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Judgment: Fonterra v McIntyre and Williamson

COURT OF APPEAL OF NEW ZEALAND
TE KŌTI PĪRA O AOTEAROA
16 NOVEMBER 2016
MEDIA RELEASE
FONTERRA CO-OPERATIVE GROUP LTD v MCINTYRE AND WILLIAMSON
PARTNERSHIP AND ORS (CA736/2015)
[2016] NZCA 538
PRESS SUMMARY

This summary is provided to assist in the understanding of the Court’s judgment. It does not comprise part of the reasons for that judgment. The full judgment with reasons is the only authoritative document. The full text of the judgment and reasons can be found at www.courtsofnz.govt.nz.

1. The Court of Appeal has today dismissed an appeal brought by Fonterra against a High Court ruling that Fonterra had discriminated against a group of dairy farmers by offering them less favourable terms on which it would purchase their milk.

2. The respondents are South Island dairy farmers who were contracted to supply milk to New Zealand Dairies Ltd (NZDL) when it went into receivership in May 2012.

Fonterra successfully tendered to purchase NZDL’s plant in Studholme. As part of the deal, NZDL’s suppliers agreed to switch to selling their milk to Fonterra.

3. Subsequently the suppliers launched proceedings in the High Court, alleging that the terms on which Fonterra agreed to accept their milk supply breached section 106 of the Dairy Industry Restructuring Act 2001 (DIRA). This section prohibits Fonterra from discriminating between suppliers in the same circumstances. The respondents argued that Fonterra breached this section by preventing them from buying more than 1,000 shares in Fonterra in their first year as suppliers and offering them a lower price for their milk. They were successful in the High Court, with Justice Muir ruling that Fonterra had breached the relevant section. He also found that Fonterra had misled2 the suppliers in relation to their inability to buy shares in Fonterra under the Fair Trading Act 1986 (the FTA) and the Contractual Remedies Act 1979 (the CRA).

4. On appeal, Fonterra argued that Justice Muir had erred in several respects. Fonterra argued that because the respondents had entered into supply contracts outside the relevant application period the anti-discrimination provision in DIRA did not apply. Further, on Fonterra’s argument, even if DIRA did apply, Fonterra had not discriminated against the suppliers because the less favourable terms were justified by Fonterra having agreed to pay the suppliers $20 million NZDL owed them under their previous supply contracts (“retros”).

5. The Court of Appeal did not accept these arguments. Justice Randerson gave the reasons of the Court, upholding Justice Muir’s findings for essentially the same reasons he had given. It was clear from DIRA and Fonterra’s Constitution that its contracts with the suppliers were regulated by DIRA. In terms of DIRA, the respondents were “new entrants” who had become “shareholding farmers” when they completed contracts with Fonterra that involved the purchase of 1,000 Fonterra shares. This meant DIRA applied to them and Fonterra had to ensure it offered them the same terms of supply as shareholding farmers in the same circumstances.

6. Fonterra’s agreement to pay the suppliers’ retros did not justify Fonterra offering different terms to the suppliers. The price paid by Fonterra for NZDL’s assets reflected the value of those assets. There was no evidence the price paid was increased to enable the retros to be paid. The Court of Appeal found it was likely the less favourable terms were imposed on the suppliers because they had been Fonterra suppliers in the past but had chosen to leave the co-operative. Fonterra did not want to allow them to return as shareholders without some penalty for their perceived disloyalty.

7. Fonterra also argued — in relation to the allegations of misrepresentations under the FTA and CRA — that the respondents had not shown on the evidence that Fonterra had made the misrepresentations alleged. It noted that the suppliers’ contracts clearly stated they would not be entitled to become full Fonterra shareholders in the first3 season, and argued Justice Muir had placed too much emphasis on oral recollections of witnesses instead of the contemporaneous written evidence.

8. The Court of Appeal did not consider there was any basis to interfere with Justice Muir’s findings. He found that Fonterra representatives had conveyed that the respondents could not purchase more shares because they were outside the application period, when in fact Fonterra had discretion to accept applications to purchase shares in spite of this. Further, Fonterra representatives had misled the suppliers by conveying the impression that existing shareholders were subject to the same restrictions on the acquisition of shares in the company.

Judgment: fileDecision.pdf

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