don't want to go into a war with an opponent like that.

End of interview.


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