MOHAMED v GUARDIANS OF NZ SUPERANNUATION [2021] NZHC 512

MOHAMED v GUARDIANS OF NZ SUPERANNUATION [2021] NZHC 512 [15 March 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-000361[2021] NZHC 512UNDER the Judicial Review Procedure Act 2016IN THE MATTER of an application for judicial review ofdecisions of the Guardians of New ZealandSuperannuationBETWEEN FADEL KAMEL MOHAMEDFirst ApplicantM J BARTONSecond ApplicantAND GUARDIANS OF NEW ZEALANDSUPERANNUATIONRespondentFERTILISER ASSOCIATION OF NEWZEALAND INCIntervenerHearing: 27, 28 and 30 October 2020(Further evidence received 1 December 2020)Appearances: J L Wass and M C McCarthy for ApplicantsA Galbraith QC, V L Heine and J W Upson for RespondentD R Kalderimis and N K Swan for IntervenerJudgment: 15 March 2021JUDGMENT OF WOOLFORD JThis judgment was delivered by me on Monday, 15 March 2021 at 3:30 pmpursuant to r 11.5 of the High Court Rules.Registrar/Deputy Registrar[1] This is an application for judicial review of decisions made by the Guardiansof New Zealand Superannuation to invest in assets connected with phosphate extractedfrom Western Sahara.Overview of this proceeding[2] The first applicant, Mr F K Mohamed, is the representative of the PolisarioFront for Australia and New Zealand (Polisario Front). He is not a New Zealandcitizen or resident. The Polisario Front is a Saharawi national liberation movementaiming to end the Moroccan presence in Western Sahara. The second applicant,Mr M J Barton, is the coordinator of the Western Sahara Campaign New Zealand, anon-profit group advocating for the interests of the people of Western Sahara. He is aNew Zealand citizen. The respondent is the Guardians of New ZealandSuperannuation (Guardians), a Crown entity established pursuant to s 48 of the NewZealand Superannuation and Retirement Income Act 2001 (the Act) to manage theassets of the New Zealand Superannuation Fund (the Fund). Finally, the FertiliserAssociation of New Zealand Inc (Fertiliser Association) appeared as an intervener.[3] This case concerns phosphate sourced from Western Sahara. Western Saharais defined by the United Nations as a Non-Self-Governing Territory. The applicantssay it is unlawfully occupied by Morocco. The intervener says that Morocco is simplythe de facto administrator of the territory. A Moroccan state-owned corporation,OCP SA (OCP) (formerly Office Chérifien des Phosphates), extracts phosphate fromWestern Saharan reserves. New Zealand fertiliser companies, Ballance Agri-NutrientsLtd (Ballance) and Ravensdown Ltd (Ravensdown), use that phosphate tomanufacture fertiliser. Guardians has financial links to Western Saharan phosphate inthree ways: the Fund previously retained passive debt interests in OCP, currently holdsequity interests in companies with premises in Western Sahara which directly orindirectly support the mining operation, and holds a current investment portfoliowhich includes New Zealand farms (the Fund farms) which are supplied by Ballance.[4] The applicants seek to judicially review Guardians' investment decisionsrelating to Western Saharan phosphate. In particular, the review asks whetherGuardians has complied with its obligations under the Act. The Act requires, interalia, that Guardians "manage and administer the Fund in a manner consistent withavoiding prejudice to New Zealand's reputation as a responsible member of the worldcommunity".1 Further, the Act requires Guardians to establish, adhere to and reviewinvestment policies, standards and procedures to ensure compliance with that duty.2[5] The applicants say that Guardians' investment in assets connected withphosphate extracted from Western Sahara incentivises Morocco's unlawful occupationof that territory and is contrary to its obligation to avoid prejudice to New Zealand'sreputation. They seek relief by way of a declaration and an order requiring Guardiansto reconsider both its general investment framework and its Western Sahara-relatedinvestments. The respondent and intervener reply that Guardians has complied withits statutory obligations to invest prudently so as to avoid prejudice to New Zealand'sreputation as a responsible member of the world community. Guardians points to theStatement of Investment Policies, Standards and Procedures (SIPSP) and theResponsible Investment Framework (RIF) which it has developed, published, andimplemented under the Act, as evidence of compliance with its statutory obligations.The respondent argues further that the applicants have no standing, and that thepleaded matters, which implicate the sovereign acts of Morocco, are inappropriate forconsideration by a domestic court.Status of Western Sahara[6] A Spanish protectorate since 1884, Spanish Sahara was identified as a Non-Self-Governing Territory under Chapter XI of the United Nations Charter in 1963.Under Article 73e of the Charter, Spain as administering Power was responsible fortransmitting technical and statistical information on the territory. A series of GeneralAssembly resolutions on the question of Spanish/Western Sahara reaffirmed theapplicability of the Declaration of the Granting of Independence to Colonial Countriesand Peoples (General Assembly Resolution 1514 (XV)) to the territory.[7] On 14 November 1975, a Declaration of Principles on Western Sahara wasconcluded in Madrid between Spain, Morocco and Mauritania (the Madrid1 New Zealand Superannuation and Retirement Income Act 2001, s 58(c).2 Section 60.Agreement), whereby the powers and responsibilities of Spain, as the administeringpower of the territory, were transferred to a temporary tripartite administration. TheMadrid Agreement did not transfer sovereignty over the territory, nor did it conferupon any of the signatories the status of an administering power, a status which Spaincould not have unilaterally transferred. The transfer of administrative authority overthe territory to Morocco and Mauritania in 1975 did not affect the international statusof Western Sahara as a Non-Self-Governing Territory.[8] On 26 February 1976, Spain informed the Secretary-General that as of that dateit had terminated its presence in Western Sahara and relinquished its responsibilitiesover the territory, leaving it under the administration of both Morocco and Mauritaniain their respective controlled areas. Upon the conclusion of the Mauritano-SahraouiAgreement of 20 August 1979, Mauritania also withdrew from the territory, leavingMorocco to administer the territory of Western Sahara alone. Morocco, however, isnot listed as the territorial administering Power in the United Nations list of Non-Self-Governing Territories. Consequently, Morocco has not transmitted information on theterritory in accordance with Article 73e of the Charter of the United Nations.Legality of Extraction of Phosphate from Western Sahara[9] As to the legality of the extraction of phosphate from Western Sahara byMorocco, the United Nations Under-Secretary-General for Legal Affairs, Hans Corell,provided advice to the Security Council in the form of a letter dated 29 January 2002(Hans Corell opinion). He stated:Where resource exploitation activities are conducted in Non-Self-GoverningTerritories for the benefit of the peoples of those Territories, on their behalf orin consultation with their representatives, they are considered compatible withthe Charter obligations of the administering Power and in conformity with theGeneral Assembly resolutions and the principle of "permanent sovereigntyover natural resources" enshrined therein.