A recent Court of Appeal decision (Tiroa E & Te Hape B Trusts v CE Land Information New Zealand 2012 [NZCA] 355) provides overseas investors with further clarity on one of the four core criteria which make up the ‘investor test’ under New Zealand’s overseas investment regime.
The case arose out of an earlier High Court decision and subsequent Ministerial decision to accept the Overseas Investment Office’s recommendation to grant an overseas applicant (Milk NZ) consent to acquire 16 dairy farms and associated assets owned by one corporate group (the Crafar farms). For more detailed discussion on these decisions, see Bell Gully's article: The Crafar farms sale: Are there new hurdles for overseas investors in "sensitive land"?
In the High Court, members of a consortium interested in purchasing the Crafar farms (the appellants in this case) were successful in a judicial review application of the initial Ministerial decision approving the sale of the Crafar farms to Milk NZ on the ground that the Overseas Investment Office (OIO) and the Ministers had applied the incorrect counterfactual when assessing the benefit to New Zealand of the investment. The appellants had also argued that the Ministers made an error of law by failing to correctly apply the “business experience and acumen” test in section 16(1)(a) of the Overseas Investment Act 2005 (the Act), but this ground for judicial review was rejected by the High Court.
Section 16(1)(a) along with sections 16(1)(b) (financial commitment), 16(1)(c) (good character) and 16(1)(d) (immigration eligibility), make up the four core investor criteria, collectively known as the ‘investor test’ for investments in sensitive land. The investor test focuses on the personal qualities of the overseas investor or, if the overseas investor is not an individual, all the individuals with control of the overseas investor. Accordingly, in this case, it was the controlling individuals of Milk NZ (namely the directors of Milk NZ’s parent company, the China-based Shanghai Pengxin Group Co Ltd) who were required to have “business experience and acumen relevant to [the proposed] investment”.
This case concerned both the appellants’ appeal of the High Court’s finding that the business experience and acumen requirement was satisfied, as well as the appellants’ application for judicial review of the Ministers’ second consent decision which raised the same point.
The appellants argued that there were four overlapping errors in the approach adopted by the OIO and the Ministers in reaching a decision on the section 16(1)(a) requirement. In particular, they were wrong to rely on:
the generic investment experience of the controlling individuals, as that experience was unrelated to dairy farming or the dairy industry; and
the experience and acumen of Landcorp (a professional farm management company) under its contractual arrangements with Milk NZ, because under the Act it was the controlling individuals who had to have the relevant business experience and acumen.
They also argued that the OIO and the Ministers should not have taken into account the agribusiness experience that the controlling individuals were said to have gained through the activities of companies related to Milk NZ (as this overlooked the distinction made in section 16(1)(a) between the corporate applicant and the controlling individuals), and that the Ministers made their decision based on insufficient information.
The Court of Appeal’s view of the "business experience and acumen" criterion
The Court of Appeal upheld the High Court’s decision on the “business experience and acumen” test and rejected the appellant’s judicial review application.
The Court of Appeal agreed with the High Court that the business experience and acumen criterion in section 16(1)(a) was a “broadly worded statutory provision” and allows Ministers “considerable flexibility in determining what business experience and acumen is relevant to any particular proposed investment”, noting that the “assessment the Ministers must make in respect of any particular application is ultimately a pragmatic one”. In the court’s view there is nothing in the language of section 16(1)(a), taken in context, to indicate that Parliament had in mind that an investor must have any particular combination of the requisite skills and experience. As long as the investor “has some business experience and acumen that can reasonably be said to be relevant to the investment’s success, section 16(1)(a) will be met”. The court considered that this will be so even where the investor has to supplement its experience and acumen by utilising the experience and acumen of others to ensure the investment succeeds.
In this case, the court considered that a range of skills, experience and acumen would be required in order for the investment in the Crafar farms to succeed. These ranged from skills and experience relating to the day-to-day operation and management of multiple dairy farms, to those involved in funding and managing a large investment in a substantial business enterprise.
The court agreed that the generic investment experience of Milk NZ’s controlling individuals was relevant to the investment because they had experience and acumen in undertaking and managing large investments in ongoing business enterprises, albeit principally in commercial property development. Further, although they had no experience in dairy farming, they ensured that Milk NZ entered into arrangements with others (such as Landcorp) to access industry-specific experience.
The court did not consider it relevant that the Ministers had taken into account the agribusiness experience of related companies within the overall Milk NZ group (or that they had insufficient information on this aspect) as they did not view the presence or absence of that experience as decisive to the Ministers’ decision. However, for completeness, the court noted that given that section 16(1)(a) requires the OIO and the Ministers to look behind the corporate structure and consider the business experience and acumen of the controlling individuals, if those individuals are also in control of companies conducting agribusiness enterprises in other jurisdictions and gain agribusiness experience as a result, then it would be inconsistent with the approach of section 16(1)(a) to exclude that experience simply because the activity is carried out through corporations.
The court was, however, critical of the Minister for assuming that other agribusiness investments of the Milk NZ group had been successful without making any inquiries to check whether they were. Although this did not invalidate the decision, the court said that it would have been a simple matter to have made further inquiries and that this should have been done.
In this decision the Court of Appeal made general comments on the degree of Ministerial discretion and “inherent flexibility” which in their view have been built into New Zealand’s overseas investment regime. The court emphasised that although they had reached the conclusion that section 16(1)(a) gave Ministers considerable flexibility in determining what business experience and acumen is relevant to any particular proposed investment on the basis of the provision’s wording, support for this conclusion was also found in other aspects of the Act. This included the responsible Minister’s power under section 34 of the Act to give directions to the OIO concerning (among other things) “the Government’s general policy approach to overseas investment in sensitive New Zealand assets, including the relative importance of different criteria or factors in relation to particular assets”.