The New Zealand natural products industry is attractive to overseas investors, but New Zealand and overseas businesses need to be aware of the risks inherent in international relationships.
Overseas Investment Office (OIO)
The Resource Management Act (RMA) is a well-known obstacle to development in New Zealand. However, another obstacle that the New Zealand media seems to be covering more often is the Overseas Investment Act, which has a broader scope than some businesses may realise.
The OIO is most commonly thought of in regards to overseas purchases of New Zealand land and businesses, but there are other situations where the consent of the OIO may be required.
For instance, a New Zealand person and an overseas person might enter into a joint venture under which they will jointly own New Zealand agricultural land. This arrangement will require OIO approval before it proceeds
The OIO might also become involved should an overseas person wish to place orchard trees, vines, beehives or other items on New Zealand agricultural land.
An overseas person may take a licence without triggering the Act, but more often than not a licence is not sufficient for the overseas person to stop its competitors from also using that land or to, particularly in apiaries, ensure quality, unblemished product.
New Zealanders looking to do business with overseas interests also need to understand the potential for geography to complicate matters, particularly if dealing with a partner based on the other side of the world.
How often might a UK based business partner go to the Hawke’s Bay to watch their apples grow? Not as often as the grower, that is for sure.
By extension, how involved can they reasonably be in OIO and RMA applications, audit of local processing practices and oversight of day to day activities? Not as much as they might like to be.
New Zealand producers need to understand that an overseas person is going to be hesitant about the inherent restriction on their involvement with the New Zealand operations.
If the parties are a long way away the New Zealand party might expect more warranties in the contract, more stringent return procedures, rights to visit without notice, frequent skype meetings and visits by the other party’s representatives than they are accustomed to seeing in arrangements with locals.
The message to Kiwi producers is: don’t be put off by the requirements of an overseas partner. They might be reasonable.
Sunset clauses are an example of a provision that New Zealand producers may see in a contract with an overseas partner. These clauses are included in a contract where there is a condition that needs to be satisfied in order for the relationship to function.
These provisions are very useful for both parties in international business relationships where there is a degree of reliance on third party processes or timeframes that are outside of the parties’ control.
One obvious example is relates to the OIO and RMA processes, which are usually resolved quickly but in rare cases can take a long time.
Sunset clauses may also be used where a new product is being developed. For example, a person in the US might grant someone in New Zealand the right to grow a US pear but it could take three years to reach export standard; if it ever gets to that standard
One thing to watch with sunset clauses is that there is a disparity of interests. If you’re a Kiwi doing the work you might want a long sunset provision, but if you’re the overseas person you might want to put pressure on with a shorter timeframe.
Another misstep is where the New Zealand party relies on the passing of a sunset date to terminate the arrangement. This is only possible where the New Zealand party has not allowed the time to lapse through their own omissions or bad faith; otherwise the termination will likely be invalid.
Above are some of the biggest issues to manage for New Zealand natural products businesses in international relationships, but here are a few others to be aware of:
- Immigration: the overseas representative on the ground needs to have the appropriate visa
- Anti-money laundering regulations
- New Zealand taxation of foreign corporations’ activities
- Employment regulations
- Jurisdictional IP issues (trade marks, patents and plant variety rights)
- Choice of laws and jurisdiction: choosing which courts will preside over any disputes and which country’s laws will apply
- New Zealand privacy and information laws