[10] The legal controversy arises over the issue of whether the extraction ofphosphate from Western Sahara benefits the people of Western Sahara and is beingundertaken on their behalf or in consultation with their representatives.New Zealand Superannuation and Retirement Income Act 2001[11] Section 3 of the Act sets out the purpose of the Act as follows:(a) to continue current entitlements to New Zealand superannuation:(b) to establish a New Zealand Superannuation Fund (the Fund) withsufficient resources to meet the present and future cost of NewZealand superannuation:(c) to provide for Government contributions to the Fund:(d) to establish a Crown entity called the Guardians of New ZealandSuperannuation, which will manage and administer the Fund :(e) to establish a process for signalling political agreement on theparameters for New Zealand superannuation entitlements andfunding:(f) to bring together in one Act all of the provisions for each ofthose matters.[12] Section 58 provides the following in relation to the investment of the Fund:(1) The Guardians are responsible for investing the Fund.(2) The Guardians must invest the Fund on a prudent, commercial basisand, in doing so, must manage and administer the Fund in a mannerconsistent with—(a) best-practice portfolio management; and(b) maximising return without undue risk to the Fund as a whole;and(c) avoiding prejudice to New Zealand's reputation as aresponsible member of the world community.(emphasis added)The applicants seek to rely, in particular, on subs (2)(c).[13] Section 60 then provides for the means by which the Guardians must giveeffect to s 58:(1) The Guardians must establish, and adhere to, investment policies,standards and procedures for the Fund that are consistent with theirduty to invest the Fund on a prudent, commercial basis, in accordancewith section 58.(2) The Guardians must review those investment policies, standards, andprocedures for the Fund at least annually.(emphasis added)Counsel for Guardians refers to s 60 as the "operationalisation" of s 58. They point tothe policies, standards and procedures established under this provision as evidence ofcompliance with their s 58 statutory duty.[14] Section 61 of the Act sets out a non-exhaustive list of mandatory factors thata statement of investment policies, standards, and procedures under s 60 "must cover".Key factors relevant to this proceeding are as follows:(a) the classes of investments in which the Fund is to be invested and theselection criteria for investments within those classes; and(b) the determination of benchmarks or standards against which theperformance of the Fund as a whole, and classes of investments andindividual investments, will be assessed; and(c) standards for reporting the investment performance of the Fund; and(d) ethical investment, including policies, standards, or procedures foravoiding prejudice to New Zealand's reputation as a responsiblemember of the world community; and(e) the balance between risk and return in the overall Fund portfolio;(emphasis added)Again, the applicants rely, in particular, on the statutory obligation to cover ethicalinvestment under sub 61(d), and the emphasis placed on avoiding prejudice to NewZealand's international reputation through the reiteration of s 58(2)(c).Issues in this proceeding[15] There are a number of procedural and substantive issues in this proceeding:(a) First ground of review: Has Guardians established a general investmentframework that complies with ss 58, 60 and 61 of the Act? This issuerelates to the proper interpretation of Guardians' statutory investmentobligations under the Act in a general sense.(b) Second ground of review: Has Guardians complied with s 58(2)(c) inrelation to its Western Sahara-related investments specifically?3 Thatis, did Guardians consider whether it would be necessary to exclude theWestern Sahara-related investments in order to comply with s 58(2)(c)?(c) Third ground of review: As an alternative to (b), has Guardians properlyadhered to the SIPSP and RIF, established in accordance with ss 60 and61 of the Act, in relation to its Western Sahara-related investmentsspecifically? That is, did Guardians consider whether it would benecessary to exclude the Western Sahara-related investments in orderto comply with the SIPSP and RIF?(d) Fourth ground of review: Has Guardians effectively abdicated itsresponsibilities under s 58 of the Act to Ballance and/or Ravensdown?(e) Fifth issue: Do the applicants have standing to bring this claim?(f) Sixth issue: Is Morocco indirectly impleaded in this proceeding suchthat the doctrine of state immunity applies?(g) Seventh issue: Are the matters pleaded in this proceeding non-justiciable on the basis of the act of state doctrine?First ground of review: Has Guardians established a general investmentframework that complies with ss 58, 60 and 61 of the Act?[16] The first ground of review relates to the proper interpretation of the Guardians'statutory investment obligations. The applicants say that "Guardians has misdirecteditself in law, and that its [Responsible Investment] Framework does not comply withthe mandatory requirements of ss 58 and 61". The applicants seek a direction requiringGuardians to "promulgate a new Framework and reconsider its Western SaharanInvestments in light of it."3 For clarity, I note that the second and third grounds of review address Guardians' Western Sahara-related investments specifically. The applicants say the second ground of review relates to theirinterpretation of what the statutory investment obligations require; and the third ground of reviewrelates, in the alternative, to the respondent's interpretation of those obligations.[17] The applicants clarify that their first ground of review is based on an allegederror of law and is independent of their concerns about Guardians' decision-makingprocess in relation to Western Sahara specifically. The applicants say that the RIF failsto properly consider whether its approach to managing and administering investmentscreates a risk of prejudice to New Zealand's reputation. In other words, the applicantssay, Guardians has never asked itself whether its continued exposure to WesternSaharan phosphate, through its investments, creates a risk of prejudice toNew Zealand's reputation such that the investment should be addressed by exclusionfrom its portfolio.[18] In reply, Guardians says that it has lawfully established, in its expert judgementpursuant to Parliament's express delegation, the relevant parts of the SIPSP toconsciously respond to ss 58(2)(c) and 61(d). The SIPSP was first issued on 20 June2019 and incorporates a number of other documents, including the RIF, as well asInvestment Risk Allocation, External Managed Investments and Direct Invest policies.