Reconsider Crafar farms deal, Government told

A fresh recommendation on the bid by Chinese company Shanghai Pengxin to buy the Crafar farms is expected within days, after the High Court's effective overturning of government consent for the $210 million-plus deal.

Shanghai Pengxin is Korda Mentha's preferred bidder for the dairy farming estate. But the deal, negotiated in April last year, was conditional on the Chinese company getting OIO consent for the purchase of the land, considered "sensitive".

The OIO gave the green light with conditions last month and it was supported by Government Ministers Maurice Williamson and Jonathan Coleman.

However, the High Court has ordered the government ministers who agreed to allow the Pengxin offer to reconsider the application.

In a joint statement released this afternoon, Williamson and Coleman indicated a fresh ruling on the bid would be made within days.

Their statement said the ruling had changed the interpretation of how the law was applied.

As a result of the ruling, the OIO would "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," Williamson said.

OIO manager Annelies McClure said the judgment "may be relevant to other current and future applications".

"What effect the judgment will have will need to be considered on a case-by-case basis by the OIO," McClure said.

However, it would have no impact on decisions already made.

The most recent high-profile purchase of land approved by the OIO was two large rural Wairarapa properties bought for about $20m by Hollywood director James Cameron.

The court's decision on the Shanghai Pengxin bid potentially affected only four of the 21 factors for assessing benefits to New Zealand, McClure said.

The OIO would re-consider its recommendation and issue a new opinion for ministers "in a matter of days".

"We will apply the approach directed by the court in a new recommendation to ministers," McClure said.

Pengxin spokesman Cedric Allan said the Chinese company was "surprised" by the High Court order for the Government to set aside last month's consent and to reconsider Pengxin's application.

"The resolve is just as strong as it was at the start of this journey," Allan said.

It has been nearly a year since Pengxin signed a conditional purchase deal with the receivers of the 16 North Island Crafar dairy farms.

Allan said the court decision mean last month's consent was "scrubbed". It was not a matter for appeal by Pengxin, he said.

The Crafar farms have been in receivership for more than two years.

OTHER OFFER STILL ON TABLE

Justice Miller's judgment followed the successful application by a group of New Zealand farmers and iwi, led by Sir Michael Fay, to block the sale of the in-receivership farms.

The group had sought a judicial review of the Overseas Investment Office's recommendation to approve the $210m purchase by Shanghai Pengxin's subsidiary Milk New Zealand, and the Government's support for that recommendation.

The group said its $171.5m bid for the farms is still on the table.

Spokesman Alan McDonald said the group could not see any real economic benefit to New Zealand or New Zealanders from the Chinese purchase.

"We are really pleased that a High Court judge came to the same conclusion."

Asked if Fay's group would now make a new bid for the 8000-hectare farming estate, McDonald said as far as the group was concerned its bid for the farms, rejected by Crafar receivers KordaMentha, had "never been off the table".

The tortuous saga of their sale looked like ending last month when the Government supported an OIO recommendation to allow the purchase.

The OIO recommendation had several special conditions, including that the Chinese company reach formal commercial agreements with state-owned enterprise Landcorp to operate the farms.

Fay's group sought the judicial review to test whether the OIO had applied the Overseas Investment Act correctly in coming to its recommendation.

The group's lawyers argued in the High Court at Wellington earlier this month that the sale to the Chinese company had no economic benefits for New Zealand, as required by the Act, and that Shanghai Pengxin did not have the expertise and skills to operate the land, also required by the Act.

Bell Gully Lawyer David Cooper, who represented Fay's group, known as the Purchase Group, said: "The judgment confirms that the Ministers and the OIO misapplied the Overseas Investment Act and materially overstated the benefits to New Zealand arising from the transaction.

"The Judge has therefore set aside the decision to grant consent and has required the Ministers to follow the test in the Act."

McDonald said paragraph 57 in Justice Miller's judgement was the one at the heart of the matter for the Purchase Group.

