Private property under attack as Baird ignores rule of law

There is a clear link between strong property rights, the rule of law and economic success. Yet two sensational disputes have made it clear that the NSW Coalition — under Baird and his predecessor, Barry O’Farrell — believes it can erode that link with impunity. It is wrong. Baird’s government is playing with fire.

In free societies, a healthy respect for the rule of law and property rights are two of the main preconditions for economic success. That does not mean that property rights are inviolate. It simply means that private property should only be taken from its owner by due process of law.

And by due process, I mean the ordinary law applied by the ordinary courts. Yet the NSW Coalition has started to ignore that principle, most recently with its planned closure of the state’s greyhound industry. This is the second time it has decided to destroy the value of private property held by innocent people without bothering to secure a finding of wrongdoing by a court.

The risk here is clear: unless the NSW Coalition disavows this approach to government, more private property will be attacked whenever the Coalition determines. This sort of public policy is the equivalent of taking out advertisements in Tokyo, London and New York urging institutions to invest their money elsewhere.

The disputes that have brought this to a head are very different, but they show the Coalition’s practice of attacking private property, and bypassing the rule of law, is getting worse.

The planned closure of the greyhound industry will destroy part of the NSW economy that has been estimated to be worth $335 million. When judged by the money involved, Baird is an even greater threat to property rights than his predecessor. In January 2014, O’Farrell destroyed about $300m in shareholder value when he expropriated coal exploration licences.

If Baird persists with his attack on the greyhound industry, the value of private property destroyed by the Coalition since 2014 will be about $635m. In both cases, the Coalition based its actions on reports from commissions of inquiry where the evidence was never subjected to the adversarial processes of courts that have been shown to be the most rigorous method of identifying dross.

In both cases, the Coalition pre-empted the normal processes of the criminal law that protect the innocent and punish only those whose guilt is established beyond reasonable doubt.

Instead, they used legislation to expropriate the coal exploration licences — imposing massive financial losses on innocent shareholders in the companies that held those licences. With the greyhound industry, the Coalition plans to do exactly the same. Instead of allowing the criminal law to punish the guilty and protect the innocent, it plans to use legislation to punish everyone.

Normally, the state’s first law officer might be expected to have something to say about this. But Attorney-General Gabrielle Upton is a junior minister who was tipped this week to be dumped in a pending reshuffle. Her silence is deafening. But there is cause for hope. In both cases, the rationale for the Coalition’s actions — the reports of the inquiries — is itself under attack in the courts. That might prompt a rethink.

If the courts find flaws in the way those inquiries were conducted, the Coalition’s position will be even more tenuous than it is now.

It is bad enough for a Coalition government to attack property rights and sidestep the rule of law. But to do so based on a flawed understanding of reality would be inexcusable.

With the greyhound industry, David Bennett QC — a former commonwealth solicitor-general — has produced an opinion that attacks the legitimacy of the inquiry undertaken by former High Court judge Michael McHugh. That opinion bolsters a legal challenge to the McHugh report that has now been filed with the Supreme Court.

Long before that case is decided, the Coalition will need to deal with the repercussions of a civil case that seeks to strike down key parts of the report that O’Farrell relied upon when he cancelled the coal exploration licences.

O’Farrell was acting on the recommendation of the Independent Commission Against Corruption, which considered the licences to be tainted because of the manner in which they had been issued by the previous Labor government.

It needs to be kept in mind that ICAC is not a court and is independent in name only. It is an arm of the executive, not the judiciary, and The Australian has reported the fact that there was extensive contact between ICAC and the government while the inquiry that led to this recommendation was under way.

The challenge to ICAC’s findings, which started this week in the Supreme Court, is being brought by a man whose name will be familiar to everyone in NSW — Eddie Obeid, the former politician who was recently convicted on the criminal charge of misconduct in public office.

But the civil case is not about Obeid. It is all about the procedures adopted by ICAC, its former commissioner David Ipp, and its former counsel assisting, Geoffrey Watson SC.

If Obeid and his sons succeed in showing the coal inquiry, known as Operation Jasper, was tainted by misfeasance, it will highlight the political risk of bypassing the rule of law when it comes to private property.

Because of the relatively weak nature of all state constitutions, the rule of law is all that stands between the power of state governments and the right to private property.

Until recently, most state governments understood that while they had the power to attack property rights by sidestepping the rule of law, it was simply not in their interest to do so. From the perspective of the world’s centres of capital, Australia is an attractive place in which to do business not because of the sunny disposition of its people, but because foreign investments are protected by the rule of law.

If the NSW Coalition continues to undermine property rights in this way the impact will eventually be felt throughout the nation. Need proof?

In 2014, when O’Farrell cancelled the exploration licences, a treaty with the US was in force that banned the expropriation of US assets in Australia unless it was done with “due process of law” and was followed by “prompt, adequate and effective compensation”.

None of those things happened. And to make matters worse, a provision in O’Farrell’s expropriation legislation grants the government and its officials immunity from any damages claim over the expropriation.

The Coalition was not prepared to subject its actions to the independent justice system.

The total losses imposed on innocent shareholders from that episode are estimated to be worth about $300m.

One of the companies that lost its exploration licence, NuCoal Resources, says its US shareholders lost about $120m.

Last year, I tracked down two of the US institutions that had invested in NuCoal — Ventry Industries, which is an investment holding company based in western Massachusetts, and the Boston-based Sparta Group. Both companies told me they would never invest in Australia again — not just NSW — but the entire country.

Ventry’s executive director, Rob Roy, had this to say: “If there is no effective rule of law where you can go through due process, be heard, and be compensated if you are in the right, why would anyone invest in a country that doesn’t have a rule of law that is enforced?”.

From the perspective of these US companies, NSW must look like a banana republic — and it is easy to see why. They had no notice of any corruption and were never accused of wrongdoing.

They invested in good faith in NuCoal — a company that ICAC found had done nothing wrong.

Less than three years after O’Farrell took away those assets, the Coalition is at it again. Many might see that as a pattern of behaviour.

Some might even conclude that the rule of law no longer protects property rights in NSW.

This might not prompt an international investment boycott, but it will inevitably have an effect at the margin. Some investors who might once have done business in NSW will go elsewhere.

This article is based on an address this week to the legal staff of the Australian Securities & Investments Commission.

Used with permission (WTF)