[19] Anne-Maree O'Connor, who is employed by Guardians as Head ofResponsible Investment, says in her affidavit sworn 3 September 2020 that the SIPSPand RIF are reviewed each year by the appropriate leaders within the business, thelegal team, Ms O'Connor herself, the CIO, CEO and Board, in accordance with s 60(2)of the Act. She says further that while the SIPSP and RIF have evolved over time toreflect changes in best practice, a responsible investment approach has always been atthe core of Guardians' response to its statutory investment obligations. As she states:5.17 Consistent with international practice, our responsible investmentapproach involves considering and giving effect to ESG [environmental,social and governance] factors, which in turn assists in managing reputationalrisk and is in line with best practice portfolio management.Ms O'Connor's affidavit goes on to explain that while the Act does not refer explicitlyto "responsible investment" there is considerable overlap between concepts of ethicaland responsible investment in industry practice. She notes that these concepts are "notstatic" but are evolving alongside other current frameworks such as "sociallyresponsible" investment and "sustainable finance". Terminology aside, all theseconcepts encourage recognition and consideration of ESG factors in investmentdecision-making. Ms O'Conner says that Guardians' SIPSP outlines a responsibleinvestment philosophy which includes ethical investment and attains the standard ofan ethical policy. She says that Guardians "treat ESG as covering the full range ofpotential concerns about investee companies' activities" and use this framework as a"useful way of thinking about the potential harmful impact of business conduct".5.21 Ethical investment generally includes exclusion as a tool which is whyour SIPSP including the RIF permits exclusions, primarily focused on certainproducts, such as tobacco, through excluding the companies that producethem. In certain circumstances, exclusions can be made under the policy inresponse to the way a company may behave — that is, its corporate practices.Criteria for exclusion usually depend on investor context or mandate and oursare adapted for the New Zealand context and our statutory mandate.Responsible investment can also include a desire by investors to invest incompanies that through their products or practices have a social orenvironmental benefit, for example, healthcare or renewable energy.[20] Although evolving as both a concept and practice, responsible investment iswell established and "well understood" within the global investment sector. However,Ms O'Connor notes that:5.24 In contrast with Responsible Investment, there are no global standardsspecifically addressing what it means to manage and administer a sovereignwealth fund in a manner consistent with avoiding prejudice to a relevantcountry's reputation in the world community. That standard is, as far as I amaware, unique to New Zealand.[21] Consequently, Guardians has set out responsible investment policies in theSIPSP (at paragraph 5.1) and established policies which seek to "integrateconsideration of responsible investment issues" into the decision-making process. TheSIPSP refers to and relies upon two international benchmark standards: the UNPrinciples for Responsible Investment (UNPRI) and the UN Global Compact (theCompact). The UNPRI benchmarks Guardians' own performance as a responsibleinvestor; the Compact provides a set of standards by which Guardians can assess theESG performance of the companies they invest in. Ms O'Connor's affidavit states:5.28 These standards are specifically intended to meet the requirementsof our Act to adopt standards and to manage risk to the Fund's reputation andNew Zealand's reputation from our activities.UNPRI has over 3,000 signatories, including many other sovereign wealth funds.Guardians is one of UNPRI's founding members. According to Ms O'Connor, the"primary reason" for Guardians' membership of UNPRI is to fulfil their statutory dutyto invest ethically and responsibly under the Act.[22] Ms O'Connor discusses investee "exclusion" as a practice or "tool" forresponsible investment management. Guardians' SIPSP and RIF permit exclusionsfor ESG reasons, such as harmful products or unethical corporate practices. However:5.69 It is, as a matter of fact, rare for us to exclude an investee companyfrom the Fund due to its practises — (we have many companies excludedbased on their products, eg tobacco) — because practices can improve. It isnot often we actively consider this type of exclusion.5.70 Our experience has been that engagement is effective and generallycompanies improve their ESG practices with engagement and in response toboth shareholders and other stakeholders raising concerns. This may initiallybe to manage reputation risks but generally evolves into more fundamentalimprovements.Ms O'Connor goes on to explain why divestment on ESG grounds is problematic.Firstly, divestment eliminates the possibility of promoting positive change throughactive engagement with the investee company. Shareholders are in a powerful positionto identify problems, voice concerns and drive change. Shareholders can do this notonly to protect their own reputational interests as investors, but on behalf of all externalstakeholders.[23] Secondly, the interconnection of global markets means that "very fewbusinesses cannot be linked in some way to undesirable ESG practice or impacts,often through supply or customer chains". In other words, if exclusion for corporatepractice issues is exercised "too liberally" there will be nothing left to invest in. AsMs O'Connor notes, "a wide-reaching approach to exclusion can also unreasonablylimit the diversity and number of stocks available, introduce volatility and effectivelyconcentrate risk for investors" in ways which conflict with Guardians' duty to avoidrisk and secure returns on a balanced investment portfolio. Finally, Ms O'Connorobserves that excluding an investee on grounds of ESG breaches would depend uponthe "severity of the breach" and the "closeness of the link" between investment andbreach. In this context, she concludes as follows:5.73 While we have used words like "severe" and "rare" to describe whenexclusion is appropriate, we do so to emphasise that exclusion is not commonamong institutional investors and is generally not appropriate for less seriousESG issues. We do not apply them as fixed rules. As our RIF sets out, weexercise our judgement in making these decisions.[24] In response, the applicants say that it is apparent from Ms O'Connor's evidencethat Guardians has misunderstood its statutory duty. They say that asking whetherinvestments meet ESG considerations is not sufficient. Guardians must go one stepfurther and ask whether there is nevertheless a risk of prejudice to New Zealand'sreputation. While ethical investment is plainly an essential element of that enquiry,merely considering the requirements of ethical investment or establishing a processconsistent with international responsible investment practice is insufficient to achieveParliament's objective of protecting New Zealand's reputation. It is not open toGuardians simply to assert that "ethical investment" and responsible investment aresynonymous such that consideration of ESG factors automatically satisfies ss 58(2)(c)and 61(d). Similarly, Ms O'Connor's evidence that Guardians' consideration ofwhether to engage with or exclude investee companies depends on whether thosecompanies have materially breached corporate standards misstates the Guardians'statutory duty. In this context, "corporate standards" appears to be a reference to theUN Global Compact, which Guardians cites in their SIPSP/RIF. Guardians relies uponthe Compact to trigger its consideration of engagement and monitoring. However, theapplicants say, investee companies that comply with the UN Global Compactprinciples might nevertheless engage in activities that make investing in themprejudicial to New Zealand's reputation. These shortcomings are exacerbated, theapplicants allege, by Guardians fettering its own discretion by suggesting thatexclusion will only be "rare".Conclusion[25] After due consideration, I am of the view that, in setting and applying itspolicies, standards and procedures under ss 60 and 61, Guardians has not misappliedthe law or acted in a manner which cannot rationally be viewed as fitting within thestatutory purpose.