Justice Miller put on his radical robes yesterday and turned the prevailing view of foreign investment on its head. So what does it mean for the overseas ownership debate and the Crafar Farms deal?

Privilege – that's what it's all about. You've got to earn it. The ruling by Justice Forrie Miller to set aside the government's decision to allow the sale of the Crafar Farms to Chinese company Shanghai Pengxin has turned on its head the political – and, it seems, legal – assumptions about foreign ownership of our most sensitive assets.

In recent decades, the consensus in our two main parties has been that it's a privilege for New Zealand to get our hands on any foreign money. Like some garage saler wanting to empty the garage we've said, "gosh, thanks so much for noticing us down here. You want to buy something? Well then, what would you like? Help yourself".

Such as has been our desperation for capital and contacts. Justice Miller, however, in a bit of populist legal rabble-rousing that goes against the beltway establishment but is entirely in line with public opinion, has said 'This is Godzone, by crikey. If you want to come here Johnny Foreigner, you're going to have offer something pretty darn special'. (That's assuming that Miller is a posh Anglophile, which is what judges tend to be in my imagination).

Like some robed bouncer, he's told Shanghai Pengxin – and all potential foreign investors – that we have a dress code in this country and if they want to come in they'd better polish their shoes and put on their best suit. And given the value of productive farm land to our country's wealth, our national identity and our great-grandchildren's prosperity, that's probably not a bad view to take.

I'm wary of heading into legal territories where Andrew and the rest of the online legal gang could offer much more insight (and beat me up very publicly should I have this wrong). However as I read the decision, it boils down to this:

  • The Overseas Investment Act prefers New Zealanders to buy "sensitive assets". To earn the privilege of ownership here, a foreign investor has to show "substantial and identifiable benefits" to New Zealand.
  • The Overseas Investment Office had previously taken that section at face value – a sale had to be beneficial to national interests. And hey, in most cases fresh cash coming into the country is good for business, so case closed. No, no, says Justice Miller, you have to consider "a counterfactual" – in this case, what would happen if the Crafar Farms were sold to New Zealand buyers. Or, in his words, "assess what would happen 'with or without' the overseas investment".
  • So, if the overseas buyer offers no greater benefit than a New Zealand buyer, then no deal... pack your bags... you haven't earned the right to do business here, son.

In short, Miller has raised the bar – now overseas buyers don't just have to offer a deal that's beneficial to New Zealand, they have to offer a deal more beneficial than any potential local sale.

And, Miller argues, simply offering a higher price for the land doesn't equate to a greater benefit. He writes:

The Act finds New Zealand ownership of sensitive assets desirable, and it advances that preference in several ways; for example, by requiring that sensitive land first be offered for sale to non-overseas persons. By excluding financial benefits to the vendor, s17 ensures that an overseas investor cannot pass that benefit test merely by outbidding others".

I'm not sure he's got this bit right. The principle is bang on – private gain is not necessarily a public good. But the reasonable argument in this case is that Shanghai Pengxin offered tens of millions more than the next highest bidder, and such a significant amount of money is good for our economy and therefore good us all. If the counterfactual is much, much less money, "financial benefits" must be considered, mustn't they?

My first reaction to the ruling? Irony. That Michael Fay of all people should be party to making foreign investment in this country more difficult is surely the gods mocking us. In trying to get the farms for a knockdown price under cover of iwi and faux-patriotism, Fay has made it much harder for anyone else to do what he did in the 1980s and 90s, ie flog stuff off to overseas companies. Bizarre.

My second thought is that the deal is still likely to go through. As I wrote in my previous piece, it seems to me that the receiver and government had negotiated a damned good deal given the current law. Even ignoring the higher price bid, Shanghai Pengxin offered to invest more than $14m into the farms; protect the Nga Herenga  and the Te Ruaki pa sites and improve walking access to the Pureora Forest Park and Te Rere falls; and offer on-farm training to new farmers.

More crucially for me, the Chinese bidders bring close relationships with Chinese supermarket chains and promised to create two new New Zealand dairy brands (Nature Pure and Pure 100), spend $100m over the next five years promoting New Zealand dairy in Asia and help Landcorp sell its products in China.

More subtly, the deal also put the government, via Landcorp, in charge of managing the farms as well as protecting Fonterra and diplomatic relations with our second largest export market.

Can Fay and the iwi offer such benefits? I don't see how, and for me this is where the judge's argument stumbles; he has no idea what the actual counterfactual is. The Fay consortium has indicated a price it's willing to pay (one so low the receivers didn't even bother to reply), but has never put in a formal bid. Would they keep the walking tracks? Protect the pa sites? Create new brands and spend $100m on promotions?

Miller suggests that a counterfactual New Zealand buyer would spend just as much developing the farms and improving farm production and... well, that's it. It's as if increasing farm production is the only benefit New Zealand accrues from this sale.

But the real benefits for New Zealand in the Shanghai Pengxin bid are those generated by the precise fact that they are a foreign company, and so have contacts, market leverage and a marketing spend that any local buyer is unlikely to be able to match.