That paragraph states: "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. Any solvent purchaser can be expected to bring their production up to its potential. That being so, the economic benefits caused by the overseas investment were materially overstated in the OIO's recommendation."

McDonald said the Purchase Group and its legal team were now taking time to fully consider the details of Justice Miller's decision.

Allan Crafar, who saw receivers move onto his family-owned farming estate in October 2009 after they were called in by his bankers and financiers owed $200m, said "good sense has prevailed".

He claimed to have enough money to match the Chinese offer to redeem his debt and would be talking to receivers "soon" about buying back the farms.

GOVERNMENT AWAITING ADVICE

Advice from Crown Law was being rushed to the Prime Minister John Key this afternoon, but he already indicated it was "very unlikely" that the Crown would appeal the ruling.

"Given it's very unlikely that the Crown will appeal the judgement, what will now happen is that the application by Shanghai Pengxin will have to go back to the Overseas Investment Office, and they'll now have to start interpreting the law as is prescribed by the courts and that may come up with a very different recommendation to ministers," Key said.

The ruling "may have quite significant implications" for all future bids to purchase farmland, he said.

"One interpretation might be that there would be in future very few sales - I mean who really knows."

The legislation had been interpreted differently for the past seven years it was in place.

"Up until this point, for the last seven years, the OIO relied on Crown Law and their own internal counsel's interpretation of the law and that's now been completely thrown out the window and this is a new interpretation."

Key said he could not say why it was unlikely there would be an appeal, but the Attorney General had indicated that was the situation.

The question in this case was whether the OIO office correctly interpreted the benefits test.

"It's really not a matter for the Government," Key said.

Ministers signed off because of the OIO's interpretation.

"What the judge is effectively saying this afternoon, as I understand it, is that the benefits portion of that Act should be a different way."

There could always be different interpretations of law, and the OIO would no doubt say it felt it had followed the law as it understood it, he said.

If the benefits test changed dramatically, the success of future applications may be quite different.

QUESTIONS IN THE HOUSE

Key faced a barrage of questions in Parliament this afternoon about the High Court's decision.

Labour leader David Shearer asked how the Prime Minister could have confidence in his ministers when the court found they ''misdirected themselves in law''?

''The judge ruled the error was not a mere technicality and that the benefits caused by the overseas investment were materially overstated.''

Key replied that was the decision of the judge.

''It's not unusual for judges to have a different interpretation from a body like the Overseas Investment Office.''

Since 2005 ministers, including former Labour ministers, had relied on advice from the OIO when deciding whether to sign off land sales to foreign owners, he said.

It was ''eminently possible'' the OIO would go away and look at the decision and arrive at the same conclusion.

Greens co-leader Russel Norman questioned the Prime Minister about his previous comments that the Government had no choice but to approve the sale because it met all legal requirements.

''Does he now accept it was possible that another decision was possible?''

But Key said ministers had no reason to believe conditions had not been met and the OIO advice was based on the benefits of the sale.

The court was now saying the OIO should have looked at the outcomes of the sale not going ahead, he said.

Shearer said the Government always wanted to sell the farms to Pengxin.

The ministers involved had the ability to turn down the application, he said.

"They need to have done that, they failed to do that, and that's what the court's showing today."

Labour disagreed with the sale, as did most New Zealanders, and they were vindicated by the court's decision.

The Government now had to re-look at the application, but Shearer said they still wanted the sale to go ahead.

"The Ministers were more or less, if not instructed certainly were determined, to make sure that this decision to sell the farms went to Shanghai Pengxin.

"We should have let New Zealand farmers get in there, they're the best farmers in the world, and do their job."

This may be a "small bump in the road" of New Zealand and China's diplomatic relationship but it would not cause long-term problems, he said.

NZ First leader Winston Peters said he never believed the economic test had been satisfied "so it's no surprise at all".

Peters later said the receivers should now offer the farms for sale individually so New Zealanders could have the opportunity to buy them.

''There was no reason to sell the farms as one transaction and it was an arrangement clearly aimed at satisfying overseas interests at the expense of Kiwi farmers.''