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Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill (Consistent) (Sections 14, 19 and 25) [2022] NZBORARp 39 (24 August 2022)
Last Updated: 30 September 2022
24 August 2022
LEGAL ADVICE
LPA 01 01 24
Hon David Parker, Attorney-General
Consistency with the New Zealand Bill of Rights Act 1990: Dairy Industry
Restructuring (Fonterra Capital Restructuring) Amendment
Bill
Purpose
- We
have considered whether the Dairy Industry Restructuring (Fonterra Capital
Restructuring) Amendment Bill (the Bill) is consistent
with the rights and
freedoms affirmed in the New Zealand Bill of Rights Act 1990 (the Bill of Rights
Act).
- We
have not yet received a final version of the Bill. This advice has been prepared
in relation to the latest version of the Bill
(PCO 24418/2.18). We will provide
you with further advice if the final version includes amendments that affect the
conclusions in
this advice.
- We
have concluded that the Bill appears to be consistent with the rights and
freedoms affirmed in the Bill of Rights Act. In reaching
that conclusion, we
have considered the consistency of the Bill with section 14 (freedom of
expression), section 19 (freedom from
discrimination) and section 25(c) (right
to be presumed innocent until proven guilty). Our analysis is set out
below.
The Bill
- In
2001, the Government passed the Dairy Industry Restructuring Act 2001 (the
principal Act) to enable the formation of Fonterra,
known as the new
co-op,1 and to manage risks arising from
Fonterra’s dominance in New Zealand dairy markets.
- Subparts
5 and 5A of Part 2 of the principal Act promote the efficient operation of dairy
markets in New Zealand by regulating the
activities of Fonterra to ensure that
New Zealand markets for dairy goods and services are contestable. The principal
Act includes
requirements relating to Fonterra’s capital structure, as its
share trading arrangements could impact on contestability in
the market for
farmers’ milk supply.
- Fonterra
intends to implement a new capital structure to enable it to better compete for
farmers’ milk supply in the face of
forecast static, or declining, milk
production, and to efficiently use its existing processing infrastructure. Two
key elements of
Fonterra’s new capital structure are reduced minimum
shareholding requirements, and a restricted farmers-only market.
- The
Bill amends Subparts 5 and 5A of Part 2 of the principal Act and inserts a new
Subpart 5B into Part 2. The aim of the Bill can
be summarised as:
- “New
co-op” effectively refers to Fonterra. It is defined in the principal Act
as the amalgamated company arising from
the amalgamation of The New Zealand
Co-operative Dairy Company Limited, Kiwi Co-operative Dairies Limited, and
Fonterra Co-operative
Group Limited.
- supporting
Fonterra’s capital restructure by explicitly enabling Fonterra to retain a
partially delinked unit fund on a permanent
basis; and
- adjusting
the regulatory regime to mitigate the potential risks arising from the
restructure.
Consistency of the Bill with the Bill of Rights Act
Section 14 – Freedom of expression
- Section
14 of the Bill of Rights Act affirms the right to freedom of expression,
including the freedom to seek, receive, and impart
information and opinions of
any kind in any form. The right to freedom of expression has also been
interpreted as including the right
not to be compelled to say certain things or
to provide certain information.2
- The
Bill includes requirements on Fonterra that engage the right to freedom of
expression under section 14, including to:
- make
publicly accessible specified information about its performance, policies, and
base milk price calculations (clauses 63,
104, 195,
226);
- publish
specified information as directed by the Commerce Commission (the Commission),
as part of the Commission’s review of
the milk price manual and/or base
milk price calculation (clause
257);
- provide
specified information to the Commission relating to the base milk price
calculation and the Commission’s draft report
on this calculation (clause
238);
- by
notice in writing from the Commission, provide specified information or other
material or answer any questions to enable the Commission
to carry out its
functions and exercise its powers (clause
279).
- A
limit on a right or freedom may be justified with relation to section 5 of the
Bill of Rights Act. Justification requires that the
limit is rationally
connected to a sufficiently important objective; impairs the right or freedom no
more than reasonably necessary
to achieve the objective; and is otherwise in
proportion to the importance of the objective.