Which is why I suspect the OIO will next week again recommend the sale go ahead.

That's not to say I'm comfortable with this deal, or any loss of large tracts of New Zealand land into foreign hands. We have to look more deeply at ways to gain the benefits of such partnerships without becoming tenant farmers in our own land.

And it could have implications for businesses here. Do overseas investors want to come here enough to up their game? Will they want us more than we want them?

What of the party politics? Rather than make this an incredibly long post, I'll write about that shortly, in another piece.

 

Comments (17)

by Ian MacKay on February 16, 2012
Ian MacKay

Tim writes: By excluding financial benefits to the vendor, s17 ensures that an overseas investor cannot pass that benefit test merely by outbidding others".

You say that you think Justice Miller got this wrong. Curious as it could be a serious sticking issue that might at least delay the sale.

Mr Key says that they will change the law if necessary which most people would find rude. Especially those, who after getting a speeding ticket for speeding find that they can't change the law to make their offence become legal.

by BeShakey on February 16, 2012
BeShakey

Mr Key says that they will change the law if necessary which most people would find rude. Especially those, who after getting a speeding ticket for speeding find that they can't change the law to make their offence become legal.

The analogy doesn't work because there isn't any retrospecivity proposed (as far as I'm aware at least).  It'd be more like saying 'well we thought the law meant the speed limit was 100, but the court just said the law means the speed limit is 50, so we're going to change the law so it means what we thought it did'.  Given the government hasn't actually sold the land, (using your analogy), its as if they announced an intention to travel at 100, and the court pointed out this didn't comply with the law.

In this case a legislative fix is still a bad thing (in my opinion fwiw), but not in the way you suggest.

by Ian MacKay on February 16, 2012
Ian MacKay

BeShakey Fair enough. In the eyes of the people however it would sound like we tried to sell the land. The Cort said no. So we change the rules? How about in the midst of a rugby tournament. Yes .The analogy is a bit weak but the perception would be what counts.

by James Meager on February 16, 2012
James Meager

If you believe in parliamentary sovereignty, of course you change the rules.

The legislature legislates, and for a long time it appears the intention of that legislation is being interpreted correctly, that the legislation means X.

The judiciary come in and say "No, X actually means X + Y".

The legislature returns and says "Actually, we intended the legislation to mean X, so now we're going to make that much clearer".

Perception only matters if the people say they don't like that, in which case they democratically remove the Parliament, replacing it with one which says "We think it should be X + Y, so that's what it is going to be".

Parliament is (and rightfully under our constitutional set up) sovereign.*

Democratically elected Parliament > unelected ex-lawyers.**

 

*Shout out to Prof. Andrew Geddis.

**Shout out to Jim Allan.

by mickysavage on February 16, 2012
mickysavage

A couple of comments ...

But the reasonable argument in this case is that Shanghai Pengxin offered tens of millions more than the next highest bidder, and such a significant amount of money is good for our economy and therefore good us all.

Ah but in this case all of the sale proceeds was going to be paid to an Australian Bank.  The Pengxin offer would mean the haircut suffered by Westpac was modest, the Fay consortium offer meant it would be worse.  The economic benefit to NZ Inc of the lower offer would be better.  So the "reasonable" argument would be to accept the local offer.

it seems to me that the receiver and government had negotiated a damned good deal given the current law ...

Good for Westpac but good for NZ?

One other matter, the discretion given to the Ministers is IMHO very wide.  They have a number of matters they have to take into account BUT section 17(1)(c) says that the Ministers "may, in doing so, determine the relative importance to be given to each relevant factor".  The Pengxin offer looked pretty good mostly but its proposal for local job creation is pretty appalling.  Section 17(2)(a)(i) made this an important consideration.  If the Ministers put a high importance on this factor the proposal would probably fail.

The Ministers are not boxed in by legal considerations.  They actually have considerable discretion.

by Philip Grimmett on February 16, 2012
Philip Grimmett
How much for your granny? She's got a bit left in her. This entire business is ridiculous and pathetic. What is the limit to total overseas ownership using this line of thinking.? Clearly we are governed by incompetents.
by Draco T Bastard on February 16, 2012
Draco T Bastard

But the real benefits for New Zealand in the Shanghai Pengxin bid are those generated by the precise fact that they are a foreign company, and so have contacts, market leverage and a marketing spend that any local buyer is unlikely to be able to match.

And is still not a good reason to sell the economy. The economy is based upon resources not money, farmland (land in general in fact) is a resource and selling it to foreign owners is thus bad for our economy because by doing so it becomes smaller than it was.

by Tim Watkin on February 16, 2012
Tim Watkin

Ian & BeShakey: The other reason the analogy doesn't work is that they're the government. Their job is to make law, as James says. If the courts interpret the law in a way they don't like, they have a mandate to change it. Or at least can seek a mandate to change it at the next election. If enough people don't like it, off with their heads.

