On 27 January 2012, China-based Shanghai Pengxin was granted consent under the Overseas Investment Act 2005 to acquire 16 dairy farms (the infamous - in New Zealand - Crafar Farms) comprising close to 8000ha of land.  

But on 15 February 2012, the High Court set aside the consent, requiring a different approach to be taken to assessing the economic benefits of an overseas investment.  

As at the date of writing this article, the regulator, the Overseas Investment Office (OIO) has made a revised recommendation to decision-making Ministers, but Ministers are yet to make a new decision.  

In advance of that decision being made, this article briefly summarises the High Court’s decision on the required approach to identifying the benefit to New Zealand of a potential overseas investment, and canvasses potential impacts of the decision.  


An acquisition of “sensitive land” (which includes farmland over 5ha) by an overseas person requires consent under the Act. Section 16 contains the criteria for consent. All of those criteria must be met. For investments in non-urban land over 5ha, the criteria include that the investment will, or is likely to, result in substantial and identifiable benefit to New Zealand. “Benefit to New Zealand” is assessed by reference to a range of factors that are specified in section 17 of the Act, and in regulation 28 of the Overseas Investment Regulations 2005.  


In particular, section 17(2)(a) of the Act requires the Ministers to consider whether an overseas investment will, or will be likely to, result in economic benefits, such as creation or retention of jobs, added competition, or greater productivity, efficiency, or export receipts.  

Prior to the High Court decision, a "before and after" approach to assessing the economic benefits was adopted. That approach required an assessment of what the overseas investment would bring compared with the state of affairs before the investment. That is, no account was taken of what would happen if the investment did not go ahead.  

The High Court decided that the economic benefit factor requires a "with and without" counterfactual analysis. Essentially, this requires the OIO to:

  • Discount any benefits (for example, new jobs, increases in export earnings, improved efficiency etc) that would occur regardless of the investment by the overseas person
  • Count only those benefits that are a substantial consequence of the particular overseas investment.  

That is, the new test requires an assessment of the state of affairs if the investment does not go ahead. In some cases, this may not be the same as a continuation of the state of affairs before the investment.  

A counterfactual analysis in regulatory decision-making is not uncommon - the New Zealand Commerce Commission adopts a counterfactual approach to analysing mergers and acquisitions, and in authorisations for restrictive trade practices. The issue for the OIO is that such a counterfactual approach in relation to the economic benefit factors has not previously been adopted.

However, even if the economic benefit factors do not, by themselves, support the case for consent, an overseas person has the opportunity to secure consent by demonstrating substantial and identifiable benefit in other ways: through the protection of indigenous flora and fauna, protection of indigenous wildlife, allowing walking access, and so on. For those "non-economic" factors, the status quo may serve as a benefit, or as a counterfactual.  


Immediate impact has already been felt by overseas persons with applications currently in front of the OIO for consideration, with applicants being required to review and update their applications in light of the new counterfactual test. The OIO’s estimated timeframe for decision-making on a straight-forward sensitive land acquisition is 50 working days. A more complex acquisition has an estimated timeframe of 70 working days (but it has been well publicised that the actual Crafar Farms decision took over nine months). As the OIO gets used to applying the new counterfactual approach, applicants should expect decision timeframes to be longer.  


It is difficult to gauge at this stage how the High Court’s decision impacts on the perception of the overseas investment regime in New Zealand.  

A decision by Ministers to confirm their original consent for Shanghai Pengxin to acquire the Crafar farms will go a long way to addressing any perception that the High Court decision has set the hurdle for overseas investment in New Zealand too high. But, in the event that the Ministers decline to grant consent, we would be reluctant to draw the conclusion that New Zealand does not welcome foreign investment.  

One issue that has been overlooked in terms of perception is that the Overseas Investment regime is very prescriptive: decision-making Ministers may consider only the factors set out in the Act and the Overseas Investment Regulations. There is no general "veto" right or residual discretion. The prescriptive nature of the regime reduces the uncertainty that discretion brings to a decision-making process. Further, as a result of the High Court decision, the required approach to the analysis of the factors has been clarified.  

That is something for which the decision-making Ministers, the OIO, and potential investors, might be grateful.  

On Friday 20 April 2012 the Ministers granted consent to Shanghai Pengxin to acquire the Crafar Farms, having considered and applied the test articulated by the High Court in February. Of particular note is that the OIO decided that a status quo approach to assessing the benefit arising under non-economic factors could overstate that benefit. The OIO therefore adopted a "with and without" counterfactual approach to analyse the benefit arising in respect of non-economic factors. In addition, the OIO’s recommendation clarified that "substantial and identifiable" benefit must be determined having regard to the relevant factors, collectively, rather than requiring that each factor, individually, must give rise to a benefit that is substantial and identifiable.

Source: Australasian Legal Business Magazine (issue 10.4, April 2012)