- We
have concluded that the limits imposed by these requirements appear to be
justified under section 5 of the Bill of Rights Act:
- The
requirements are rationally connected to the important objective of supporting a
transparent and well-functioning dairy industry,
given the risks (noted in
the
- See,
for example, Slaight Communications v Davidson 59 DLR (4th) 416;
Wooley v Maynard [1977] USSC 59; 430 US 705
(1977).
3 New sections 109LA and 109LB of
the Dairy Industry Restructuring Act 2001.
4 New section 135A of the Dairy Industry
Restructuring Act 2001.
5 New section 150JA of the Dairy Industry
Restructuring Act 2001.
6 New section 150QA of the Dairy Industry
Restructuring Act 2001.
7 New subsection 150UA(1)(b) of the Dairy Industry
Restructuring Act 2001.
8 Amended section 150T and new subsection 150T(2) of
the Dairy Industry Restructuring Act 2001.
9 New subsection 150ZD(2) of the Dairy Industry
Restructuring Act 2001.
Regulatory Impact Statement) that the capital restructure could reduce the
contestability of farmers’ milk supply.
- The
limits on freedom of expression appear reasonable and proportionate to the
objective. Several of the requirements appear to reflect
or build on existing
processes and practice; commercially sensitive information can be withheld from
publication; and the Commission
would have to consult Fonterra before issuing a
direction to publish information under new subsection 150UA(1)(b), and to
provide
notice in writing of any requirement under subsection 150ZD(2). While
the Bill could be clearer about when the requirements in new
sections 109LA,
109LB and 135A need to be met, we accept that there is a need to enable
sufficient flexibility in order to avoid
imposing unreasonable or
disproportionate limits.
- For
completeness, we have considered whether the requirements in clause 27 (new
subsection 150ZD(2) of the Dairy Industry Restructuring
Act 2001) engage section
21 of the Bill of Rights Act (the right to be secure against unreasonable search
or seizure). For the reasons
noted above, we have concluded that any search or
seizure appears to be reasonable and that therefore this right is not
engaged.
Section 19 – Freedom from discrimination
- Section
19(1) of the Bill of Rights Act affirms the right to freedom from discrimination
on the grounds set out in the Human Rights
Act 1993 (the Human Rights Act).
- Discrimination
under section 19 of the Bill of Rights Act arises
where:10
- there
is differential treatment or effects as between persons or groups in analogous
or comparable situations based on a prohibited
ground of discrimination;
and
- that
treatment has a discriminatory impact (it imposes a material disadvantage on the
person or group differentiated against). Once
differential treatment on
prohibited grounds is identified, the question of whether disadvantage arises is
a factual determination.11
- New
subsection 150E(2A)(b) of the Bill requires that the chair of the Milk Price
Panel (the Panel) not be a relative of a sitting
director of Fonterra, a member
of Fonterra’s Co- operative Council, or a current panel member appointed
by that council. This
is additional to the existing requirement, in subsection
150E(2) of the principal Act, for the chair and a majority of the Panel
to be
independent.
- This
provision may impose a limit on the right to be free from discrimination on the
grounds of family status or marital status, which
are prohibited grounds of
discrimination under the Human Rights Act. The right would be limited if a
person were considered to have
been differently treated when compared to a
member of an analogous group (for example, someone with comparable skills)
because they
were ineligible to be Panel chair on the grounds of family status
or marital status; and to have been materially disadvantaged as
a result.
10 Ministry of Health v Atkinson
[2012] NZCA 184, [2012] 3 NZLR 456 CA at [55].
- See
for example, Child Poverty Action Group v Attorney-General [2013] NZCA
420; [2013] 3 NZLR 729; (2013) 9 HRNZ 742, at [179]; and McAlister v Air New
Zealand [2009] NZSC 78; (2009) 6 NZELR 704, at [40] per Elias CJ, Blanchard
and Wilson JJ.
