"BENEFIT TO NZ TEST" A SHAM Comment On The High Court's Oceana Gold Decision - Geoff Bertramr At the time of the 2020 election, the Overseas Investment Amendment Bill (No 3) was before the Finance and Expenditure Select Committee with two main provisions. One will enable foreign-owned water-bottling projects to be turned down if they adversely affect "water quality or sustainability". The second will enable the Minister of Finance in an emergency to invoke, by Order in Council, a "national interest" power to stop any sale of New Zealand assets to overseas buyers. These provisions arise from, respectively, the political unpopularity of having foreign companies making profits by bottling New Zealand fresh water, and the fear that Covid-19 may lead to opportunistic purchases by foreign buyers of New Zealand businesses driven into bankruptcy. You might well wonder why the Overseas Investment Act does not already protect water sustainability against foreign predation, not to mention preventing overseas vulture funds from snapping up local bargains. Wasn't there something in the Act about a "benefit to New Zealand test" that ought at least to have put the likes of Nongfu Spring at Whakatane under the microscope? Well, actually, no. On 9 September 2020 the High Court released its decision in the case of Coromandel Watchdog v Minister of Finance and Associate Minister of Finance and Oceana Gold, (2020) NZHC 2345(1), confirming that the "benefit to New Zealand test" in Part 2 of the Overseas Investment Act is a sham. The so-called "test", embedded in sections 16A and 17 of the Act, is neither a genuine test nor does it ensure any benefit to New Zealand from foreign acquisition of sensitive New Zealand land (the full text of those two provisions as they stand at October 2020 is reproduced as Appendix 1 to this article, and deserves very close reading with a keen eye for the legal ambush laid ready to be sprung on any Minister rash enough to stand in the way of a transnational). Buying Farm For Mine's Toxic Waste Dump The issue in the Coromandel Watchdog case was a simple one: should Oceana Gold (which in 2015 took over the Waihi mining operations of Newmont Mining(2)) be allowed to buy up a dairy farm near Waihi and convert it into a toxic waste dump for mine tailings? A genuine test of the net benefit to New Zealand from this project would involve a judicious weighing-up of costs and benefits - the standard economist's prescription, with all relevant factors taken into account, and explicit judgements made where necessary to reach a decision. An example of such a decision (under a different law) was the Commerce Commission's 2017 rejection of a proposed merger between NZME and Stuff to form a larger news organisation, on the grounds that the merger would have created a near-monopoly and endangered the freedom and diversity of the press(3). The losing parties appealed, first to the High Court(4) and then to the Court of Appeal. The latter's final judgment, in 2018(5), was unequivocal: when the Commerce Act 1986 refers in section 67(3)(b) to "benefit to the public" this means the net benefits, after considering all the pros and cons. And furthermore, the pros and cons to be taken into account are not limited to the dollars and cents at stake for the parties; they include also intangible things like the "freedom of the press" and the "climate of competition". One could reasonably have expected that any "benefit to New Zealand test" in the Overseas Investment Act 2005 would be similarly comprehensive. For example, in considering whether a transnational mining giant should be allowed to buy a dairy farm near Waihi and convert it into a tailings dump, a test of whether there was "benefit to New Zealand" from the project would surely include consideration at least(6) of matters such as the environmental damage, the risk of yet another tailings containment failure in the Coromandel , and the familiar world-wide association of large-scale mining with poverty in the host region. Act Instructs Only Positive Benefits Must Be Considered Not so, the High Court has now ruled. That is because the Overseas Investment Act 2005 was carefully and deliberately drafted to avoid subjecting foreign investment projects to standard cost-benefit analysis (in strong contrast to the routine demand of neo-liberal lobbyists that Government-funded projects be subjected to CBA under Treasury guidelines that are strongly weighted against State investment). The reason is clear enough: properly conducted social cost-benefit analysis could well return a negative score for foreign investment projects, whereas the Overseas Investment Act 2005 was designed to facilitate, not obstruct, foreign investment. The Act was drafted and passed with the clear intent of minimising the risk that responsible Ministers might turn down a proposed foreign acquisition of "sensitive land" on the grounds that it was not of benefit to New Zealand. What the Act says is that anything not explicitly listed as a positive benefit in the highly prescriptive section 17 must be ignored. Or, as officials advised the Ministers given the task of