Farmer awaits ruling on appeal
Clash with Fonterra over milk supply contract dates back to 2014/15 season
Farmer Philip Woolley’s legal team will be waiting on tenterhooks after appealing a decision that Fonterra didn’t breach a supply contract. The arguments, which date back nearly a decade, were heard over two days at the Court of Appeal this week, as Woolley continues to seek damages for Fonterra’s refusal to take his milk in the 2014/15 season.
Both teams wheeled in suitcases filled with documents, but the case seemed to largely hinge on a single one: An engineer’s certificate.
The case involved the exercise of contractual discretion and the question of whether Fonterra was justified in not resuming milk collection.
Woolley, who had been convicted of several offences under the Resource Management Act, had a supply contract with Fonterra.
For a series of reasons, by mid2014, his Marlborough Glenmae farm was the subject of an enforcement order sought by the local council.
The order prohibited the use of its dairy shed and effluent system until he obtained an engineer’s certificate confirming the effluent system was functioning properly. Under that order, Fonterra suspended collection of the milk, given Woolley was not legally able to produce it at the farm. All parties accept that suspension.
Exercising discretion
The issue isn’t the suspension, but rather when it should be lifted.
The crux of the problem emerged when Woolley obtained a certificate from engineering firm Opus on September
5, 2014. He told Fonterra he was expecting the certificate showing the ponds were fit for purpose, so the dairy co-operative should have resumed collecting milk from Glenmae.
“The certificate shows the ponds do not leak,” said lawyer Paul Morten, who represented Woolley.
But Fonterra said it would not collect milk because the certificate did not meet the requirements of the enforcement order. Woolley alleged
this is a breach of contract. Fonterra argued that the dairy co-operative had “discretion” built into the contract and that it exercised that discretion.
A High Court decision in December 2018 said Woolley suffered “serious financial consequences” as a result.
Associate Judge John Matthews dismissed Fonterra’s application for summary judgment to prevent Woolley from taking his case to trial.
But in 2021, Justice Andru Isac said
Fonterra had acted reasonably. That is the decision being appealed.
Imbalance of power?
The arguments at the appeal were the same. The judges homed in on issues such as what Woolley was actually required to build and what he did build, whether Fonterra knew from the outset that he was not in compliance and whether there was an imbalance of power.
Woolley’s team said the key part of the supplier contract is “Fonterra’s requirement to take the milk”.
Morten argued Fonterra’s discretion was “exercised without reasonable process” and the engineer’s certificate was enough. He said the co-op didn’t properly investigate.
Fonterra’s legal team argued that the dairy co-op did act reasonably as the certificate “plainly did not certify what it was required to certify”.
According to the lawyers “there was a valid exercise of discretion”.
“On the face of the certificate, with the ruling beside you, you would say it doesn’t comply” and the suspension should remain in place, said Jane Anderson, KC.
Fonterra’s team also argued that there is much more at stake than simply its relationship with Woolley.
For example, collecting milk from a farmer who was in breach of an Environment Court order would damage its reputation. “This isn’t a franchise agreement, it’s a cooperative of farmers,” said Anderson.
The appeal was heard before Justices Brendan Brown, David Goddard and Denis Clifford.