- To
the extent that this provision limits the right, we consider it to be
demonstrably justified in terms of section 5 of the Bill
of Rights Act.
Mitigating conflicts of interest in the base milk price setting process is
rationally connected with the important
objective of supporting transparency and
confidence in that process for the benefit of the wider industry. The additional
requirements
appear reasonable and proportionate. The definition of
“relative”, which is unchanged from the principal Act, is confined
to close family members.
Section 25(c) – Right to be presumed innocent until proven guilty
- Section
25(c) of the Bill of Rights Act affirms that anyone charged with an offence has
the right to be presumed innocent until proven
guilty according to the law. The
right to be presumed innocent requires that an individual must be proven guilty
beyond reasonable
doubt, and that the State must bear the burden of
proof.12
- The
Bill creates new strict liability offences where:
- a
person fails, without reasonable excuse, to comply with the requirements of new
sections 109LA or 109LB (relating to financial markets
research and analysis
about Fonterra’s performance), or 135A (dividend and retentions
policy);
- a
person fails, without reasonable excuse, to comply with the requirements of a
notice given under new section 150ZD(2)(a), (b), or
(c) (to provide specified
information or material or answer questions to enable the Commission to carry
out its functions);
- without
reasonable excuse, Fonterra contravenes amended sections 150E(1) or 150E(1A) or
new section 150E(2A) (relating to appointment
of members to the
Panel);
- without
reasonable excuse, Fonterra contravenes section 150EA(1), (2) or (3) (relating
to engagement of persons to calculate a base
milk price).
- Each
of these offences carries a maximum penalty of $200,000, plus $10,000 per day
for continuing non-compliance. This is consistent
with existing penalties in the
principal Act.
- On
the face of it, strict liability offences limit section 25(c) of the Bill of
Rights Act. This is because they create a ‘reverse
onus’: instead of
the State having to prove guilt, the accused must prove a defence (or disprove a
presumption) in order to
avoid liability.
- A
reverse onus may nevertheless be consistent with the Bill of Rights Act if the
grounds for the offence are rationally connected
to a sufficiently important
objective; if the onus impairs the right or freedom no more than reasonably
necessary to achieve the
objective; and if it is otherwise in proportion to the
importance of the objective.13 Strict liability
offences have been found more likely to be justifiable where:
- the
offences are regulatory in nature and apply to persons participating in a highly
regulated industry;
12 R v Wholesale Travel Group
(1992) 84 DLR (4th) 161, 188 citing R v Oakes [1986] 1 SCR 103.
13 See Hansen v R [2007] NZSC 7, [2007] 3
NZLR 1 (SC).
- the
defendant will be in the best position to justify their apparent failure to
comply with the law, rather than requiring the Crown
to prove the opposite;
and
- the
penalty for the offence is at the lowest end of the scale and proportionate to
the importance of the Bill’s objective.
- On
balance, we consider that the limit on section 25(c) of the Bill of Rights Act
appears justifiable, as:
- the
offences rationally support the important objective of maintaining transparency
and effective regulation of the dairy industry
in the context of
Fonterra’s capital restructuring;
- the
offences are regulatory and apply to a highly regulated
industry;
- Fonterra
would be best placed to advise of any reason for its non-compliance and would be
able to avoid liability by offering a reasonable
excuse for not
complying;
- while
the financial penalties are high, they appear reasonable and proportionate in
context. We understand that they are intended
to apply to Fonterra, New
Zealand’s largest dairy processor. Significant penalties are therefore
likely to be needed if they
are to act as a deterrent and reflect that the
activities will be undertaken in a commercial context. The use of daily
penalties
appears reasonable, given that any failure to supply the required
information could have significant, and potentially cumulative,
effects on the
dairy industry – for example, by distorting trading decisions or
undermining confidence in the milk price-setting
regime – until it was
rectified.
Conclusion
- We
have concluded that the Bill appears to be consistent with the rights and
freedoms affirmed in the Bill of Rights Act.
Jeff Orr
Chief Legal Counsel Office of Legal Counsel
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