[26] Guardians is an independent expert entity set up to manage and administer theFund. Board members are required to have substantial experience, training, andexpertise in the management of financial investments. The Courts have consistentlyrespected Parliament's choice in reposing decision-making power in an expert.4[27] Guardians has a broad discretion to determine how to give effect to therequirement to administer the Fund in a manner consistent with avoiding prejudice toNew Zealand's reputation as a responsible member of the world community in termsof s 58(2)(c). As the Act does not prescribe how Guardians should give effect tos 58(2)(c), the Courts are not well placed to assess its exercise of judgment in givingeffect to the statutory mandate through its published policies, standards andprocedures.[28] In my view, Guardians cannot be criticised for adopting widely acceptedinternational standards in formulating its own policies, standards and procedures.Guardians use the SIPSP and RIF to manage and administer the Fund in a mannerconsistent with avoiding prejudice to New Zealand's reputation as a responsiblemember of the world community. Further, Guardians is accountable through astatutory accountability and review regime in s 71, which includes consideration of itscompliance with s 58.[29] I do not consider that Guardians has fettered its judgment when it states thatexclusion of investments will only be "rare" and for "severe breaches". The setting ofa high threshold is not a fetter. Engagement with a company with ESG issues may bemore effective in changing a company's practices for the better than withdrawal ofinvestment in the company altogether (exclusion).Second and third grounds of review: Has Guardians complied with s 58(2)(c), orthe SIPSP and RIF, in relation to the Western Saharan investments?[30] The applicants, in relation to their second and third grounds of review, say thatGuardians has not given proper consideration to whether it is necessary to exclude theWestern Sahara-related investments specifically. The second and third grounds ofreview are related, and concern compliance with s 58(2)(c) and the SIPSP and RIF4 Unison Networks Ltd v Commerce Commission [2007] NZSC 74, [2008] 1 NZLR 42 at [55].respectively. The SIPSP and RIF are established under s 60 of the Act and representGuardians' own interpretation of its statutory obligations under ss 58 and 61.[31] The applicants say the Fund has been exposed to Western Sahara in three ways:first, the Fund has at various times held bonds in OCP, the Moroccan state-ownedcorporation which extracts phosphate from Western Sahara; second, the Fund includesequity investments in a number of listed companies that operate in Western Sahara andsupport OCP's mining operations; and third, the Fund uses phosphate extracted fromWestern Sahara, and imported by Ballance and Ravensdown, on predominantly dairyfarms that make up part of its agricultural investment portfolio. The applicants sayGuardians has not given proper consideration to whether each, or any, of thoseinvestments should be excluded.[32] In reply, Ms O'Connor, for Guardians, states as follows:6.11 It is not the case that we have refused to consider exclusion. We did,in fact, specifically consider excluding companies involved in extraction. Weremain open-minded to considering that exclusion of investments withmaterial breaches of corporate standards relating to Western Sahara may infuture be appropriate.However, Ms O'Connor contends that it is inappropriate and "impractical" to suggestthat the three types of investment exposure alleged by the applicants should be treatedthe same way. In particular, Guardians' connection with Western Saharan phosphatevia the Fund farms is not an investment at all. The farms are managed by FarmRight,which purchases phosphate-based fertiliser from Ballance. Only members (that is,shareholders) in the Ballance co-operative can purchase this fertiliser. Thus, the Fundfarms own shares in Ballance. The Ministry of Foreign Affairs and Trade (MFAT) areworking with New Zealand's fertiliser co-operatives to seek alternative phosphatesources for the entire primary sector. As noted, the source of phosphate used in NewZealand's fertiliser industry "is not an engagement or exclusion issue for [Guardians']portfolio" but a matter or industry practice to be managed by FarmRight.[33] In response, the applicants say that despite being aware of ethical concernswith Western Saharan phosphate for "nearly nine years", Guardians have "allowed theOCP bonds to drift in an out of the portfolio" as well as investing in a number of othercompanies which either purchase phosphate or support phosphate extraction. Theapplicants argue that there is no evidence – such as a formal record – that Guardiansconsidered exclusion of OCP or any other company connected with it, during thisperiod.[34] While the applicants acknowledge that "Guardians' exposure to OCP has beenrelatively modest" they argue that any "material investment" in OCP is sufficient to"give rise to reputational implications". For this reason, they contend that Guardians"must consider actively excluding" OCP from their portfolio. In summary, they state:94. The applicants' point in relation to OCP is simple: on the Guardians'own analysis and applying its own Framework, it is required to considerwhether exclusion of OCP holdings from its portfolio is necessary in order tosatisfy its statutory responsibilities. By its own admission, it has not done so.[35] The applicants emphasise that the focus of their grounds of review is evidenceof active consideration, rather than actual exclusion:110. The applicants do not suggest that the Guardians must inevitablyconclude that these investments should be excluded, or even that formalengagement is necessary. But the Court is entitled to have the Guardiansproperly consider the issue.Discussion[36] One of the difficulties for the applicants is that there is no single research paper,briefing paper, report, e-mail, file note, memorandum, letter or other document whichcontains a specific decision which may be amenable to judicial review. The amendedstatement of claim refers to "any, or any proper consideration". Guardians haveundoubtedly given consideration to the question at issue. The assessment thereforeconcerns the standard imposed by "proper". Guardians have a continuous statutoryfunction "to manage and administer the Fund in a manner consistent with avoidingprejudice to New Zealand's reputation as a responsible member of the worldcommunity" and there is no one particular decision under review. The inquiry,therefore, has the character of a merits assessment for which judicial review is notsuited or appropriate.