Micky, yeah good for NZ. As I wrote, even taking the price out of the equation, all the other requirements and promises amounted to a deal that was way more beneficial to this country than most sales.

by Tim Watkin on February 16, 2012
Tim Watkin

Draco, are you saying no NZ "resources" should be allowed to be sold to non-NZ residents? What do you define as a resource? Is it just sales? What about rents and joint ventures? Should foreign companies be allowed to drill, or just Todd Corp? And what if they ever get bought out? Do we forceably buy back every foreign owned farm? Or force foreign farm owners who choose to simply live on the land to use the land productively, or else? Can we licence any foreign fishing boat, or crew for that matter, to enter our waters? Is land used for tourism a resource? What about if a foreign national marries a New Zealander and wants to buy some land?

I'm not having a go and I get the point, but I genuinely wonder where the line is. We can't credibly just close the doors and say 'no foreigners welcome', so what do we do?

by stuart munro on February 17, 2012
stuart munro

The government's job is to represent the people, and in fact to lead them. If it doesn't do what the people want it should be able to point to an indisputable advantage for the populace of not doing so. Unhappily we have had series of very duplicitous regimes who have done what they damned well liked. Judge Miller is simply applying the original, pre globalisation-cult meaning of the legislation. Traditionally, foreign persons or corporations could not buy land in New Zealand. The British were an exception, because of our colonial status.

As for Key changing the law, he could do that. But it will be very unpopular. And we don't have to wait for an election to throw him out for it. There are numerous historical precedents for governments being thrust from power by unruly mobs, or even defenestrated.  Sadly, the Beehive is poorly designed for defenestration, but kiwis are great improvisers. Throwing him in the harbour and suggesting he swim to Hawaii might suffice to be going on with.

As for what we do, our traditional procedures suffice. A foreign national who marries used to get citizenship automatically, and thus could buy land. An exiting foreigner or company should have a reasonable period to dispose of the land, after which the govt can hold it until they can sell it at government valuation. These are not difficult matters, we had working systems before the great 1980s mistake. And much of the legislation remains, but it's intent has been corrupted by governments that imagined that globalisation spelled the end of accountability. Thus fig-leafs like the OIO, that stay out of sight, and never say no. Not even to Tommy Suharto.

Oh, and we do licence pretty much any foreign fishing boat, and crew who enter, and try to straighten them out afterwards. Hence the decline of all commercial fisheries except scallops since the advent of the QMS.

New Zealand MPs: tirelessly working behind the scenes for some other bastard.

by Tim Watkin on February 17, 2012
Tim Watkin

Traditionally, foreign persons or corporations could not buy land in New Zealand.

Stuart, do you have any dates or facts on that, such as when it changed and why.

by stuart munro on February 17, 2012
stuart munro

It's apocrypha from a 1st year law course at Otago years ago - the property law the British empire ran, and that we necessarily inherited.

But the Treaty is one example - the crown wanted exclusive right to purchase Maori land, to prevent foreign ownership, and to regularise the proceedings, NZ having claimants about three times over in many areas at that time. The biggest foreign claimants were part of the New South Wales goverment, but the French, and the adventurer de Thierry were also interested.

Britain acquired territories like Singapore and Malaysia, sometimes by treaty (there's a nice account of Singapore in Hikayut Abdullah), and sometimes by military support of a private purchase. They weren't in a hurry to let anyone return the favour.

 

by animalspirit on February 17, 2012
animalspirit
Sorry Tim.  But I stillthink your opinion is Nuts and Naive
by @BoJangles on February 18, 2012
@BoJangles

The requirement of foreigners when purchasing "sensitive land" to seek consent(s) always invited political / public negative  response to such purchases , if they were controversial.    Sensitive = Political,   controversial = xenophobic

by stuart munro on February 18, 2012
stuart munro

@ bojangles 'controversial = xenophobic'

Of course you do know xenophobia is rational don't you? Look at California, once the property of Spanish landowners. It was subsumed into the US, and now none of those landholdings belong to their former owners. Nations are not good at protecting minorities outside the political elite.

New Zealanders have a very rational set of fears that their governments have been selling them out. Are they not entitled to try to protect their interests through the political process, or is that right confined to PC airheads who imagine that globalization is some kind of paradise, and not the systematic exploitation of large groups of people.

by on March 07, 2012
Anonymous

These Adidas Jeremy Scott Bones are generally a collector’s item, so are popular by fans, collectors, and people who plan to sell the shoe alike.The primary reason special shoes are popular is they are unique.

by on May 08, 2012
Anonymous

At this time the Polo Outlet shirts accomplish a accidental seems but in accession can appoint a person's angel instead top quality.Ralph Lauren Outlet For example,Polo ralph Lauren shirt-spun1,polo ralph lauren, you could see Polo tee shirts accepting activated for abode of T-shirts with the authority out to bear the abnormally actual abundant way added accountant appears to be like after accepting any gluttonous as able-bodied relaxed,Ralph Lauren Polo shirt-spun1,ralph lauren polo, as a end up aftereffect creating a academy seek acutely absolutely abundant added all set if accepting activated by employees. Ralph Lauren Men Shirts

Post new comment

You must be logged in to post a comment.