WELLINGTON, Oct. 15 -- A Chinese-owned food company said Thursday it will challenge the New Zealand government's rejection of a proposed farm purchase in court.

Pure 100 Farm Ltd., a subsidiary of Shanghai Pengxin, said it would seek a judicial review of the government's decision last month to decline its application to buy the 13,800--hectare Lochinver Station in the central North Island.

Terry Lee, director of Milk New Zealand, also a subsidiary of Shanghai Pengxin, said the aim of the review was to obtain clarity on the "counterfactual" requirement used to assess sales of farmland larger than five hectares to overseas buyers.

The counterfactual requires the government's Overseas Investment Office (OIO) to compare the benefits of an overseas bid against the benefits anticipated from a domestic owner.

Judgement had to be made as to whether counterfactual was the status quo, ownership remaining with the current owners, or whether the property would have been sold anyway to a well--funded and competent New Zealander, Lee said in a statement.

The latter counterfactual had been applied and had a material impact on the assessment of benefits of the proposed purchase of Lochinver Station.

"Our development plan for Lochinver was to invest a further 20 million NZ dollars (13.65 million U.S. dollars) over and above the purchase price for the property, and to create at least an additional six positions, an increase of 30 percent above the status quo, in addition to improved environmental, health and safety and community outcomes. This has not been contested by the Overseas Investment Office," said Lee.

"However, when compared to a hypothetical New Zealand purchaser, who was assumed to be able and willing to do the same investment as ourselves, the benefit of our application was 'calculated' to be only a net benefit of 3 million NZ dollars (2.05 million U.S. dollars) of additional capital investment, while the net number of new positions was 'calculated' to be one fixed term part--time position and some new short--term contracting positions."

Pure 100 argued that the status quo should have been the correct counterfactual in assessing its application, as the vendor made it clear to the OIO that it required a certain price, that offered by Shanghai Pengxin, for the farm to justify its sale.

This would have allowed reinvestment in the vendor's other New Zealand businesses, with consequential benefits in job creation and productivity, and the vendor told the OIO that it would not undertake the capital investment proposed by Pure 100.

"The judicial review will seek to obtain clarity for all parties on what constitutes a viable counterfactual and this will, we believe, do a great deal to restore confidence and certainty amongst investors and sellers," Lee said.

Pure 100 had offered 88 million NZ dollars (60.05 million U.S. dollars) for Lochinver.

Associate Finance Minister Paula Bennett and Land Information Minster Louise Upston denied their decision to stop the sale was taken in light of controversies over Chinese and other foreign purchases of New Zealand land, insisting the application failed to meet statutory criteria for sensitive land sales under the Overseas Investment Act.

The Shanghai--based group already owns the 8,000--hectare Crafar farms in the central North Island and a controlling stake in SFL Holdings, which bought 4,000 hectares of South Island farms from Synlait Farms.

Last week, Dakang New Zealand Farm Group, which is 55--percent owned by Shanghai Pengxin, cancelled a sale and purchase agreement to buy seven dairy farms and three support farms from New Zealand--owned Pinny Farms in January.

The decision to end the agreement was "somewhat based" on Shanghai Pengxin's failure to buy Lochinver Station, Dakang CEO Gary Romano said in a statement.