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BusinessDesk: High court judge tells government to reconsider sale of Crafar dairy farms to Chinese buyer

BusinessDesk: High court judge tells government to reconsider sale of Crafar dairy farms to Chinese buyer

 By Pattrick Smellie

The Crafar farms saga continues, with the High Court ordering permission given to Chinese investor Shanghai Pengxin to buy the farms be set aside and reconsidered because the Overseas Investment Office had “materially overstated” the economic benefits for New Zealand.

While the judicial review issued today by Judge Forrest Miller does not kill the widely unpopular sale of the 16 farms, in receivership, he conceded it does place it “at some risk”. The farms’ receivers, Korda Mentha, were already operating beyond their own Jan. 31 deadline for concluding the sale, while they waited for today’s outcome.

“The parties to the transaction have agreed to delay pending my decision, but based on what I have been told about the agreement sale and purchase, either of them could respond to this judgment by cancelling it,” the judge said. “But there is no evidence that the transaction will fail if the decision is returned to ministers for reconsideration.

If the bid from Pengxin’s New Zealand entity, Milk New Zealand, “is much better than any competitor’s…then the receivers face an incentive to wait so long as they think Milk NZ enjoys reasonable prospects of success.”

“No one suggested that reconsideration need take long,” said Judge Forrest. “On the face of it, the OIO may simply recalibrate its existing recommendation. The error matters enough on the fact to justify taking such risk as there is.”

The OIO spent nine months assessing the Pengxin bid, which is reported to have valued the farms at $210 million, some $40 million higher than the bid by a consortium of New Zealand bidders led by merchant banker Michael Fay.

The Fay-led consortium sought the first ever judicial review of an OIO decision after the office recommended the Pengxin purchase, which involved a share-milking joint venture with state-owned Landcorp and investment of a further $14 million in the farms.

Judge Miller said the OIO had only discounted “an unquantified but plainly modest amount” to cover the cost of repair and maintenance of the farms which it acknowledged in its recommendation to ministers was substandard.

His judgment finds that any investor in the Crafar farms could be expected to return them to normal levels of production, and that Pengxin needs to show its investment would benefit the New Zealand economy beyond that.

“The ministers could scarcely serve the legislative objective if when assessing a given economic benefit they were to ignore clear evidence that the benefit will accrue anyway, should the land remain in … New Zealand ownership.”

“The benefits of overseas investment must be identifiable and substantial. If a given benefit will happen anyway, it cannot easily be described as a substantial consequence of the overseas investment,” said Judge Miller.

While it had been argued that such analysis would require complex second-guessing by the OIO, the judge said he did not believe such a test was unworkable “in a case such as this.”

“The weighing of economic benefits among themselves and against non-economic benefits requires not calculation but ministerial judgment.”

He found that the two ministers who recommended the deal proceed, Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman had “misdirected themselves” by relying on the OIO’s “before and after” approach to assessing economic benefit from the Pengxin bid.

Judge Miller said the error was “not a mere technicality.”

“No one suggested that the farms are likely to remain in their present unsatisfactory state, whoever purchases them.”

Prime Minister John Key gave initial government reaction, saying it was “not unusual for a judge to see it a different way to internal counsel.”

“The Overseas Investment Office will have to go back and reconsider the application in light of the new ruling of the judge, and it’s eminently possible the Overseas Investment Office will come up with exactly the same recommendations and ministers will accept it,” Key said in the House today.

The Crown is “extremely unlikely” to appeal the judicial review, Key said.

Williamson said he expected to make a statement later today after receiving advice from the Crown Law Office and the OIO.

A spokesman for the Crafar Farms Purchase Group welcomed the decision.

“Our view was that Shanghai Pengxin’s offer brought no real economic benefit to New Zealand and it was not in the best interests of New Zealanders. It is reassuring that a High Court judge has come to a similar conclusion and set aside the ministers approval.”

Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman released this statement on the decision on Wednesday afternoon:

Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman said today’s High Court judgment on the judicial review of Shanghai Pengxin’s bid to acquire the 16 Crafar farms provides a new judicial interpretation of complex legislation.

The High Court considered the case on two grounds. These were:

  1. Under section 16 (1) (a) of the Overseas Investment Act and whether the bidder had the relevant business experience and acumen.
  2. Under section 16 (1) (e) (ii) and (iii) which requires the investment to deliver substantial and identifiable benefits to New Zealand. These are measured by 21 factors outlined in section 17 of the Act.

On the first issue, the Court found Ministers had applied the correct test under section 16 (1) (a) and there were no grounds for review on the basis of relevant business experience and acumen.