[37] Ms O'Connor attaches a chronology of events and documents as Schedule 1 toher affidavit. Guardians' formal statement of position is contained in a briefing paperdated August 2018 and prepared for Crown Financial Institutions (CFI). Thisdocument sets out the background, outlines previous global and local engagement andrecommends next steps, as follows:1. Continuing to monitor the position of the New Zealand Governmentand the UN. Currently, New Zealand offers full support to the UnitedNations Mission for the Referendum in Western Sahara (MINURSOmission) to allow the people of Western Sahara to determine theirfuture through a referendum.2. Maintaining a watching brief of the situation in Western Sahara. Thisincludes:a. Monitoring press on the situation;b. Continuing conversations with MFAT to keep abreast of theviews of MPI, the Prime Minister and other Ministers on theissue;c. Monitoring any new commitments by companies to stopsourcing phosphate or other resources from the Western Sahara.3. Continued engagement with listed companies that are held by theCFIs and that:a. Have resource extraction operations in the Western Sahara toensure they are managing human rights risk, and;b. Source phosphates from Western Sahara to identify whetherthey are looking into commercially realistic alternativesavailable, in order to manage reputational risk.OCP Bond[38] In June 2016, Morgan Stanley Capital International (MSCI) alerted investorsto the risk of reputational damage generated by severe controversy surrounding OCP'scontinued extraction of phosphate from Western Sahara. MSCI provides assessmentsof ESG controversies involving publicly traded companies and fixed income issuers.It assigned OCP a "red flag" to indicate the existence of at least one serious ESGcontroversy. MSCI noted that critics of Morocco's control over the territory claimedthat extraction of phosphate from the region could be a violation of international laws.[39] Guardians confirms that, as manager and administer of the Fund, it only heldan OCP bond once, between 31 January 2020 and 31 May 2020. Guardians' holdingof OCP was and is determined by its inclusion in a passive index and in accordancewith Guardians' policies. The bond was removed from the Fund because its creditrating was downgraded. As a result, the bond was removed from the index Guardiansused to gain exposure to fixed income investments. The OCP bond was consequentlysold by the relevant investment manager, BlackRock.[40] The applicants say that Guardians knew of OCP's "red flag" in 2016 and thatthe Fund was exposed to the OCP bond via a passive index. Once that exposurematerialised in January 2020, the bond could re-enter the portfolio at any time. Theapplicants say Guardians have failed to properly consider whether they ought to directthe passive index manager to exclude the OCP bond, even though it is not currentlyheld.[41] It is not for this Court to determine whether or not OCP complies with the HansCorell opinion as to the legality of phosphate extraction from Western Sahara.Guardians, likewise, cannot be expected to resolve such a difficult factual and legalquestion. Guardians has, however, consulted with MFAT on this matter. MFAT hasprovided informal advice that to its knowledge OCP's operations in Western Saharacomply with the wishes of the community and do benefit the community, as requiredby UN Charter obligations. Guardians has, nonetheless, added OCP to its CFIwatchlist, sought further information and researched the issues more generally.Guardians says it has not specifically engaged with OCP because it only held an OCPbond for four months last year. Moreover, the bond was a debt holding, not an equityholding, which diminishes the influence an investor can exercise.[42] The Fertiliser Association has, however, engaged with OCP for many years.Veronica Power, the Chief Executive of the Fertiliser Association, contends that thisengagement has had a real impact on OCP's focus on responsible business itself. Shecites many examples of visits, meetings and changes made.[43] The MSCI red flag does not necessarily warrant exclusion of OCP from theGuardians' portfolio. A red flag draws concerns about a company's practices toinvestors' attention. Since it was red flagged, OCP has only been excluded by arelatively small number of investment funds. Guardians continue to monitor theposition. If the New Zealand government's position changes, then Guardians willundoubtedly take its revised position into account.Investee Companies' Shareholdings[44] The applicants say the Fund has invested in the following companies operatingin Western Sahara:(a) Nutrien Limited, which owns 22 per cent of Sinofert Holdings Ltd,which imports Western Sahara phosphate into China.(b) Siemens AG, which constructed and maintains the wind farm supplying95 per cent of OCP's energy needs for its mining operations in WesternSahara.(c) Siemens Gamesa Renewable Energy SA, which maintains the windfarm with Siemens AG.(d) Atlas Copco AB, which sold, and carries out maintenance of, drill rigsto OCP for use in OCP's mining operations in Western Sahara.(e) Continental AG, a subsidiary of which maintains OCP's conveyor beltcarrying phosphate from the mine to the port.(f) Enel SpA, whose subsidiary Enel Green Power SpA, constructs windparks in Western Sahara.(g) ABB Ltd, who built a hybrid substation for a wind farm in WesternSahara.(h) Wartsila OYJ ABP, which has produced diesel-generated power plantsin Western Sahara pursuant to agreements with Morocco.(i) ThyssenKrupp AG, which was awarded a contract for construction of acement factory in Western Sahara.(j) BNP Paribas SA, Société Générale SA and Crédit Agricole SA, Frenchbanks with offices in Western Sahara.(k) Orange SA, whose subsidiary Orange Maroc has 10 offices in WesternSahara where it provides telecommunications services.(l) AXA SA, whose subsidiary AXA Maroc operates in Western Sahara.[45] None of these companies extract phosphate from Western Sahara. Some aredirect suppliers of goods or services to OCP, but others, such as the French banks,simply operate throughout Western Sahara. None of the companies have been redflagged by MSCI.[46] The applicants, in effect, submit that Guardians must consider excluding anycompany with a presence in Western Sahara. In my view, this demonstrates theunworkability of the applicants' statutory interpretation and approach to the SIPSP andRIF. The applicants draw no distinction between companies directly involved inphosphate extraction and those simply operating in Western Sahara.