Chapter 9 - Defining the Ambit of Regulatory Takings

Richard Boast and Susy Frankel

This paper discusses the thorny issue of what should be treated as a compensable regulatory taking and what should not. The Regulatory Standards Bill 2011 was drafted so that the Crown could be liable to pay compensation where regulation ‘impairs’ property. This paper discusses how that approach is arguably wider and less well- defined than any comparable jurisdictions’ scheme for compensating regulatory takings. The present government has indicted that the Bill will not become law and its possible successor, known as Treasury Option 5, would not provide such a wide ambit for compensation. Rather it would require the use explanatory notes in Parliament to disclose any effects on property that proposed regulation raises. Unlike the Bill, Option 5 does not give the right to a legal cause of action and at the time of writing does not propose that the explanatory notes address impairments of property as the area is complicated and might require detailed essays rather than notes. Rather, the explanatory notes should address actual takings recognised under existing property law. This paper discusses the merits and otherwise of a regulatory taking regime in New Zealand.

There are broadly three takings regimes in New Zealand. The first two regimes relate to foreign direct investment (FDI). FDI resulting from the trans-Tasman relationship does not allow investor-state arbitration for claims of compensation for takings whereas other trade agreements do, such as in the New Zealand-China Free Trade Agreement. Such a regime creates a risk that overseas investors have greater rights than New Zealanders to claims of regulatory takings. The third regime is limited to domestic property law, which does not right to property as such.

The paper then discusses where the line should be drawn as to what amounts to a regulatory taking and what does not. The authors propose that the type of regulation, including its importance and function, should play a strong role in determining whether regulation should be treated as a taking. Furthermore, an examination of the type of harm or worsening of ownership may be a more workable characterisation than the “too far” approach.  The authors note that the proponents of increasing the scope of compensable takings do not appear to advocate taxation on regulatory givings.

The paper explores three regulatory areas that takings impact: health and safety regulation, environmental regulation and resource expropriation. With regard to health and safety regulation, the authors advocate that the effect of expanding the takings regime should not be at the expense of limiting the ability to make health and safety regulation. In discussing takings in the context of environmental regulation, the authors discuss the US approach taken in Penn Central Transportation Co v City of New York, that  compensation should be provided where regulation was sufficient to prevent a land owner from realising a reasonable return on his or her investment.

The authors conclude that the Regulatory Standards Bill may be a party-political statement than a well-designed fit to combat the particular problems that concern regulatory takings in New Zealand, and suggest there needs to be a longer and better conversation in this area.