Shanghai Pengxin seeks judicial review

Terry Lee, director of Milk New Zealand (also a subsidiary of Shanghai Pengxin), says the aim of the review is to obtain clarity on the 'counterfactual' to be used when assessing sales of non-urban land of greater than 5 hectares to overseas investors.

"To assess the benefits of an investment in such land, the regulator assesses the application against 21 factors which are laid out in the Overseas Investment Act and the Overseas Investment Regulations. These benefits are assessed relative to what would have occurred if this particular investment was not to occur i.e. 'the counterfactual'.

Lee says judgement has to be made as to whether the status quo applies (ie ownership remains with the current owners), or alternately that the property will be sold anyway to a well-funded New Zealander.

"The Overseas Investment Office is obliged to consider this second option as a result of a previous ruling in the High Court. If the assumption is that the property would have been sold anyway, then judgement also has to be applied as to what the hypothetical purchaser would do with the property.

"The counterfactual which is selected, and the assumptions of what an alternative New Zealand purchaser would do, have a material impact on the assessment of benefits. Our application to purchase Lochinver Station is a case in point.

Lee says Pure 100's development plan for Lochinver is to invest a further $20M above the purchase price for the property, and to create at least six additional positions, which he says is an increase of 30% above the status quo. He adds, the company will also see improved environmental, health and safety and community outcomes. Lee says this infromation not been contested by the Overseas Investment Office.

"However, when compared to a hypothetical New Zealand purchaser, who was assumed to be able and willing to do the same investment as ourselves, the benefit of our application was 'calculated' to be only a net benefit of $3M of additional capital investment, while the net number of new positions was 'calculated' to be one fixed term part-time position and some new short-term contracting positions.

"We do not believe that the correct counterfactual was adopted when assessing our application. On more than one occasion, the vendor made it clear to the OIO that it required a certain price for the farm to justify its sale and to allow reinvestment into the vendor's other New Zealand businesses, with consequential benefits in job creation and productivity. Pengxin's commitment to existing farm employees, future job creation and farm improvement were also important to the vendor. The vendor also confirmed to the OIO that it would not undertake the capital investment proposed by Pure 100. In other words, the counterfactual should have been the status quo which would have significantly increased the net benefit associated with our application.

Lee says the judicial review will seek to obtain clarity for all parties on what constitutes a viable counterfactual.