considering the Waihi consent application, "you are limited to considering the benefits of the transaction by reference to the 21 benefit factors set out in the Act and Regulations. You cannot consider matters outside of those factors. The Act allows you to consider the benefit of transactions, but in most cases does not allow you to consider the detriment of transactions"(8). The following are the High Court's words in Coromandel Watchdog v Oceana:(9) The Overseas Investment Office (OIO), true to form, put a self-serving and deliberately misleading PR spin on the Court's decision in its newsletter(10): "The sole issue in the proceedings was a question of statutory interpretation: are decision makers under the Overseas Investment Act 2005 required to consider negative effects of an overseas investment in determining whether that investment will 'benefit New Zealand'? The High Court found that negative effects do not need to be taken into account, and accordingly, the Ministers' decision was upheld". To describe this as disingenuous would be too generous. There is a world of difference between the soothing words "negative effects do not need to be taken into account" and the OIO's crisp advice to Ministers, quoted above and upheld by the Court, that "the Act ... in most cases does not allow you to consider the detriment of transactions" (emphasis added). Official Smokescreen Of Misinformation There is, in short, an official smokescreen of misinformation designed to prevent the general public from understanding the extent to which the Overseas Investment Act fails to protect the public interest or to advance any coherent concept of national benefit. Two specific issues have now prompted the latest exercise in tinkering around the edges of the legislation: water bottling, and fears of a fire sale in the aftermath of the Covid pandemic. Water bottling, like Oceana Gold's tailings dump, involves the acquisition of "sensitive land" on which to locate the extraction and bottling facilities. The specific case that brought the issue to public attention was the May 2018 approval of an application by Creswell NZ Ltd, a subsidiary of Nongfu Spring (China's largest freshwater bottler), to buy up and expand the Otakiri Spring and associated bottling plant near Whakatane(11). The acquisition attracted strong public opposition both because it potentially threatened the sustainability of the aquifer and because the bottling operation involved massive quantities of plastic - quite apart from the facts that the massive profits from the operation would flow to the Chinese owners with no requirement for them to pay royalties on the water taken, and that Treaty of Waitangi issues around Maori rights over water itself remain unresolved. The Nongfu Springs application did not come out of nowhere. It was the result of sustained efforts by New Zealand Trade and Enterprise (NZTE) to attract foreign investment(12), and when the application landed on the desk of Green MP Eugenie Sage as then-Minister of Land Information it came with clear advice from officials that the law did not allow her to consider environmental costs or Treaty of Waitangi issues. "The Overseas Investment Act (OIA) does not allow Ministers to take Treaty and environmental matters into account. If Sage had declined the application on these grounds, the Government could have been subject to expensive litigation".(13) As Greens Co-Leader Marama Davidson said, defending Sage's decision: "The Minister was constrained by a flawed Act which says we are unable to take environmental and Treaty decisions into account. This decision does not sit with Green kaupapa and longstanding Green Party positions".(14) Stung by the political backlash, Sage subsequently tried to stop Oceana Gold's tailings dump at Waihi by withholding consent(15) on the grounds that the project was "inconsistent with sustainable economic interests"(16) (the full text of Sage's decision is reproduced as Appendix 2 to this article). In essence, she brought into her consideration a number of matters that are not explicitly listed in the Act but were obviously relevant in any common sense, fair-minded view of the project's overall economic, social, environmental and cultural costs and benefits. Green Minister Side-Lined; Compliant Labour Ones Give Approval Oceana Gold and its lawyers immediately got to work on a renewed application and this time, when their renewed application was submitted in 2019, Sage was side-lined under section 7 of the Constitution Act 1986.