On the second issue, the Court ordered the decision to approve the sale be reconsidered. The Court’s ruling calls for a different test to be applied to the economic factors in section 17 of the Overseas Investment Act than the Overseas Investment Office had previously applied.

Instead of applying a ‘before and after’ approach to the economic factors in section 17, as the Overseas Investment Office did in its recommendation to Ministers, the Court has ruled those factors should be assessed by asking what would happen ‘with and without’ the overseas investment. In this case, it is likely this will only apply directly to four of the 21 factors – section 17 (2) (a) (i), (iii), (iv) and (vi).

“This ruling changes the interpretation of how the economic factors in section 17 should be assessed,” Mr Williamson says.

In light of this ruling, the Overseas Investment Office will now apply an approach consistent with the Court’s ruling and resubmit a recommendation report to Ministers.

“We don’t have a clear timeframe for this process but expect to receive the resubmitted recommendation report from the Overseas Investment Office in a matter of days, not weeks,” Mr Williamson says.

Here is Prime Minister John Key taking questions on the decision from the opposition in Parliament Wednesday afternoon:

Here is Land Information Minister Maurice Williamson:

Read the full judgement in the document below:


(Updates with Question Time, judgement, video clip of PM Key on the decision, clip of land information minister Maurice Williamson)

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nice one.....

That's the problem when you have badly written legislation.
The term "likely to benefit New Zealand " is so vague that even $1 additional investment can be termed as the judge said.."any buyer would invest in the farms improvement"...however he did not say how much should be invested and rightly so...
In which case $100 to improve the tractor would be improvement too ???

Lets hope that the Government accepts this as diplomatic way out of something that is definetly not in our best interest.

this smacks of Judicial Activism

in the same way as the OIO decision smacked of political interference?

However, having said that, goNZ, anything that raises the bar in, with, about, over, or for New Zealand and New Zealanders in my view is a good thing. It doesn't get done often enough.

Video clips of Key and Williamson in there now

What's the chance of the other crowd (MF Consortium) buy the land and then hock it off later on the track for a lot more moolah..  NZ Rail as example.  Not sure if I trust both of them...

I always wondered if that was the scam. Buy for $170m then flick to the Chinese for a quick $30m+ profit. 

This must be one of very few cases that has been reffered to the courts, yet they have set aside the decision.
Question:  So how many other flawed decisions are out there?
All pending and current sales should be immeadiatly suspended until this is sorted.
Can of worms...

I have embedded the judgement in the article now

Does this mean that  ALL OF THE OTHER decisions previously made by the OIO are also FLAWED?
Time for a re-think about how the OIO can reach decisions that almost always go the same way.

Based on those tests it will be interesting to see if any earlier decisions are reviewed and overturned. ie overseas pension funds purchasing new zealand forest estates.

Updated article in there now

Lets face it no decision will be correct  to Michael Fay unless he gets to buy them at a discount and then rehock them off to a foreign buyer later once all the controversy dies down.

Seeing current production appears to be only 4.5m kgsMS i cant see their price as low, but the  accepted bid is high and the debt very high.

Give unto the Chinese what they give the world...a great blow for Democracy..

When as a nation we have spent more than we have earned for over 40 years and accumulated debts of over $ 272 billion ( Increasing by $ 18 billion in the last 90 days or 9 % of  GDP ) - then selling the silver is the last option available  if we wish to continue our consumption binge on borrowed money - and of course on borrowed time.

the buyout was probably a little test case from the Chinese side to see how robust the free trade agreement is. I mean it was a pretty tiny transaction  compared to overall total foreign land purchases in NZ. It could turn into a cow of a problem yet...

What an arrogant bunch of government front- benchers "representing" the NZpublic ! Key and Williamson should front up to the NZmedia and say: "Obviously we have to consider the court’s decision including the majority of the NZpublic opinion, who say no to this sale and others.."

This is the most silly judgement that I have come across....This is a matter of privte property....the banks own this farms and should be allowed to sell for the best price they can get for it.
The OIO bullshit about economic benefits to New Zealand is just Political Correct language for the politicians and Beaucrocrats to cover themselves . What is "beneficial" ??
I suppose now with this ruling foreigners has to pay 30% or 50% more that a willing NZ buyer ?? before it becomes "beneficial" ?? If so then just change the law and say so.
This ruling can then be applied to any purchase in New Zealand whether Farms, Forest, Buildings etc etc by a foreigner.

