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OCEAN LAW ADVERSE effects and arbitrated compensation BY JUSTINE INNS I n the last issue, we looked at new provisions in respect of the Undue Adverse Effects (UAE) test and, more particularly, the opportunities for marine farmers and quota owners to reach agreement where a UAE exists. In this issue we pick up the story of what happens where agreement cannot be reached. Firstly, an apology for an error in the last column, something we like to think is a rare occurrence. We described the steps that followed the determination of a reservation based on a UAE on commercial fi shing over some or all of an area in respect of which a resource consent for aquaculture has been granted. One of those steps is the opportunity for the consent holder to seek the agreement of quota owners to allow the consent to be exercised. We gave the incorrect impression that efforts to reach such agreement must be exhausted before the consent holder can refer the matter to the arbitration process, which is the subject of this column. While that might be a desirable and logical course of action, the new legislation does not require any efforts to be made to reach agreement before a referral to arbitration. In general, the arbitration process will be conducted in accordance with the Arbitration Act 1996. It will start with the appointment of an arbitrator by the parties – the consent holder and the owners of quota for stocks specifi ed in the UAE reservation – or, failing agreement, by the president of the Arbitrators and Mediators Institute of New Zealand. Once appointed, the arbitrator manages the process in a manner similar to, but hopefully more cheaply and effi ciently, than litigation in court. In particular, the principles of fairness and natural justice apply to all the parties to arbitration. The fi rst, preliminary question the arbitrator must answer is whether the proposed aquaculture activities or the fi shing in relation to which the UAE reservation has been made will be of materially greater economic value to New Zealand. The intent is clearly to ensure the somewhat invasive arbitrated compensation solution is applied only where there is distinct public interest in doing so. The assessment of relative economic value will be no mean feat, however, particularly where new and untested aquaculture species or technologies are involved. The arbitration process will only move into its second phase if the arbitrator is satisfi ed, on the basis of information provided by the parties, that the proposed aquaculture activities will be of materially greater economic value to New Zealand than the affected fi shing. If the question is answered in favour of fi sheries or if the arbitrator cannot determine which way it should be PART TWO answered, the process is at an end, and the aquaculture business cannot proceed without the agreement of quota owners. A number of factors need to be taken into account when arbitration moves on to determining the appropriate level of compensation to be paid to affected quota owners. The level of compensation must be calculated in proportion to the impact on fi shing, including: • any increased fi shing costs (although it appears that the Ministry of Fisheries' practice is to factor these into the UAE decision, so separate consideration of them may not be necessary in arbitration) • any consequential disruption costs, presumably in respect of losses such as an inability to fulfi l supply contracts as a result of reduced catches • a sum by way of solatium, a concept aimed at recognising the intangible losses suffered by a party forced to accept a change they have not agreed to, and • the loss in value of the affected quota, in relation to that part of the relevant average annual catch it is estimated would be reduced if the proposed aquaculture activities were to proceed, with quota value assessed including by reference to any recent transfers of the quota or associated annual catch entitlement. In addition, provision is made for the parties to provide the arbitrator with information on any complementary uses of the site in question that might be possible, and for the level of compensation to be adjusted in accordance with any such opportunities that might exist. Some details of the arbitration process remain to be fl eshed out in regulations currently being developed by MFish. Those regulations are to prescribe a methodology for determining the two questions described above, and set out the type of data and analysis to be utilised in answering the fi rst of them. Certainly, arbitrators appointed to undertake the exercise provided for by the new legislation will have no easy task in front of them. It is to be hoped that the process ultimately provides a useful means of breaking the deadlocks that have stifl ed aquaculture development in some areas, rather than just another jumping off point for further rounds of destructive and costly litigation. Finally, a very Merry Christmas to you all. Justine Inns is a partner at Oceanlaw. She spent more than a decade as an advisor to various iwi (tribes), including several years with Ngai Tahu. 14 New St, Nelson. PO Box 921, Nelson 7040. T +64 3 548 4136. F +64 3 548 4195. Freephone 0800 Oceanlaw. Email justine.inns@oceanlaw.co.nz www.oceanlaw.co.nz 10 ■ NZ AQUACULTURE ■ JANUARY/FEBRUARY 2012