[47] The applicants have not proven that exclusion would be inevitable ornecessarily appropriate under the RIF. As far as Guardians is aware, there are nomaterial ESG issues relevant to these companies. I agree that it is not necessary toinclude companies which have not materially breached corporate standards on anengagement focus list.Fund Farms[48] NZSF Rural Holdings Limited is a fund investment vehicle (FIV) formed byGuardians for the purpose of holding, facilitating or managing Fund investments. Itis the holding company for four other FIVs which own the Fund's rural properties inNew Zealand: NZSF Southland Farms Ltd, NZSF Canterbury Farms Ltd, NZSFWaikato Farms Ltd and NZSF Rural Land Ltd (collectively Fund farms). As at28 February 2020, the Fund's shareholding in NZSF Rural Holdings Ltd comprised0.96 per cent of the value of the Fund.[49] FarmRight Ltd (FarmRight) is an independently owned entity appointed toprovide farm management, property and asset management services to the Fund farms.FarmRight arranges for the purchase of fertiliser from Ballance for application on theFund farms.[50] The applicants say that continued investment in Fund farms that apply fertiliserderived from phosphate extracted from Western Sahara is in breach of Guardians'statutory obligation to manage and administer the fund in a manner consistent withavoiding prejudice to New Zealand's reputation as a responsible member of the worldcommunity. They also say that Guardians has refused to consider ceasing to purchase(through FarmRight) phosphate extracted from Western Sahara, or the costs of doingso. They therefore seek an order that Guardians cease purchasing phosphate extractedfrom Western Sahara.[51] The purchase of fertiliser by FarmRight is not, strictly speaking, an investmentby Guardians. The Fund has a rural investment portfolio valued at $418 million.FarmRight spends $1.6 million per year (0.38 per cent of the value of the Fund's ruralinvestments) on fertiliser and lime. That fertiliser includes superphosphate, which islargely derived from Western Sahara phosphate. Fertiliser is an operational costmanaged by an independently owned entity, FarmRight, rather than Guardians.[52] Nonetheless, Guardians recognises that, as a responsible investor, it can directFarmRight to use or not use certain products. For instance, it has committed to stopthe use of palm kernel extract on Fund farms. In the case of Western Sahara phosphate,it has recognised the reputational risks involved. The chronology attached toMs O'Connor's affidavit shows that Guardians has not only engaged with MFAT, butalso the fertiliser companies, and specific primary sector entities such as Fonterra.[53] MFAT describes the question of alternatives to Western Sahara phosphate "asa matter of policy". Its advice to the fertiliser companies is that they must complywith international law and should take independent legal advice on the matter. MFATwarns that New Zealand companies import phosphate from Western Sahara at theirown risk.Conclusion[54] After due consideration, I am of the view that the applicants have not proventheir claims under the second and third causes of action. Guardians has given properconsideration to whether maintaining the Western Sahara investments is consistentwith its obligation under s 58(2)(c). Guardians has also adhered to the SIPSP and RIFas required by s 60.[55] There is ample evidence that both the manufacturers and major users ofsuperphosphate, which is derived from Western Sahara phosphate, have consideredand are considering alternatives. However, I accept there is no cogent evidence of animmediately available alternative.[56] Ultimately, a reputational risk to wider New Zealand interests remains. Thereis, however, no suggestion that the risk is due to management and administration ofthe Fund. Therefore, Guardians has not failed to comply with its statutory obligationsin the use of superphosphate on Fund farms.Fourth ground of review: Has Guardians effectively abdicated its responsibilitiesunder s 58 of the Act to Ballance and/or Ravensdown?[57] The applicants, in relation to their fourth ground of review, say that Guardianshas effectively and unlawfully abdicated its statutory responsibilities under the Act toBallance and/or Ravensdown. The Amended Statement of Claim alleges:77. In the circumstances where continued importation of Western Saharanphosphate sustains Morocco's illegal occupation of Western Sahara, and theGuardians has recognised that engagement will not address the issue ofownership, the Guardians' decision to engage with investee companies,instead of excluding the Fund's Western Saharan Investments [which theapplicants define to include the Guardians' holdings in the Fund Farms], inorder to encourage those companies to:(a) identify and manage the risks associated with the importationof Western Saharan phosphate; and(b) explore and consider alternative sources of phosphate;amounts to an unlawful delegation to those companies of the Guardians'obligation to avoid prejudice to New Zealand's reputation as a responsiblemember of the world community.In reply, Guardians says it has genuinely engaged with the issue and has not simplywaited for Ballance and/or Ravensdown to present a solution. It says that seekinginformation from third parties does not equate to abdication, or delegation, of statutoryobligations, as the applicants allege. Rather, as Ms O'Conner notes, "seeking as muchinformation as feasible is an important part of good RI practice". Further, therespondents submit that "It has been consistently recognised by the courts that seekinginformation to assist in decision-making is proper."5 Guardians repute the applicants'fourth allegation as follows:8.8 The fourth ground of review amounts to a submission that Ballanceand Ravensdown invest, manage and administer the Fund. There is no suchbasis for that assertion. Neither entity can or could direct the investment,management or administration of the Fund.8.9 Ballance supplies the Fund Farms with phosphate based fertiliser. Itdoes so because Guardians' manager has determined that the Fund Farms needfertiliser and that specific type is the best available, taking into account anumber of factors. Ballance is a number of steps removed from Guardians'investment, management and administration of the Fund. Ballance is merelya supplier of an input into a Fund investment's business.8.10 Ravensdown has no contractual or other connection to the Fund.[D]ocuments [submitted by Guardians] clearly show Ravensdown was notinvesting, managing or administering the Fund.Conclusion[58] There is no substance in this ground of review. Guardians' actions do notamount to abdication of its statutory obligations under s 58 to Ballance andRavensdown. Guardians has genuinely engaged with the issue and has not simplywaited for Ballance and Ravensdown to present a solution. Ms O'Connor attaches achronology to her affidavit, dated 3 September 2020, which lists the various actionstaken by Guardians.[59] It has carried out research into the Western Sahara issue, sought advice fromMFAT on the Government's position, engaged with the New Zealand primary sector,5 Wellington International Airport Ltd v Commerce Commission (2002) 10 TCLR 460 (HC) at [46];and Walsh Pharmaceutical Management Agency [2010] NZAR 101 (HC) at [161].including Ballance, and raised the issue with FarmRight Ltd, the manager of the Fundfarms. FarmRight is consequently considering whether the source of phosphate forfertiliser purchased for the Fund farms can be managed. Engagement with the primarysector has focused on the consideration of viable alternatives to phosphate sourcedfrom Western Sahara.Fifth issue: Do the applicants have standing?