Kin you are being silly now.
We are a low wage country.  This would be okay if we were all on the same playing field.  But we aint.....investors are coming from high wage economies, others where it is okay to pay 50 cents and hour and employ child labour.  Then they come snooping down here and displace the hard working sharemilker/sheep shearer whoose doing his best to raise a deposit, get ahead and form part of that industrious hard working group that are our backbone.
Think about it.

We are part of the Global Economy, free trade agreements, and now it would appear pretty much a free for all as far as buying NZ property, esp farms, sell to the highest bidder. Land and food production are a limited scarce resource. We are a country of only 4 million poeple, we can be outbid by overseas buyers on all property sales. Security of food supply is an increasingly high priority for the rest of the world. They will pay whatever they think the securitry of food supply is worth That is why Europe will subsidise their farmers. The traditional hard working kiwi farmer in future will be outbid by companies, especially from overeseas, unless there is governement intervention to protect NZ citizens from overseas competition for NZ land. NZ citizens need to decide is NZ for us, or are we and our land just a tradable commodity.

Lets ban all foreign investments then ...Good idea.

No its a matter of NZ well being....private property rights are secondary...

Do people see the hypocrisy now?
We level accusations at the Chinese for not having proper rule of law and govt. interference.
But when push comes to shove we make our law as mallable as a thin sheet of aluminium with opposition MPs saying that the govt. must interfere, to hell with the consequences.
Where is the difference?

Private property rights become a lot less secondary when the private property is your own. Easy peasy when it is someone else's.

Amen to that, and there are posters here promoting their agenda who would include democratic rights as "secondary" too.

But the same property rights issues arise when it's public property (e.g. harbours, water bodies) - only in the reverse - private capital wants to be granted the opportunity to extract and retain all profit from its use of a public property/resource. 

questions that need tobe answered.
has the judge had other dealings with mr fay
what political party did the judge vote for.
this ruling sucks, and overseas investors will think long and hard regarding investing in nz.
our big banks are all owned overseas and the chinese have large shareholings in them.
expect interest rates to rise soon

The judgment is absolutely correct.
There is no benefit to NZ by allowing foreign buyers to drive up the sale price and reduce the potential returns to future NZ farm buyers.
The same goes for all property.  We had to suffer an influx of foreign buyers in 2002-2005 while our dollar was low who bought NZ assets, then sold out when the dollar was high making huge tax free capital gains.  All we got in return was our house prices driven up and yields driven down which made it harder for genuine long term investors (like myself) to operate.
The foreign investors in general did nothing to the properties and sold them in worse condition for a colossal profit.
Because the market can so easily be swamped by foreign buyers, measures to prevent it happening are needed.
Fair and realistic prices are what is needed, foreign capital entering or fleeing the market only causes booms and busts.
Stable, long term investors with a real committment to their NZ assets is what we need.

Of course the whole reason why these farms are on the market in the first place is because of complete mismanagement, both financial and environmental by the Crafers.
A bit rich to say that only NZers will be committed.

Well, no denying there is that - but as per chris's comment - Crafar likely also paid far too high a price for his land aquisitions; and the price he paid to secure the farms was influenced by the already inflated market.  Hence the debt outgrew the ability to service it.
Alot fo folks suggest NZ BBers inflated the bubble - but reality is it was largely due to foreign investment - be it directly by foreign nationals or indirectly by the 'hot money' banks were pouring into the economy.
Capital controls - they needed to be thought of earlier.

Ban All Foreign Investment .....

Reminds me of the judicial review of the Min of Environment's decision to decline the coastal permits required to allow for the Whangamata Marina to go ahead. 
Similarly the judge referred the decision back to the Minister for re-consideration in accordance with the process/procedure set out in the RMA (the errors by the Minister similarly having been spelled out by the judge). 
The then Minister of Env referred the re-consideration to his Associate Minister - who came up with a different conclusion than the Minister did - added some new conditions to the consent/permits and the permits were granted - hence the Marina got built.
If I recall, National's Nick Smith (at the time in opposition) was standing at the press release with the chairman of the Marina Society celebrating the outcome of the judicial review.
Point is - due process has been served - in both cases the judge simply required that the Minister's needed to make their decisions based on evidence and law, not on ideological/political bias.
What has perhaps not yet been considered in this matter is to what degree the OIA/OIO and indeed the responsible Ministers "officially" took into account NZs obligations in relation to our FTA with China. My understanding is that any FTA is subservient to all other NZ statutes, meaning therefore, its provisions must be written such that they do not override/breach other statutes - and if they do, then those statutes needing amending to accommodate before the FTA is signed and approved by Parliament. 
We might find this case brings to the fore the question of to what degree such FTAs have the potential to diminish our sovereignty.  Problem is of course Labour and ex-Labourites have been the principal cheerleaders and initiators of FTAs and globalisation more generally since the neoliberal reforms.  David Shearer has some thinking to do about whether he rebrands their ideology in that regard.
We live in interesting times!

