Appeal Court dismisses Michael Fay-led bid opposing sale of Crafar Farms to Chinese company Shanghai Pengxin

The Appeal Court has dismissed a last-gasp effort to stop the sale of the Crafar Farms to Chinese company Shanghai Pengxin.

The Court ruled Shanghai Pengxin's partnership with Landcorp to run the farms gave it the necessary business expertise to be allowed to purchase the farms under the Overseas Investment Act.

Prime Minister John Key welcomed the ruling. He said it showed Ministers responsible for the decision, Associate Finance Minister Jonathan Coleman and Land Information Minister Maurice Williamson, correctly followed the law set out in the Overseas Investment Act. See Key's comments in the video above.

See the media release from the Court of Appeal on the ruling:

Milk New Zealand Holdings Ltd (Milk NZ) is a Hong Kong registered company that agreedto purchase 16 New Zealand dairy farms known as the Crafar farms. TheOverseas Investment Act 2005 (the Act) required Milk NZ to obtain consent from the Minister for Land Information and Minister of Finance before the investment could proceed.Milk NZ applied to the Overseas Investment Office (OIO), which recommended that the Ministers grant their consent to the investment. They did so, adopting the reasons given in the OIO’s report.

The appellants, two Maori Trusts and a company associated with Sir Michael Fay and David Richwhite, wish to purchase the farms and distribute them among themselves.

They applied for judicial review of the Ministers’ decision. Under the Act, before granting consent the Ministers had to be satisfied that the individuals with control of the overseas investor have “business experience and acumen relevant to” the investment. The controlling individuals in this case were the directors of Milk NZ’s parent company, Shanghai Pengxin Group Co Ltd (Shanghai Pengxin), including in particular Mr Jiang, a successful Chinese investor and entrepreneur. One of the grounds of review was that the Ministers had erred in finding that those individuals had the required business experience and acumen. In the High Court Miller J rejected that ground of review, although he did grant the application for judicial review on a different ground. Miller J set aside the Ministers’ grant of consent and directed them to reconsider Milk NZ’s application. The appellants filed an appeal against Miller J’s decision on the business experience and acumen point.

Following Miller J’s decision, the OIO reconsidered Milk NZ’s application and again recommended that the Ministers grant their consent to the investment. The Ministers accepted that recommendation, deciding that the investment would provide a substantial and identifiable benefit to New Zealand. The appellants applied for judicial review of the Ministers’ second consent decision, solely on the ground that the Ministers had erred in finding that the business experience and acumen requirement was satisfied. Because the application for review raised the same issue as the appeal against Miller J’s decision, it was removed to the Court of Appeal to be heard together with the appeal.

The appellants argued that the Ministers were wrong to rely on the generic business experience and acumen of the individuals in control of Milk NZ (that is, investment experience that was not related to dairy farming or the dairy industry) and the dairying experience of Landcorp, a professional farm management company that Milk NZ had engaged to manage the farms. They also argued that the Ministers should not have taken into account experience in other forms of agriculture that the controlling individuals were said to have gained through the activities of companies related to Milk NZ, and that the Ministers made their decision based on insufficient information. Both of these latter arguments were based on a statement by one of the Ministers in an affidavit that he had found the experience that Mr Jiang would have obtained through Shanghai Pengxin’s investments in agribusiness in other jurisdictions “particularly relevant”.

The Court of Appeal observed that the business experience and acumen requirement is broadly worded and flexible, as the criterion must be applied in a wide range of situations. There was no reason to construe it narrowly so as to limit the types of business experience and acumen that could be taken into account. Provided the particular business experience and acumen at issue could contribute to the success of the proposed investment, the Ministers could properly treat it as being relevant to that investment. The controlling individuals in this case had experience and acumen in undertaking and managing large investments in ongoing business enterprises. They had no experience in dairy farming, but they ensured that Milk NZ entered into appropriate arrangements with others (such as Landcorp) to access industry-specific experience. The Court considered that the Ministers were entitled to conclude that the controlling individuals had business and experience relevant to the proposed investment.

The Court accepted that the Ministers had relied on Shanghai Pengxin’s investments in agribusiness although they had only limited information about them. However, the Court emphasised that the controlling individuals’ generic business experience and acumen was, in itself, sufficient to justify the Ministers’ conclusion that the business experience and acumen requirement was met. The agribusiness experience, although apparently important to Ministers, was only one factor the Ministers had relied on and it did not lead to a conclusion that was insupportable or unreasonable.

Further, the Court noted that, even if it had found that the Ministers’ decision was deficient due to their reliance on agribusiness experience, it was unlikely that it would have exercised its discretion to grant a remedy. In light of the Ministers’ unchallenged conclusion that the investment would bring substantial and identifiable benefit to New Zealand, the Ministers would undoubtedly decide to grant consent again if the matter was referred back to them, and they would be entitled to do so without relying on the challenged material. In addition, further delay would be prejudicial to the interests of third parties (such as creditors of the Crafars’ farming companies) and detrimental to the state of the farms, which were being managed by receivers.

The Court dismissed the appeal and the application for judicial review.

Here is the reaction from the Crafar Farms Independent Purchaser Group:

Disappointment and disenfranchised were the feelings among the unsuccessful Crafar Farms Independent Purchaser Group following this morning’s news of the failed challenge to Shanghai Pengxin’s purchase of the farms to the Court of Appeal.

Sir Michael Fay, one of 10 buyers in the group, said the group’s actions in trying to purchase the 16 Crafar Farms had raised important issues about the sale of productive New Zealand farm land to overseas investors and had made the Overseas Investment Office’s interpretation of the Act governing sales to overseas buyers more transparent.

“We are all disappointed – especially our two Iwi members - to see this significant parcel of highly productive dairy land, pass out of New Zealand ownership,” said Sir Michael. “The issue of overseas buyers aggregating large parcels of farm land is very important to our most productive export sector and I don’t believe we have heard the end of the discussions raised by our group. Clearly the majority of New Zealanders have significant concerns about this issue.

“But that opinion was not enough to sway the Government or the Courts and so our group will now concentrate on business as usual on the farm.”

Hardie Peni, Chairman of the Tiroa E and Te Hape B Trusts, said his Ngatirereahu Iwi and their fellow Iwi buyers Tuwharetoa, were bitterly disappointed at the decision as they had both hoped to complete a commercial transaction that would return land that had been under claim since the 1800s.

“It seems all you need to enjoy the privilege of owning New Zealand farm land is deeper pockets and some knowledge of business to become a major owner of dairy farms,” said Mr Peni.  “Shanghai Pengxin still won’t disclose the purchase price but I’ll bet it’s a pittance compared to the more than $66 million we were asked to pay for the three farms we were interested in buying from them.

“If that’s the protection the law and the Government is going to give Kiwis and Iwi from deep pocketed overseas buyers then it won’t be long before a whole lot more Kiwi farmers are left feeling as disenfranchised as we are at the moment.”