John Armstrong: Crafar - a rout of huge proportions

The sale of the Crafar farmland to a Chinese company has suffered a setback today. File photo / Christine Cornege

Welcome to John Key's nightmare. Yesterday's High Court ruling putting the kybosh (at least for now) on the sale of the Crafar farms to Chinese interests may well be the most intractable problem he is likely to face as Prime Minister.

Yesterday's judgment has turned what was a political irritant into a full-blown political disaster. The decision struck National like a thunderbolt. No one saw it coming. Two of John Key's ministers have been left more than embarrassed, and it leaves National in an awful quandary.

National was not too perturbed by the criticism of last month's decision by Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman to endorse the recommendation of the Overseas Investment Office that consent be granted for the deal.

The public was by then resigned to ownership of the farms going offshore. National could afford to take a political hit while quietly breathing a sigh of relief that the decision would keep things sweet with Chinese authorities.

Now it is back to square one. Or close to it. National now finds it has worn the criticism for no benefit.

The ruling that the two ministers must now reconsider the application from Chinese-owned Milk NZ Holdings Ltd presents them with a serious dilemma.

If they hold true to their original position and again rubber stamp approval, then National could suffer a real backlash. If they change their minds, they will have to cite some pretty good reasons for doing so.

And they will have to explain to the Chinese why just about every foreign investment application in recent years has got the nod, but a comparatively rare Chinese one gets pole-axed.

To avoid further judicial review, however, the ministers may well endorse whatever the Overseas Investment Office recommends after its court-imposed rethink. That will only beg the question of why bother to have ministerial sign-off in the first place if ministers are not going to exercise discretion.

There are now jitters in the Beehive that the ruling will choke off the foreign direct investment which National believes is essential to boost economic growth.

However, there is little point appealing against the High Court ruling. The case would take years to wind its way through the Court of Appeal and then the Supreme Court - and with no guarantee those bodies would overturn the High Court's judgment.

The alternative is to override the courts by legislating. However, National knows any attempt to "clarify" the law - as Williamson put it - would be swiftly turned by Opposition parties into accusations National was out to liberalise the overseas investment regime.

National is simply not going there.

Williamson and Coleman will instead wait for a fresh recommendation from the OIO, which will now reconsider the application in a manner consistent with the ruling.

With Justice Forrie Miller declaring that the benefits of overseas investment in farm land must be "identifiable and substantial", however, it is hard to see the current application passing muster.

No wonder Labour, the Greens and NZ First were so ecstatic yesterday. It is a rare day when a Government suffers a rout of such proportions.