[60] Next, I turn to the issue of standing: Guardians say the applicants have nostanding. The principles on standing are settled in New Zealand. There are broadlytwo types of standing: personal and public interest. Personal standing is concernedwith whether an applicant's personal rights and interests are affected by the decisionunder challenge. Public interest standing, on the other hand, is more concerned withwhether the decision under challenge is, or may be, unlawful.[61] While the requirements of standing in judicial review proceedings have beensignificantly relaxed in New Zealand, it is not so relaxed that it is horizontal.6[62] The House of Lords considered the issue of standing in judicial review casesin depth in Inland Revenue Commissioners v National Federation of Self-Employedand Small Businesses Ltd.7 There, Lord Wilberforce, in his speech reflecting the viewsof the majority of the House, summarised the standing requirements as follows:8There may be simple cases in which it can be seen at the earliest stage that theperson applying for judicial review has no interest at all, or no sufficientinterest to support the application: then it would be quite correct at thethreshold to refuse him leave to apply. The right to do so is an importantsafeguard against the courts being flooded and public bodies harassed byirresponsible applications. But in other cases this will not be so. In these itwill be necessary to consider the powers or the duties in law of those againstwhom the relief is asked, the position of the applicant in relation to thosepowers or duties and to the breach of those said to have been committed. Inother words, the question of sufficient interest can not, in such cases, beconsidered in the abstract, or as an isolated point: it must be taken togetherwith the legal and factual context. The rule [of court] requires sufficientinterest in the matter to which the application relates.6 Smith v Attorney-General [2017] NZHC 1647, [2017] NZAR 1094 at [2] and [18].7 Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Ltd[1982] AC 617 (HL).8 At 630 (emphasis in original).[63] His Lordship's speech was soon adopted by the New Zealand Court of Appeal.9Accordingly, Somers J summarised the position in New Zealand as follows:10It may now be said that until the nature and scope of the statutory duty in issuehas been ascertained and the nature and quality of its breach (if any) found itwill not ordinarily be practicable or right to determine whether there isstanding to maintain an action.[64] Therefore, the context and substantive law are relevant to standing. And,except in relation to clearly untenable claims to standing, challenges to standing aredetermined as part of the substantive hearing of the case. Indeed, as Palmer J recentlyobserved, "it is difficult to divorce questions of standing from the merits of theapplication of the law of judicial review to a particular factual context".11[65] Presently, Guardians disputes the applicants' standing on both personal andpublic interest grounds. If applicants with no direct interest can challenge investmentdecisions by way of judicial review, Guardians is concerned that this will negativelyaffect its management and administration of the Fund. Unusually, this proceeding wascommenced by an applicant who is neither a New Zealand citizen or permanentresident nor currently resident in New Zealand. Mr Kamel Mohamed initially broughtthe proceeding on his own behalf; the second applicant, a New Zealander, was joinedto the proceeding in response to the raising of the standing defence.[66] First, the applicants' claim appears to rest on two propositions relating to rightsof self-determination:(a) The first proposition is that to invest in companies participating in theextraction of phosphate contributes to the removal of phosphate fromthe "patrimony of the Saharawi people". This, the Guardians says,appears to be a reference to the Hans Correll opinion that extraction ofresources from non-self-governing territories must be for the benefit ofand consistent with the interests and wishes of the Saharawi people.9 Environmental Defence Society Inc v South Pacific Aluminium Ltd (No 3) [1981] 1 NZLR 216(CA); and Consumers Co-operative Society (Manawatu) Ltd v Palmerston North City Council[1984] 1 NZLR 1 (CA).10 Consumers Co-operative Society (Manawatu) Ltd v Palmerston North City Council [1984] 1NZLR 1 (CA) at 6.11 Smith v Attorney-General [2017] NZHC 1647, [2017] NZAR 1094 at [26].(b) The second proposition is that the challenged investments effectivelysustain Morocco's "occupation" of Western Sahara.[67] In reply, Guardians says that, as a starting point, these propositions need to beunderstood in the context of the duty which Guardians is said to have breached. Theduty, according to Guardians, concerns the way in which Guardians performs itsmandate (that is, the establishment of, adherence to and review of the investmentframework), not its particular investment decisions.[68] Secondly, as to Mr Barton's personal standing, Guardians says that hisconcerns are indistinguishable from the concerns any other New Zealand citizen mighthave about the management of the Fund. He has no greater interest in the managementof the Fund than any other citizen. This level of interest is insufficient for personalstanding.[69] In response, the applicants say that the Court has long taken a liberal approachto standing in judicial review. Provided that the claim is brought bona fide andinvolves a matter of public interest, the Court will consider the application on itsmerits. If a ground of review is made out, it will not deny relief on standing grounds.[70] Thirdly, as to public interest standing, Guardians do not deny the applicants'genuine interest, and acknowledge authority to the effect that genuine interest may beenough to justify public interest standing.12 However, Guardians argue that genuineinterest is insufficient in this case because the application has been brought forcollateral purposes, namely to promote Saharawi rights and independence. The use ofjudicial review proceedings for collateral purposes has been recently characterised as"lawfare".[71] How Crown funds are deployed is ultimately a matter for Parliament. Thestructure of the Act, and the extent to which Parliament endorses Guardians'investment, management and administration powers, seeks a balance between ethicalconstraints and commercial independence and freedom. As noted in parliamentarydebates surrounding the introduction of the Bill, the select committee did not intend12 O'Neill v Otago Area Health Board HC Dunedin CP50/91, 10 April 1992.to "pin the fund down with so many conditions and criteria that it is unable to generatethe level of returns it need to perform its primary function".13 Further, Parliament hasprescribed specific accountability mechanisms making Guardians accountable toParliament through the independent review process in the Act. However, as LordDiplock once noted:14It is not a sufficient answer to say that judicial review of the actions of[Crown entities] is unnecessary because they are accountable to Parliamentfor the way in which they carry out their functions. They are accountable toParliament for what they do so far as regards efficiency and policy, and of thatParliament is the only judge; they are responsible to a court of justice for thelawfulness of what they do, and of that the court is the judge.