The Prime Minister is promising to obey the law if the government is found to have wrongly stopped Chinese-owned company Shanghai Pengxin from buying Lochinver Station near Taupo.
Disputed ground - an aerial view of Lochinver Station. Photo: SUPPLIED
The company said it was seeking a judicial review of the decision to ban it buying the farm.
While John Key said the government would follow the law, his associate finance minister Paula Bennett said she was confident about the decision to stop the sale.
Mrs Bennett said she was not worried about the legal challenge.
"Not at all. They're able to go through the process. It's always quite fine for them to do that and we'll just work our way through it.
"I'm certainly confident that I followed legal advice, that I looked at it closely. I'm very confident," she said.
Mr Key did not appear to be quite so sure.
"You can get appeals both ways, so when Shanghai Pengxin was granted the right to buy the Crafar farms there was also an appeal because that went through and it was tested back in court. Now it's going the other way.
"But, look, in the end if the court determine the Overseas Investment Office (OIO) got it wrong the government would go and reflect on that and honour the law. We always do that," he said.
In this case, however, it was not the OIO, as Mr Key suggested, which turned down the sale. It was Mr Key's own ministers.
Labour land information spokesperson Stuart Nash said the legal challenge was not unexpected.
"Not surprising at all because we now find that the officials actually recommended to the minister this goes ahead and the minister declined their decision. So you could say they went through the proper process.
"They met all the requirements according to the office and for some reason, we don't know what that is, the minister has decided to go against the advice of her officials and turn down this request."
Mr Nash criticised the government's approach and said the process used to determine overseas investment applications was flawed.
"In the Crafar farms case, where it actually went to the High Court and the Court of Appeal and the Supreme Court, the Court of Appeal judges said this legislation is so loose that it's up to ministerial policy. So whatever a government wants to do they can do and I don't think that's good enough in the 21st century.
"What we do need to do is provide certainty to those who want to invest in our country. There is no doubt we need quality investment but we need to provide a level of certainty that if they meet the rules then they can invest here," he said.
Mr Key remained relaxed about the appeal, saying it was always possible under the law.
"If someone doesn't agree with a decision that the government has made or in this case, as I understand it, the interpretation that the Overseas Investment Office took on the application of Shanghai Pengxin to buy Lochinver farm then they're free to go and appeal that."
While Mr Key said the government would follow the law, he was not ruling out the government challenging the judgment if the appeal was successful.