If you pick up a starving dog
and make him prosperous, he
will not bite you. This is the
principal difference between a
dog and a man.”
Mark Twain

 The factors are the following:

  • (a) whether the overseas investment will, or is likely to, result in—
    • (i) the creation of new job opportunities in New Zealand or the retention of existing jobs in New Zealand that would or might otherwise be lost; or
    • (ii) the introduction into New Zealand of new technology or business skills; or
    • (iii) increased export receipts for New Zealand exporters; or
    • (iv) added market competition, greater efficiency or productivity, or enhanced domestic services, in New Zealand; or
    • (v) the introduction into New Zealand of additional investment for development purposes; or
    • (vi) increased processing in New Zealand of New Zealand's primary products:

To be honest if a court/or anyone truly knows the answers to these factors I will give them all my investment money for they clearly have the unique ability to solve the economic calculation problem.

Statement from the OIO:
The High Court today released its decision in relation to the judicial review of Ministers’ decision to grant consent to Milk New Zealand Holding Limited (a wholly owned subsidiary of Shanghai Pengxin Group Co. Limited) to purchase the 16 Crafar farms.
The Court approved the Ministers’ approach with regard to the purchaser’s business experience and acumen, but required the Ministers to reconsider the benefits the purchase would bring to New Zealand.
“The Court’s decision potentially affects only 4 of the 21 factors for assessing benefits to New Zealand,” said Annelies McClure, Manager of the OIO.  “We will apply the approach directed by the Court in a new recommendation to Ministers.”
The OIO expects to make its recommendation to Ministers in a matter of days.

Common 'wisdom' says China is the international power for the future.  Wrong. At present many Chinese are happy to exercise their new economic freedoms, but freedom of action is not going to be limited to the economic domain for ever, the pressure will go on for political freedom and a multi-party model, which will be resisted at all costs by the Communist Party elite.  China will become destabilised then and most of their energies will be on the domestic front.  But in the meanwhile they are good for a decade or so and that of course does have a benefit for NZ and Australia

I think what you say stands a high probability of coming about. As any student of Chinese history will tell you, China's declines and falls over the centuries have more often than not come at the hands of the Chinese themselves. For example, the fall of the indigenous Ming dynasty at the hands of the non-Chinese Manchu came about when a Chinese general, who was ordered to stop them, just opened the gates to the Manchu army and said come on in!

Minister Williamson has just stated on Newstalk ZB that a decision from the OIO can be made in a few days.........
Now how is that possible????? If he knows this, then it really does confirm that the HUGE length of time (was it nine-odd months?) the OIO took to come to a decision or at least the publication timing of their recommendaion last year looks increasingly SMELLY..........

Incompetent government, exposed for the idiots are they. Williamson was trying to claim there were no other bids??? what drugs is he on now? Straight after talking to him the guy from the NZ group confirmed they had made a serious offer. Something is very fishy about this whole thing, lost what respect I had for john key.

I missed the bit where they explained why they had to be sold in bulk.  They are individual farms, scattered around, wouldn't it be as easy to sell them seperatly?  Surely this gives a far greater pool of potential buyers?
The winner here is Korda Mentha, more fees, more expenses etc.  What is their bill up to now?

that's inspired Iain
OMG, I've gone from centre right to centre left in the space of 1-2 years
I was one of many brain washed by the intellectual / philosophical appeal of neo-liberalism
well, it was one big (neo) con
bring back activism, social conscious
kiwis should be on the streets 

I think its a q of balance...neo con is certianly voodoo economics with a vengence....but I think thats because its not really centre right....its pretty far right wing.......
This is quite telling,

You could make your own overseas investment, as the value of the NZD increases they get even cheaper, and when the NZD goes down after you've invested your returns get better.

some big names in the dairy industry in nz own huge tracts of land thru out south america .
no problem with that?

I hear some are trying to sell out of their shares in Sth America.  Nothing so blind as cultural arrogance.

