28N rights proceedings

The Fisheries Act 1996, which came into force in 2001introduced a proportional quota share system with a fixed 100 million shares for each fish stock. This change has compounded the 28N rights issue, as when28N rights are triggered the Crown takes settlement quota shares away from quota holders, without compensation, and passes them onto 28N rights holders creating a permanent loss in shares.

In the event there is a TACC increase in a fishery with outstanding 28N rights, normal quota is just as susceptible as settlement quota to be taken for the satisfaction of 28N rights.

The QMS changed to a proportional tonnage system in 1990.Instead of having a fixed tonnage system where the Crown had to compensate quota holders when TACC was reduced and sell the quota when TACC was increased, quota became proportional with each owners share set by the amount of quota held when the new system came into operation. The regime provided for proportional increases and decreases in TACC without compensation or cost.  The Crown shifted the fiscal risk, administrative burden and contingent liability from itself to the other quota holders.

Under the new proportional system, when a TACC was increased in a fish stock where 28N rights had been issued, the Crown would simply allocate all the TACC to the 28N rights holders up to their entitlement. Existing quota holders did not reap the benefit of increases in TACC until the28N rights were exhausted.  Any remaining TACC was then distributed on a proportional basis to the remaining quota holders.  The effect of this, which was disguised by the fact that everyone was getting increased TACC, was that the original proportionality of quota holdings, including the 10% of settlement quota, was being gradually eroded. The new allocation came at the expense of existing quota holding rather than the Crown.

Under the 1989 interim settlement the Crown transferred fourtranches of roughly 2.5% of existing fishing quota to Māori which was laterenshrined as part of the 1992 settlement. The total transferred wasapproximately 10% of existing fishing quota. This quota along with a subsequent allocation of 20% of quota in newspecies entering the QMS, is known as settlement quota.

The Quota Management System (QMS) was introduced in 1986 tomanage fish stocks in Aotearoa and originally operated as a fixed tonnageregime. Under this regime the Crown bore the fiscal risk and reward of changesin the Total Allowable Commercial Catch (TACC) for each stock.  

If the TACC for a stock went up, the new quota was allocatedto the Crown who could sell it. If there was a TACC reduction the Crown wouldbuy back the quota and pay full market rate compensation to the quota holders,determined by arbitration if necessary.

At the dawn of the QMS, many fisheries were heavilyoverfished and significant catch reductions were required to ensure theyremained sustainable. It became evident that the amount of quota allocated toquota holders based on catch histories now exceeded what was deemed to be thesustainable limit for the fishery at the time.

In response to this, the Government offered quota holderstwo options:

• take a cash payout which corresponded to thereduction in their catch; or
• Rather than taking an immediate payout, quotaholders could receive a deferred entitlement to future quota. This means thequota holder would wait and see if the TACC increased again, in which casetheir lost quota would be restored back to them at no cost.  This was known as 28N rights (section 28N ofthe Fisheries Act 1983).

If the TACC went up and there were unredeemed 28N rights inthe fishery, the new quota would go, free of charge to the 28N rights-holders.The free allocation meant the Crown was required to forego the revenue it wouldotherwise have gained from selling the quota, but in doing so it was slowlypaying back the compensation debt it assumed through the 28N rights regime,when catch levels were reduced in 1986.

At this time, 28N rights were benign for other quotaholders. If TACC went up, some operators might receive new quota free ofcharge, but existing quota holders lost nothing, apart from the opportunity topurchase quota if they wished.  The onlyparty that suffered actual loss was the Crown in the form of foregone revenue.