The High Court has agreed with Fonterra Co-operative Group [NZX: FCG] that its dispute with French food group Danone should be dealt with in arbitration, but won't grant a permanent stay on legal proceedings.
In the High Court in Auckland, Justice Geoffrey Venning granted Fonterra's application to stay proceedings brought against the New Zealand dairy firm by Danone, while "expressly reserving leave for the Danone plaintiffs to seek to lift the stay in the event Fonterra delays the arbitration process," according to a judgment delivered yesterday.
Justice Venning said the substantial overlap between the claims in the New Zealand courts and the Singapore arbitration meant it "would not be in the interests of justice for both claims to proceed in tandem" and would be "oppressive" to Fonterra due to the duplication of resources and the potential for inconsistent findings in the separate hearings.
"In my view the arbitration should go first because the parties agreed the arbitration process was to apply to claims arising out of the supply of product by Fonterra to Danone AP," the judgment said.
The judge weighed up the potential for delay in the arbitration process, because it would likely be at least two years before completion, noting the financial consequences of a protracted hearing could be addressed by an award of a realistic interest rate because the claim is for monetary compensation. Further, if Fonterra held up proceedings, Danone could seek to lift the stay, he said.
Danone is seeking damages for the costs of recall, loss of profits, and loss of business and reputation, alleging lost sales of 350 million euros and projecting cost impacts of 280 million euros, the judgment said.
Last August, Fonterra quarantined several batches of whey protein concentrate amid fears it was contaminated with a potentially dangerous form of the clostridium bacteria. The whey protein was ultimately cleared as a false alarm. Fonterra cut deals with seven of the eight customers affected and recognised a contingent liability of just $14 million for the recall in its accounts.
Fonterra claimed the New Zealand court proceedings were a "contrivance brought to embarrass FCGL (Fonterra Co-operative Group Ltd) and to seek to evade the negotiated limitations on liability contained within the supply agreement," the judgment said.
Danone and Fonterra's supply agreement included a provision limiting Fonterra's liability to A$10 million per claim or series of claims, with total liability in any one year capped at A$30 million.