The High Court has ordered the Minister of Finance and the Minister of Land Information to reconsider their decision to approve the purchase of the 16 Crafar farms by Milk New Zealand Holdings Limited by using a different test.
Under the Overseas Investment Act, an overseas person needs the consent of the two Ministers (who act on the advice of the Overseas Investment Office, or OIO) before buying land that is defined as being “sensitive”, including farmland.
Before giving consent, the Minsters must be satisfied that the overseas buyer (or if the buyer is a company or trustee etc., all of the individuals with control of the company etc.):
- have the necessary business experience and acumen relevant to the investment;
- have demonstrated financial commitment to the investment;
- are of good character; and
- aren’t the kind of individuals who are listed in sections 15 and 16 of the Immigration Act (e.g. they haven’t been convicted and imprisoned for 5 years or more).
In addition;
- either the buyers must be New Zealand citizens, or be ordinarily resident in New Zealand, or intend to reside permanently in New Zealand; or
- the proposed purchase must be likely to benefit New Zealand (or any group of New Zealanders), and if the land is non-urban and more than 5 ha, that benefit must be substantial and identifiable.
The things the Ministers (and OIO) must look at in assessing the benefit are listed in s.17 (2) of the Act, and in Regulations, which are attached to this article. They must look at all the listed factors, but may decide that some are more important than others.
If the sensitive land is farmland, then the land must also have first been offered for sale in New Zealand on the open market to non-overseas persons.
In the Crafar Farms decision, the Court looked at two issues:
1.Did the buyer have the relevant business experience and acumen relevant to the investment?
- The Court said the Minsters had applied the law correctly.
- The directors did not have any dairy farming experience, but the Court said the language in the Act is broad and flexible, and allows a wide range of business skills to be taken into account
- It wasn’t necessary for the directors to have all of the skills required – they just need some acumen and experience amongst them which is relevant to the investment. They can employ someone with the expertise they do not have.
- In this case, the directors of the buyer were ”astute and experienced managers and investors”, especially in large scale ventures. They were also going to use Landcorp to manage the properties for them.
- The fact that the overseas person is willing to pay more than a New Zealander is not a factor that can be taken into account – it is not relevant.
- The Court said that if the investment involved a small scale farm where the overseas person had no other significant skill, practical experience in that particular type of farming may be required.
2.Is the sale going to deliver “substantial and identifiable benefits to New Zealand?
- The Court said the Ministers and OIO had applied the wrong test when looking at the application, and should have used a different test.
- When looking at whether a sale to an overseas person benefits New Zealand, the OIO up to now has been applying a “before and after” test. The Court said the OIO should apply a “with and without “test.
- The “before and after test” involves looking at the position before the sale to the overseas person, and comparing that to the likely position after the sale. The problem with this test is that the Act requires a sale to an overseas person to bring some added benefit, over and above the benefits if the farm was sold to a New Zealander. This test does not take into account whether there is an added benefit that a New Zealand buyer could not provide- it ignores the benefits that would accrue anyway, if the land was bought by a New Zealander.
- The Court said that any economic benefits resulting from the sale can only be taken into account if they will not or might not happen if the overseas person does not buy. The OIO must consider what would happen in the future if the overseas buyer did not buy, as well as looking at what would happen if he did – in other words, asking what the position would be “with” the proposed overseas investment, and what would the position be “without” that investment. That involves considering two possible situations in the future, whereas the “before and after” test looks at the present situation and compares it to the future.
Summary
The Court has clarified the test that need to be applied when looking at the purchase of farm land by overseas person.
Under the “business experience and acumen” test, the Court has given the OIO and Ministers the ability to consider all of a buyers experience and skills, and has said that a buyer will not necessarily need specific skills and experience, but this will depend on the circumstances.
When looking at whether a sale results in economic benefits to New Zealand, the OIO will now need to look at what would happen “with or without” the overseas investment – i.e. what will happen in the future if the farm is sold to the overseas person and compare that to what is likely to happen if the farm is not sold to that person, rather than just looking at whether the sale will be of benefit, without considering the other alternatives if the sale does not happen.
Disclaimer: This information is correct at time of publication, designed as a general guide and should not replace specific legal advice on a particular issue.