Fonterra to pay $30k for breach

The Supreme Court has ruled Fonterra breached the Dairy Industry Restructuring Act (DIRA) in offering reduced price contracts to a group of South Canterbury dairy farmers, and has ordered it to pay $30,000 in costs.

One of the respondents, Doug McIntyre, said he was pleased the court had validated the group’s point, after Fonterra had appealed twice, first against the decision of the High Court and then the Court of Appeal.

The Supreme Court appeal centred around the question of whether the farmers were ‘‘new entrants’’ to the co-operative.

The farmers had supplied NZ Dairies (NZD) at its Studholme factory until it went into receivership in 2012. Fonterra bought the factory, paid the farmers money owed to them by NZD and agreed to take the farmers’ milk for subsequent seasons.

However, Fonterra asked the farmers to sign supply agreements that paid them 5 cents less per kilogram of milksolids and would not let them buy shares in the cooperative for the first year.

The farmers argued Fonterra breached section 6 of DIRA, which prohibits discrimination between new entrants and existing shareholders.

Fonterra told the Supreme Court section 6 did not apply as the farmers were not new entrants.

By a majority of four to one, the court dismissed the appeal. It considered the farmers were new entrants and therefore Fonterra should have offered them the same supply terms as shareholding farmers in the same circumstances. In a dissenting argument, Justice William Young accepted Fonterra’s submission that DIRA only regulated share-backed supply and the farmers were not share-backed suppliers.