As someone who has lived and worked in China for many years and is married to a Chinese national I believe I can comment on the recent over-turning of the Crafar farms purchase by Chinese.
It’s not racist… it’s just an effort trying to stop greedy rich Chinese buying resources from a relatively poor little country.  It's short sighted on our government's behalf to allow it.  They need to understand the Chinese better!
If Chinese have their way they'll buy up all the world's resources so that their current generation can live a decadent lifestyle (as the Americans do).
Some Chinese friends of mine are very unhappy how greedy their country has become... China has already finished off their own national resources, ripping their country apart, and now they have the money to buy everyone else's.  It's not the harmony & balance they used to have.  It's simply greed.
Easter Island is another good example...  history repeats itself.
The Chinese need to find their brakes.  Catching up with the rest of us is fine.  Having a few luxuries is ok.  Having 1 car even 2 is ok but the Chinese would have 10 cars if they could.  The chinese have recently come out of communism and there are new to their freedom, power and wealth.  Westerners are starting to learn they have taken greed too far.  The Chinese have not learned that yet.  So we have to say "no."  This was a good decision and should hold up.  They will now go somewhere else to find a country that says "yes."
But we should tell them why we said no so they learn...
Chris Fox

"They need to understand the Chinese better!" LOL....the chinese laugh at us as we are a nation of peasants....
Nzers dont understand I think how differently chinese think....though I might throw in its Westerners (or maybe whities) rather than NZers...

Agreed all points.
However since China is a big market for us we need to get folks who understand China to inform our govt or more importantly get our govt to understand China.  England is not that important to NZ anymore...
This is a country that still thinks teaching French in school is more important than Chinese.  We should be teaching our kids about China. China is already a big impact on their lives.  We need to be more independent (from England).  China is important.  We should address that.
It will take time and it will take leadership to address this...

OK, we are on a roll...I agree.....I think you have had to live there for at least 5 years if not 10 to understand them as a minimum....and our Govn (pollies and workers) fail to IMHO...
This farms thing is a classic......they are shooting medium~long term....we are only looking at we are taking almost worthless USD for valuable land......China has buckets of USD it wants to offload before it becomes truely worthless. So I expect we will see more and more land being sold for worthless USD that we will the turn around and spend on chinese made TVs etc........
"french" well my son just started Secondary school, Japanese is an option but not WTF?  Ditto German and yes French, though to be fair some parts of the pacific do speak french....oh wait and canada on the other side....doh...
Some schools maybe getting my wife was asked if she'd like to work at this year was dong chinese and that's my wife and she's ESOL qualified as well, chinese children coming over here is a good earner.......If it had been Wgtn and not rural SI she would have gone for it stood it would have been two lots of accomodation and transport etc, not worth it.
China Important, I'd say influencial in that china is everywhere....not jsut direct trade with us but ppl we trade with are influenced by china.  Japan on this side is a non-event. learning to speak japanese a non-event....china will dominate this side of the Pacific if anywhere/one does....and even if not there are a lot of chinese in most asian logically I fail to see why it isnt being taught more.

Not so very long ago .. there was construction company .. which was a part of a larger conglomerate .. now one of the largest listed public companies on the NZX .. which in the late 1980s or 1990s set out on a global expansion plan .. one of the areas it went into was Hong Kong and China .. they lasted about 10 years (from memory) then closed their asian operations down because the corruption and graft and vig and general business climate was unprofitable to the extent that the required under-the- table backhanders always exceeded any possible profit. This is a true story. I know.

Quite right, Chris, myself 25 years married to a Chinese national and now living in HK. None of our Chinese friends and family approve of NZ opening the door too wide. Despite great care we were ripped off twice when we travelled in Western China recently - prepaid a hotel in Kunming only to be told "who are you when we got there".
There are plenty of decent folks but enough cowboys to warrant caution.

I agree OMG and Chris. But try telling that to the likes of Fran O'Sullivan and you're likely to be falsely labelled as being a xenophobe with commercial and national interest concerns that are not legitimate.

well, do it anyway, who cares about what you get labelled...they don't get it and we're over PC in this country anyway.  What we need is a good dose of common sense... elect a farmer or someone with real common sense into government, they won't double think every action ;-)

If that's all you are worried about, you really dont know how good you have it. Here in Australia there are 20,000 refugees and asylum seekers pouring into the country every year, from the middle east. New Zealand takes under 500 per year. Now read this and understand what is happening.
It's why I have said repeatedly New Zealand has to close its doors.
Now connect that article with the thread about the girl receiving DPB and moonlighting at night. It's the least of your worries.

Iconoclast that link has one gagging.
I read somewhere that  the push for multiculturism and open door migration in the UK came from the Labour party, thinking this would be a good way to stick it to toffee nosed upperclass tories. Boy has that backfired.

Godfrey Bloom, member of European parliament compares Eurobonds to subprime debt and a pathway to hell.
Money-Printing, Central Banking Scammers Belong in Prison