(17) Instead, two compliant (Labour) Ministers - David Parker and Grant Robertson - signed off on consent for the purchase(18), on the basis of the OIO's legal advice cited above, that they were required to do so under the Overseas Investment Act and barred from conducting any genuine cost-benefit analysis(19). That led, in due course, to Coromandel Watchdog's application for judicial review of the decision, and the High Court's September 2020 confirmation that the so-called "benefit to New Zealand test" is in fact, nothing of the sort. Looking back, where did this nonsense come from? The Overseas Investment Act 2005 was passed by the 1999-2008 Clark Labour government with support from National and the former United Future(20). The aim was, in the words of then-Minister of Finance, Michael Cullen, to "reduce compliance costs" of overseas investment(21). The means chosen in the case of sales of sensitive land to foreign interests was to hijack and subvert the economists' old idea of cost-benefit analysis by wording the Act in a way that made it impossible to block overseas investments that impose big environmental detriments, or worsen economic inequality and poverty, or subvert climate-change targets, or undermine national sovereignty, or expose New Zealand to predation by big transnational corporates in fields such as social media - except in the unlikely event that the applicants for consent were unable to demonstrate a single job created (s.17.2(a)(i)), or export dollar earned (s.17.2(a)(iii)), or investment dollar spent (s.17.2(a)(v). Rod Donald: Law A "Con Job" All a would-be foreign investor has to do is demonstrate that they will create or preserve one extra job, or export sale, or primary-product processing plant, or dollar of investment, relative to what would have occurred under continued New Zealand ownership(22), and they cannot be refused. In the case of "sensitive business assets" as distinct from sensitive land, the Act did not provide for even the pretence of a benefit test. Former Greens Co-Leader, the late Rod Donald's speech in the committee stage debate on the legislation merits reproduction here(23): "It is very hard to defend this legislation, particularly because it is a con job... in a number of respects. Clause 3, 'Purpose', is very cuddly-feely. It talks about it being 'a privilege for overseas persons to own or control sensitive New Zealand assets'. It then states that that privilege will be acknowledged by requiring overseas investments in those assets to meet criteria for consent and by imposing conditions on consent. Then we have to go to the small print to see that while the purpose talks about assets, the only real test will apply to sensitive land". "There are b-all tests on anyone buying businesses, other than a good character test, so there is no expectation that a business buy-up will do anything other than tell us whether the person is supposedly of good character, and there have been numerous examples of business buy-ups where the foreign purchaser has not been of good character. So, as I said in my second reading speech, if the Government is serious about overseas persons owning or controlling our sensitive assets being a privilege, then it should give some teeth to that purpose". "It has not; therefore, the Green Party will endeavour to do what the Government has failed to do, and will propose some amendments to the purpose clause. ... We believe that it needs to be strengthened by making clear that any ownership or control must be in the national interest for the long-term benefits of New Zealanders". "I ask the Government whether that is too much to expect of foreign investment legislation. If the Government does not support our amendment, then in effect it is saying that it is happy for foreign investment not to be in our long-term interest and not to be for the benefit of New Zealanders. That is an indictment on a Labour government". Needless to say, the Green Party's proposed amendment was not accepted. The two big political parties were happy to shelter behind the pretence that the law protects us against predatory foreign investment, while in fact leaving the door wide open. The Oceana Gold decision usefully strips away that veil of pretence in the case of sensitive land. The voluntary organisation Coromandel Watchdog, having borne the burden of securing that judicial ruling, is now required to pay the costs of the transnational and the Crown - a punitive warning from the courts to any other public-interest organisations thinking of challenging the transnationals' chokehold on the New Zealand government. Mere Tinkering & Empty Words The Green Party of Rod Donald would surely have taken the opportunity to push for a rewriting of the "benefit test" from the ground up. The Green Party of James Shaw and Marama Davidson instead decided to pursue only a limited amendment covering water extraction applications and Treaty of Waitangi issues. Under their and Jacinda Ardern's leadership, Parliament has continued to tinker with cosmetics without tackling the substantive issue. In 2018 an amendment bill was introduced with the promise that "this bill amends the Overseas Investment Act 2005 (the Act) to ensure that investments made by overseas persons in New Zealand will have genuine benefits for the country."