Fisheries Act Problem – 28N rights.

What are 28N Rights?

These rights were generated at the start of the Quota Management System (QMS).

When the QMS started in 1986, participants in the fishery were allocated catch histories based on a combination of their actual catch, and appeals based on a variety of factors – including "commitment and dependence". When all of these catch histories were totalled up, in most cases they exceeded the Total Allowable Commercial Catch (TACC). There was a buyback scheme – a system of tenders, where the crown offered to buy back catch history. Where there was insufficient catch history bought back, there was a pro-rata reduction of this right to quota.

As the QMS was originally structured, all adjustments to TACCs were to be in the market place. If the TACC was to reduce, the crown had to buy the quota back. If the TACC was to increase the crown could sell it, provided it hadn’t been reduced without compensation. Section 28N of the Fisheries Act 1983 gave those who had taken a cut in their rights without compensation the first cut at any increase (before the crown got to sell any).

After a few years, and some bad calls about how big TACCs should be, the crown was faced with a massive liability to reduce some major TACCs. Treasury demanded change. Thus a deal was struck with major quota holders to change to a system of proportional TACCs. This duly became law (late one evening via supplementary order paper to the third reading of a finance bill).

Section 28N rights were preserved, but the way in which they were preserved wasn’t given much thought. Not much more thought was given to the ’96 Act.

Under a system of proportional quotas, no one gets any compensation for reductions in the TACC. Thus it can be strongly argued that 28N rights should only apply once TACCs reach the level they were when proportional quotas were introduced, because any cuts since then have also been cuts without compensation.

Why is this a problem?

A problem exists in the way the law now reads if TACCs are significantly reduced following the change to proportional quotas.

To take the extreme example – if a TACC (say for Gemfish) were to reduce to zero, then when it was raised again, all of the rights would pass to the 28N holders, and everyone else who owned anything prior to the decrease would have nothing.

That is the extreme case, but any reduction in TACC below the 1990 levels leads to a proportionately larger share going to the holders of 28N rights. This happens in such a way that when the TACC does return above the 1990 levels, the 28(N) right holders have access to many more Kgs of ACE than their original 28(N) rights would have entitled them to. This is neither just nor fair, and was certainly not contemplated by the select committee of the day (even if one or two in industry did think about it, they didn’t say much publicly).

To my mind it is important to preserve the 28N rights, as they are a fundamental part of the right to compensation for property taken. Yet at the same time, the return of the rights taken should not create hardship to others. Setting the 28N right to "cut in" at the TACC levels that existed when the change to proportional quotas was introduced, would preserve the rights of those that lost rights without compensation, without causing hardship to others in the industry.

Those who have the 28N rights can justly argue that such a scheme delays their compensation unfairly. Thus the solution requires adjusting the shares to a level that would have equated to the share position had the increase occurred at the 1990 levels.

To do this we would do several steps

1. Calculate a register of the maximum number of shares available as 28(N) rights.

    1. To do this we would first calculate what the share of the TACC would have been for any 28N right holder at 1990. This becomes their number of eligible shares.
    2. Next calculate how many shares they would have had, had there been an increase in the TACC from 1990 levels by an amount equal to the 28N rights for that stock. The difference between this and their number of eligible shares becomes their Maximum Share Increase – which is added to the register.

2. When any increase is made to the TACC, then shares are removed proportionately such that no one has fewer Kgs of ACE generated, up to a maximum of the total of Share Increases remaining for 28(N) holders. The Maximum Share Increase remaining is reduced accordingly for each right holder, until it is expunged at zero.

That would leave individuals without 28N rights no worse off in Kgs terms, and 28N right holders with the share of the resources they would have had if there had been an increase to the TACC in 1990. If the TACC does return to pre 1990 levels, the 28(N) people have the amount of ACE they were promised under the 1983 Act.

28N right holders get their compensation first, all others as available after that.

It is a solution that preserves all of the rights involved. It is both fair an equitable. It requires a change to the law.