Business Bites: No denying embarrassment of Crafar farms saga

Justice Forrest Miller's opening sentence in his judgement in the judicial review application of the "Crafar farms" decision by the Government made it clear his decision would not favour Milk New Zealand Holdings Ltd, the proposed purchaser. His judgement began: "Parliament has declared it a privilege for overseas persons to own sensitive New Zealand assets, including farms". No prizes for guessing which way this one was going.

But what does this decision really mean?

The application made to the court was one of judicial review. Judicial review is a procedural action which is available for decisions which have been made by the Government, public bodies and certain other institutions. It is not a retrial or an examination of the merits of the decision. A judicial review is designed to look at whether the decision-making process was fair in a procedural sense. That is, did the decision maker take into account relevant considerations, were they biased and did they apply the law appropriately?

The remedy for a successful applicant is to have the decision referred back to the decision-maker to make the decision again fairly.

In the Crafar farms case, Justice Miller looked at the decision of the Minister of Lands and the Minister of Finance, who are charged with the responsibility of making sensitive land decisions under the Overseas Investment Act 2005 following recommendations by the Overseas Investment Office (OIO). The conclusion Justice Miller came to was the ministers "misdirected themselves in law" by adopting the approach taken by the OIO in its recommendations. So what did they get wrong?

In order for consent to be granted, the ministers must be satisfied the benefit to New Zealand from the acquisition is likely to be "substantial and identifiable". Justice Miller's decision turns on the way in which this assessment is made.

The wording of the Act lists the factors to be considered and requires a determination of whether the overseas investment will, or is likely to, result in certain benefits, for example, the introduction into New Zealand of additional investment for development purposes.

What it does not state is what the starting point for that assessment is.

Logic and the wording of the legislation suggests the current state of affairs (in this case, the run-down condition of the Crafar farms) must be the starting point. Justice Miller describes this as "a before and after approach". In other words, compared with the current position, will the overseas investment result in increased benefit to New Zealand?

Justice Miller states this approach is incorrect and ministers ought to have taken a different approach, a "with or without" approach.

This approach looks at what would happen if the investment did not proceed. In other words, would the benefits arise anyway even if the investment did not go ahead?

In the Crafar farms case, he concluded the benefits would arise anyway on the basis someone would buy the farms and upgrade them. This may well be the case, but is that an approach that flows from the wording of the legislation?

In my view, it is not. More to the point, in my view it is a considerable stretch to say the OIO's approach is one which is misdirected as to the law.

There is no doubt there was considerable public support for this consent not to be given, and the arguments raised on blogs throughout the country range from a desire to keep farms in New Zealand ownership to obviously xenophobic views in wanting to keep the Chinese out.

The existence of the Fay-led consortium as an alternative buyer drove the momentum for opposition to this transaction receiving consent. Surely, the way to deal with this is through the democratic process by changing the legislation itself (which undoubtedly has a number of flaws as it stands), rather than finding alternative interpretations of the Act which do not necessarily render the accepted interpretation unlawful.

The fact this decision by the minister has taken nine months in itself is embarrassing for us on the international stage, let alone the fact it has now been sent back to be made again. This is ironic considering one of the relevant factors is "whether refusing the application is likely to adversely affect New Zealand's image overseas". Even the "with or without" approach of Justice Miller would struggle to refute that one.

 - Sally Peart is a partner in Marks and Worth Lawyers and provides specialist advice on Overseas Investment Act issues.

 

 

 

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