Fonterra Co-Operative Group Ltd v The Grate Kiwi Cheese Company Ltd

• Jurisdiction: New Zealand
• Judge: Tipping J
• Judgment Date: 15 March 2012
• Neutral Citation: [2012] NZSC 15
• Docket Number: SC 38/2011
• Court: Supreme Court
• Date: 15 March 2012

BETWEEN

Fonterra Co-Operative Group Limited

Appellant

and

The Grate Kiwi Cheese Company Limited

First Respondent

and

Kaimai Cheese Company Limited

Second Respondent

[2012] NZSC 15

Court:

Elias CJ, Blanchard,, Tipping, McGrath and William Young JJ

SC 38/2011

IN THE SUPREME COURT OF NEW ZEALAND

Appeal from a High Court decision dismissing an application for habeas corpus. Appellant was initially detained under s10 Mental Health (Compulsory Treatment and Assessment) Act 1992 (“MHA”) (certificate of preliminary assessment) and then under s13 MHA (further assessment and treatment for 14 days). An application under Part 2 MHA (compulsory treatment orders) for a compulsory treatment order was due to be heard the next day and had been made before the application for a writ of habeas corpus was sought. The application for habeas corpus was made primarily on the grounds that the initial detention under s10 was unlawful because there was no factual basis on which to believe the appellant was “mentally disordered” — whether the High Court erred in failing to determine whether the s10 MHA initial detention was unlawful or invalid.

Counsel:

A R Galbraith QC, J D Every-Palmer and T C E Miller for Appellant

J A MacGillivray for First and Second Respondents

S J Mills and B Hamlin for Commerce Commission as Intervener

• A The appeal is dismissed.

• B The appellant is to pay the respondents costs in the sum of $15,000 plus disbursements to be fixed, if necessary, by the Registrar..

JUDGMENT OF THE COURT

REASONS

(Given by Tipping J)

Introduction

1 On this appeal Fonterra Co-operative Group Ltd, as appellant, contends that it was not obliged to supply raw milk to the respondents, The Grate Kiwi Cheese Company Ltd and Kaimai Cheese Company Ltd, under reg 4 of the Dairy Industry Restructuring (Raw Milk) Regulations 2001. Fonterra's obligation to supply raw milk under that regulation arises only if those seeking such supply are “independent processors”, as defined. The Commerce Commission 1, the High Court 2 and the Court of Appeal 3 have each ruled against Fonterra on the basis that Grate and Kaimai were independent processors. Fonterra challenges that conclusion. Its essential proposition is that the meaning which has so far been given to the expression independent processor does not properly reflect the context and purpose of the relevant Regulations. For the reasons which follow, we consider that the meaning given to the expression by the Commission and the Courts below represents a natural meaning of its definition. The context and purpose of the Regulations support that meaning. Fonterra's appeal must therefore be dismissed.

Background

2 The legislative and factual background can be stated quite briefly. When Fonterra was established following the merger of New Zealand's two largest dairy producers and the New Zealand Dairy Board, it was necessary to enact legislation authorising the merger for the purposes of the Commerce Act 1986. 4 The legislation included provisions designed to guard against the risks to competition posed by the merger of the previously autonomous producers into one entity which then occupied a dominant position in the market. Section 4 of the Dairy Industry Restructuring Act 2001 sets out its purpose. The crucial provision, for present purposes, is s 4(f) which says that a purpose of the Act is to “promote the efficient operation of dairy markets in New Zealand by regulating the activities of new co-op [Fonterra] to ensure New Zealand markets for dairy goods and services are contestable”.

3 Section 115(1)(a)(i) empowered the Governor-General, by Order in Council made on the recommendation of the Minister, to require Fonterra to supply raw milk

in New Zealand. 5 Pursuant to that power, reg 4(1) of the Regulations mentioned above required Fonterra to supply raw milk to independent processors. Regulation 3(2)(c) expressly incorporated into the Regulations the definition of independent processor contained in the Act

4 It is the terms of that definition which are at the heart of the case. Independent processor is defined as meaning “a processor of milk or milksolids or dairy products who is not an associated person of new co-op [Fonterra]”. 6 The definition also includes New Zealand Dairy Foods Ltd (now Goodman Fielder Ltd) and any associated person of that company other than Fonterra. 7 The issue is whether in order to qualify as an independent processor the party concerned must physically process the raw milk it obtains from Fonterra “in its own facility”, as the Commerce Commission put it in its determination; 8 or whether it is sufficient for the party concerned to do the processing by what has been called “toll processing”.

5 The expression toll processing describes a situation where the processor does not use its own facilities to process raw milk but makes use of spare capacity within the facilities of another party, pursuant to contractual arrangements entered into for that purpose. This latter and wider meaning of the definition was adopted by the Commission in its determination. The key difference between the rival contentions is that, in Fonterra's submission, an independent processor must personally process the raw milk it acquires from Fonterra. The argument favoured by the Commission and in the Courts below allows a person to be an independent processor when that person does not do the processing of the raw milk personally but arranges for the processing to be done by someone else, pursuant to contractual arrangements made for the purpose.

6 Both Grate and Kaimai personally processed certain dairy products including cheese but when they sought raw milk from Fonterra they were not proposing to process that milk personally, having arranged to have that processing done, on their behalf, by a company called Open Country. The raw milk thus processed was to be

used by Grate and Kaimai in their downstream production. Being of the view that in this situation Grate and Kaimai were not independent processors, Fonterra declined to supply the raw milk they had each sought

7 Regulation 8 provides that Fonterra and an independent processor may agree a price for the supply of raw milk. If agreement is not reached the regulation provides a formula whereby a default price is established. Regulation 11(2) sets a limit on the volume of raw milk Fonterra is obliged to supply to independent processors under reg 4. That limit, or cap as it was called, was initially set at 400 million litres per season. This was subsequently raised to 600 million litres. It is the existence of the cap that is relevant, not its precise amount. Fonterra argued that if toll processing was permitted there would be inappropriate upwards pressure on the 600 million litre cap. This argument seemed to be based in part on the premise that the default price under reg 8 was unfavourable to Fonterra. But, for interpretation purposes, the Court must proceed on the basis that the reg 8 default formula is designed to produce a...