Gisborne Milk survival bid washed away by Fonterra 'perfect storm'

Gisborne Milk Co-op, the 66-year-old dairy supplier in liquidation, has lost a last-ditch bid to get back shares and supply arrangements with Fonterra.

In the High Court in Auckland, Justice Rebecca Ellis turned down Gisborne Milk's claim that Fonterra breached its empowering legislation, saying the Bay of Plenty firm made its own commercial decisions to surrender shares in the giant co-operative.

The December 17 judgment was published on the Justice Ministry's website this week.

"It is difficult not to think of the shareholders Gisborne Milk as sailors caught in a perfect storm," Justice Ellis said. "It is impossible not to have considerable sympathy for them. But none of their claims can succeed."

Gisborne Milk was seeking reinstatement of its Fonterra shares and an inquiry into damages, saying Fonterra's hardball negotiations and stance on whether the company could be a shareholder fell foul of the Dairy Industry Restructuring Act and constituted misleading conduct.

Fonterra inherited Gisborne Milk as a supplier from the company's relationship with Bay Milk when Parliament legislated to create a national dairy group.

What made Gisborne Milk unusual for Fonterra was that the company processed milk for its local community, shipping excess supply to the Bay Milk operation without producing its own product.

The distance and nature of Gisborne Milk's shareholding was seen as a problem for Fonterra, though the dairy group did not devise a way to deal with the issue for several years, even with prodding by its supplier.

Justice Ellis said Fonterra's interpretation of the act that Gisborne Milk could not be a shareholder was incorrect, but the dairy group was entitled to put it forward as an honestly held and reasonable opinion.

Gisborne Milk was not obligated to sell its shares, and in doing so ignored legal advice it had received that Fonterra's position was wrong, the judgment said.

"The evidence from Gisborne Milk's own witnesses leads to the conclusion that a decision was taken by Gisborne Milk to voluntarily surrender its shares, for a number of perfectly sound reasons," the judgment said.

The judgment does not determine a separate action by Gisborne Milk shareholder Opoiti, which claims a letter from Fonterra manager Mark Leslie caused it to enter into an individual contract with the dairy group.

(BusinessDesk)