In the Media: Client NZ Taxpayers' Union on Ownership Claims

August 4, 2022

Franks Ogilvie was instructed by the NZ Taxpayers' Union to analysis claims made by the Minister of Local Government, Nanaia Mahuta (and her ministerial colleagues) that local authorities will continue to own three waters assets in the Three Waters Scheme.

The summary of the advice:

Ministers have repeatedly asserted that Councils will have “ownership” of the four new “entities” (actually bespoke statutory corporations) to take over three waters assets under Minister Mahuta’s scheme. The Water Services Entities Bill (the “Bill”)contains statements that Councils will “co-own” the corporations in “shares” tobe allocated to them. In this opinion the assertions that Councils will share ownership are referred to as the “Claims”.

The claims are false, misleading and deceptive. The Councils will have none of the bundle of rights that define and are conferred by ownership in any sense familiar to lawyers, or understood as the common significance of ownership. Councils are expressly denied the rights of possession, control, derivation of benefits, and disposition that are the defining attributes of ownership.

In our opinion the Claims would constitute an offence by the Ministers if they were under the obligations of honesty found in the Financial Markets Conduct Act 2013 (“FMCA”)and the Fair Trading Act 1986. But that law confines the liability to people “in trade’. If the Ministers were prosecuted they would have the defence that what they have said is in politics and not in trade.  

Though “in trade” has an extended meaning, it would be over-strained to make it cover the Ministers in these circumstances. In addition Councils are in a category of prospective investors who the law consider to be sophisticated enough not to need the protection of particular securities law disclosure standards.

Accordingly we think the Ministers have immunity to fair dealing law with respect to the Claims, despite apparently ignoring the normal ethical standards for communication regarding shares and other investments.

In our opinion the Claims will remain untrue, misleading and deceptive even after the Bill becomes law. That is because the word “own” and its derivatives, and “share”, have important and well understood meanings. Even the MPs considering the Bill are likely to assume that the words carry in the Bill at least some of their ordinary meaning. But they appear in a Bill that expressly negates or contradicts the essential elements and concepts that define those words in both ordinary and legal usage.

The Claims of continuing Council ownership appear designed to reassure Councils and their ratepayers. They are so patently misleading that the persons and bodies making them must be either recklessly or deliberately deceptive. The Bill seems calculated to deceive Parliamentarians, and when it becomes law, to deceive New Zealanders generally.  

There is a possibility that a court could hold some members of the Working Group on Governance liable for contravention of the Financial Markets Conduct Act, or the Fair Trading Act. The Group members appear to have been complicit in making untrue claims. If they were company promoters, brokers, accountants, lawyers or bank staff trying to peddle shares under the Bill as if they confer ownership they could be liable to prosecution by the Financial Markets Authority, or the Commerce Commission.

We think that work by the Working Group involved at least the professionals on the Group, in providing services that were “in trade” within the meaning of the FMCA and the FTA.  Those statutes set out minimum standards of honesty for people in trade. They may be enforceable with respect to misleading statements from consultants and other experts engaged by the government to be held out as authoritative.

DIA officials and LGNZ appear also to have colluded in the misleading and deceptive conduct. The Public Service Commissioner and LGNZ members respectively should be asked to remedy this.

The full advice can be accessed here

Director Brigitte Morten was also interviewed on Today FM with Tova O'Brien on the advice. The audio of the interview can be listened to here.

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