[72] Ultimately, however, in this case, the question of standing is "academic" as,for the reasons discussed above, the applicants have failed on the substantive issues.15Sixth issue: Is Morocco indirectly impleaded in this proceeding such that thedoctrine of state immunity applies?[73] New Zealand recognises the doctrine of state immunity through theincorporation of relevant principles of customary international law into New Zealandcommon law.16 In essence, a sovereign state "will not be impleaded in the courts ofanother country (in this instance New Zealand) against its will and without its consent;the exercise of jurisdiction is seen as incompatible with the dignity and independenceof the foreign state".17 State immunity is a personal immunity possessed by a state inrespect of its sovereign activities. Therefore, a valid claim to state immunity deprivesthe Court of jurisdiction over the proceeding.18[74] The intervener submits that the pleaded matters engage the doctrine of stateimmunity; Guardians adopts the intervener's submission. They say that the applicants'pleadings invite the Court to make determinations regarding the territorial status of13 (13 December 2000) 589 NZPD 7422.14 Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Ltd[1982] AC 617 (HL) at 644.15 See O'Neill v Otago Area Health Board HC Dunedin CP50/91, 10 April 1992 at 4.16 See Alberto Costi (ed) Public International Law: A New Zealand Perspective (LexisNexis,Wellington, 2020) at 616, n 96; and Young v Attorney-General [2018] NZCA 307, [2018] 3 NZLR827 at [27].17 Governor of Pitcairn and Associated Islands v Sutton [1995] 1 NZLR 426 (CA) at 428.18 Young v Attorney-General [2018] NZCA 307, [2018] 3 NZLR 827 at [24].Western Sahara. Moreover, by pleading that "the exploitation of phosphate is not donefor the benefit of and consistent with the wishes of the Saharawi people", theapplicants appear to put in issue Morocco's compliance or otherwise with theconditions set out in the Hans Corell opinion, which concerns the obligations ofadministering Powers of Non-Self-Governing territories under international law. Theintervener and Guardians say these questions pertain to the legal rights (or interests)of Morocco and are therefore subject to the protection of state immunity.[75] In reply, the applicants submit that the doctrine of state immunity is irrelevantto this proceeding. The doctrine prevents a foreign state being "impleaded" becausethe exercise of jurisdiction over a foreign state by a domestic court is seen asinappropriate. The applicants add that the doctrine generally only applies where theforeign state is named as a defendant, which is not the case here. To the extent a statecan be "indirectly impleaded", the applicants say that there has been no suchNew Zealand case, and the English courts have only applied that doctrine where theproceedings involved in rem claims against state-owned property within thejurisdiction of the domestic court purporting to exercise jurisdiction.[76] In response, the intervener notes that the concept of indirect impleading wascodified in the 2004 United Nations Convention on Jurisdictional Immunities of Statesand their Properties (which has yet to come into force).19 Article 6(2)(b) provides:A proceeding before a court of a state shall be considered to have beeninstituted against another state if that other state is not named as a party tothe proceeding but the proceeding in effect seeks to affect the property, rights,interests or activities of that other state.[77] Despite counsel for the intervener's comprehensive and cogent submissions onthe doctrine of state immunity, I consider that the doctrine does not apply in this case.Whether or not the doctrine may apply where a state is indirectly impleaded in mattersother than in rem claims against state-owned property, is academic. In the end, as theapplicants clarified in their written and oral submissions, the Court is not required to19 The Convention is not yet in force. To date, 22 of the required 30 ratifications have been deposited;New Zealand has not ratified the Convention. Notwithstanding "its embryonic status", the Houseof Lords described the Convention as "the most authoritative statement available on the currentinternational understanding of the limits of state immunity in civil cases": see Jones v Saudi Arabia[2006] UKHL 26 at [26].determine, for the purposes of this judicial review application, the status of WesternSahara. In my view, the real issues are much narrower than the intervener andGuardians contend. There may well be legitimate reason for this confusion givensome of the wording in the applicants' pleading. At their core, the applicants' groundsof review ask whether Guardians has established, and adhered to, an investmentframework consistent with its obligations under s 58(2)(c) of the Act to avoid prejudiceto New Zealand's reputation as a responsible member of the world community. Thepreceding discussion shows that the state of Morocco is not impleaded, whetherdirectly or indirectly, in those grounds of review.Seventh issue: Are the matters pleaded in this proceeding non-justiciable on thebasis of the act of state doctrine?[78] The act of state doctrine is premised on the principle that every sovereign stateis bound to respect the independence of every other sovereign state. The doctrineprecludes the Court from investigating the propriety of any legislative or other act ofa foreign government within that government's territorial limits.20 It is primarilyapplied as a principle of non-justiciability.21 In Air New Zealand v Director of CivilAviation, Baragwanath J summarised the doctrine as follows: "if the conduct soughtto be challenged is properly characterised as a public law function of one state, the actof state doctrine will prevent the Courts of another state from adjudicating as to itsvalidity".22[79] This issue can be dealt with briefly. As I have said in relation to the doctrineof state immunity, the crux of the grounds of review is whether Guardians hasestablished, and adhered to, an investment framework consistent with its obligationsunder s 58(2)(c). The matter is not so much concerned with the acts of the state ofMorocco as it is with the acts of Guardians, the latter of which is justiciable.20 Hazel Fox and Philippa Webb The Law of State Immunity (3rd ed, Oxford University Press,Oxford, 2015) at 50–74; Maria Hook and Jack Wass The Conflict of Laws in New Zealand(LexisNexis, Wellington, 2020) at 146–148; and Campbell McLachlan Foreign Relations Law(Cambridge University Press, Cambridge, 2014) at 261.21 Campbell McLachlan Foreign Relations Law (Cambridge University Press, Cambridge, 2014) at523–524 and 539–541.22 Air New Zealand v Director of Civil Aviation [2002] 3 NZLR 796 at [56].Result[80] The application for judicial review is dismissed. Costs are to follow the event._________________________Woolford JSolicitors: Te Aro Law (R N Zwaan), WellingtonCounsel: J L W Wass and M C McCarthy, Stout Street Chambers, Wellington