Judicial review sought of Lochinver decision
Pure 100 Farm Limited (Pure 100), a subsidiary of Shanghai Pengxin, is seeking a judicial review of the Government’s
decision to decline its application to purchase Lochinver Station.
Announcing the decision, Terry Lee, Director of Milk New Zealand (a subsidiary of Shanghai Pengxin) said 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’.
“Judgement has to be made as to whether the status quo applies (ie ownership remains with the current owners), or
alternately that the property would have been sold anyway to a well-funded and competent 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.
“Our development plan for Lochinver was to invest a further $20M over and above the purchase price for the property, and
to create at least an additional six positions (an increase of 30% above the status quo) in addition to improved
environmental, health and safety and community outcomes. This has 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.
“The judicial review will seek to obtain clarity for all parties on what constitutes a viable counterfactual and this
will, we believe, do a great deal to restore confidence and certainty amongst investors and sellers,” Terry Lee said.