(24) These were empty words: the sham "benefit test" in s.17 was left untouched, and the main effect of the legislation (the Overseas Investment Amendment Act 2018) was to open the way for more foreign acquisition of land for forestry. The Overseas Investment Amendment Bill (No 3) now before Parliament(25) provides for a strictly limited carve-out for water bottling applications, in respect of which negative environmental impacts can be counted against identified dollar benefits. But this is coupled with an explicit reinforcement of the general prohibition on proper cost-benefit analysis in all other situations, by new wording that removes any room for creative interpretation of the "benefit test" along the lines attempted by Eugenie Sage in her rejection of the first Oceana Gold application in 2017. For those who take delight in legislative obfuscation, the proposed new section 17(2)(b) is a classic: "For the purposes of section 16A(1)(a) and (b) (including where section 16A(3) is being applied), the relevant Ministers- (b) must determine whether the criteria in section 16A(1)(a) and (b) (including where section 16A(3) is being applied) are met after having regard to those relevant factors and in doing so,
(i) must deduct from any benefit arising under a factor (or part of a factor) any directly comparable aspect of the counterfactual: Iron-Clad Assurance To Foreign Investors That subsection (3) in the last line is the tightly-circumscribed provision for the sole case of water bottling. For everything else (including mining applications), proper cost-benefit analysis is explicitly ruled out by these arcane-sounding provisions - specifically by sub-paragraphs (ii) and (iv). The Government's intention appears to be to provide foreign investors with an iron-clad assurance. Namely, that the High Court's interpretation of the law in Coromandel Watchdog v Oceana will hold good - that is, that no full weighing-up of all relevant costs against all relevant benefits will be allowed to take place (for those wishing to check for themselves exactly what changes are being made to sections 16A(1) and 17, the proposed new sections are reproduced in full in Appendix 3 to this article). Submissions to the Select Committee remain open. Mine will suggest striking out the proposed new provisions 17(2)(b)(ii) and 17(2)(b)(iv) and replacing them with a clear statement that for avoidance of doubt, the task of Ministers considering an application to buy sensitive land is to properly weigh all factors they judge to be relevant, negative as well as positive, in order to be fully satisfied that the proposal is genuinely in the national interests of New Zealand, broadly defined. That does not mean that foreign investment is necessarily blocked. It just means that the "benefit test" could cease being a meaningless rubber-stamping box-ticking exercise. APPENDIX 1(26) 16 Criteria For Consent For Overseas Investments In Sensitive Land (1) The criteria for an overseas investment in sensitive land are all of the following:
Criteria if relevant land is exclusively non-residential land that is sensitive
Criteria if relevant land is all residential and some or all is sensitive for some other reason
Criteria if some relevant land is residential and some or all is sensitive for some other reason (2) For the purposes of this section, the investor test is met if the relevant Ministers are satisfied that-
(3) Subsection (1)(a) (the investor test) does not apply to an overseas investment in sensitive land if either of the following circumstances applies:
(b) Circumstance 2:
(4) See also clause 4(5) of Schedule 2 (which relates to the commitment to reside in New Zealand test and relationship property) for a circumstance in which an individual with control of the relevant overseas person can be disregarded in determining whether the investor test is met. (5) See section 19 in relation to subsection (2)(c) and (d). 16A Benefit To New Zealand Test General test
17 Factors For Assessing Benefit Of Overseas Investments In Sensitive Land (1) For the purposes of section 16A(1)(a) and (b) (including where section 16A(3) is being applied), the relevant Ministers-
(2) The factors are the following: APPENDIX 2(27) This is available in pdf format here. APPENDIX 3(28) General test (1) The benefit to New Zealand test is met if both of the following are met: (1A) For the purposes of subsection (1)(a), the relevant Ministers- (1B) However, subsection (1A) does not apply if subsection (3) or (4) applies. (1C) If the relevant land is or includes farm land that in area exceeds five hectares, the relevant Ministers must- (1D) However, the relevant Ministers may determine not to apply subsection (1C) if they are satisfied that- (1E) Subsection (1C) does not preclude the relevant Ministers also giving other factors high relative importance. 17 Factors For Assessing Benefit Of Overseas Investments In Sensitive Land What are the factors (1) The factors for assessing the benefit of overseas investments in sensitive land are whether the overseas investment will, or is likely to - How factors must be considered (2) For the purposes of section 16A(1)(a) and (b) (including where section 16A(3) is being applied), the relevant Ministers- (3) If the overseas investment involves the extraction of water for bottling, or other extraction of water in bulk for human consumption - (4) Subsection (2)(b)(ii) and (iv) is subject to subsection (3). (5) Subsection (2)(b)(iii) applies unless subsection (2)(b)(iv) applies. Endnotes
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