FONTERRA CO-OPERATIVE GROUP Ltd v MCINTYRE and WILLIAMSON PARTNERSHIP and ORSs

• Jurisdiction: New Zealand
• Judge: Randerson J
• Judgment Date: 16 November 2016
• Neutral Citation: [2016] NZCA 538
• Docket Number: CA736/2015
• Court: Court of Appeal
• Date: 16 November 2016

BETWEEN

Fonterra Co-Operative Group Limited

Appellant

and

McIntyre and Williamson Partnership and ORS

Respondents

[2016] NZCA 538

Court:

Randerson, Winkelmann and Brown JJ

CA736/2015

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a High Court decision which found the respondents were new entrants for the purposes of s106 Dairy Industry Restructuring Act 2001 (“DIRA”) (no discrimination between suppliers), that the appellant had breached s106 DIRA by offering less favourable returns and that pre-contractual statements made by the appellant regarding the level of milk to be supplied and the ability to buy shares had breached s9 Fair Trading Act 1986 (“FTA”)(misleading and deceptive conduct generally) and amounted to misrepresentations under s6 Contractual Remedies Act 1979 (“CRA”) (damages for misrepresentation) — the respondents were dairy farmers and supplied to milk to another company — the appellant bought that company's processing plant after it went into receivership — whether the respondents were “new entrants” for the purposes of s106 DIRA — if yes, whether the appellant had breached s106 DIRA by offering the respondents different terms — whether the appellant had breached s9 FTA and s6 CRA.

Counsel:

J E Hodder QC, D T Street and H K Wham for Appellant D J Goddard QC and B M Russell for Respondents

• A The appeal is dismissed.

• B The appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements. We allow for second counsel.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

Para No
Introduction	[1]
The issues	[7]
The facts in more detail	[10]
Events leading to the sale agreement between Fonterra and the receivers	[10]
The terms of the sale agreement with the receivers	[31]
The meetings on 15 and 20 June	[36]
Fonterra's letter of offer and the information pack	[39]
The application forms	[44]
The Milk Supply Agreements	[55]
Approval under the Commerce Act 1986 and issue of shares	[58]
The statutory scheme	[61]
Fonterra's Constitution	[76]
Question one: Were the respondents “new entrants” for the purposes of s 106 of DIRA? Or were they supplying milk to Fonterra on a basis other than as “new entrants”?	[83]
Fonterra's argument	[83]
The Judge's approach	[84]
Question one — discussion	[89]
Question two: If the respondents were “new entrants” within s 106, did Fonterra breach s 106 in offering the respondents the terms of supply set out in the Milk Supply Agreements signed by the respondents?	[99]
The Judge's approach	[101]
Fonterra's submissions	[106]
Question two — discussion	[109]
Question three: Did Fonterra advise the respondents about the extent of the respondents' ability to buy shares and to supply milk on a shared up basis in terms or to the effect pleaded in paragraph 31 of the Amended Statement of Claim, or as pleaded in paragraph 31 of the Amended Statement of Defence?	[131]
Question four: Was such advice misleading and deceptive conduct in trade in breach of s 9 of the Fair Trading Act 1986?	[131]
The pleadings	[131]
The Judge's factual findings	[135]
The first representation — not legally possible for the respondents to acquire shares	[137]
The second representation — inability of other Fonterra shareholders to buy shares	[142]
Fonterra's submissions on appeal	[150]
Our assessment	[153]
Remaining issues on Questions three and four	[172]
Question five: Did Fonterra's advice to the respondents about the extent of the respondents' ability to buy shares and supply milk on a shared up basis amount to a misrepresentation in terms of s 6 of the Contractual Remedies Act 1979?	[182]
Result	[184]

Introduction

1 The respondents are dairy farmers in South Canterbury and North Otago. In the 2011/12 dairy season they were all suppliers of raw milk to New Zealand Dairies Ltd (NZDL), which processed the milk through its plant at Studholme, South Canterbury.

2 On 17 May 2012 NZDL went into receivership. The receivers sought tenders for the Studholme plant. The appellant Fonterra was the successful tenderer. It was a condition of sale that the respondent suppliers enter into Milk Supply Agreements (MSAs) committing their milk supply to Fonterra for a six-year period.

3 In the High Court the respondents claimed that the MSAs offered by Fonterra were less favourable in a number of respects than the standard terms on which Fonterra purchases milk under supply arrangements known as Growth Contracts. In particular, the respondents claimed there were three exceptions to the standard terms:

• (a) They were not permitted to purchase more than 1,000 shares in Fonterra until after the end of the first 12-month dairy season.

• (b) The milk price offered by Fonterra for the first three years of supply was five cents per kilogram of milk solids (kgMS) less than the standard Growth Contract price. 1

• (c) Fonterra was not obliged to purchase the suppliers' milk vat.

4 The respondents' principal cause of action was that Fonterra had breached s 106 of the Dairy Industry Restructuring Act 2001 (DIRA) by discriminating against them as “new entrants” in respect of the terms of supply.

5 Section 106 provides: 2

106 No discrimination between suppliers

• (1) New co-op [Fonterra] must ensure that the terms of supply that apply to a new entrant—

  • (a) are the same as the terms that apply to a shareholding farmer in the same circumstances; or

  • (b) differ from the terms that apply to a shareholding farmer in different circumstances only to reflect the different circumstances.

• (2) New co-op must ensure that the terms and effect of financial products offered or issued in new co-op are the same for new entrants as for shareholding farmers.

• (3) In this section, financial products has the same meaning as in section 7 of the Financial Markets Conduct Act 2013.

• (4) New co-op must not treat a shareholding farmer who exercises an entitlement under this subpart any less favourably than a shareholding farmer who does not do so.

6 The respondents also alleged that pre-contractual statements made by Fonterra representatives at meetings on 15 and 20 June 2012 constituted misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986 (the FTA) and amounted to misrepresentations in terms of s 6 of the Contractual Remedies Act 1979 (the CRA).

The issues

7 The parties agreed in the High Court to deal separately with liability and quantum. They also agreed that any question of reliance by the respondents on the statements made by the Fonterra representatives would be dealt with at a later date. This agreement was reflected in a consent order in which the Court was asked to determine five questions:

Question 1 Were the [respondents] “new entrants” for the purposes of s 106 of DIRA? Or were they supplying milk to [Fonterra] on a basis other than as “new entrants”?

Question 2 If the [respondents] were “new entrants” within s 106, did [Fonterra] breach s 106 in offering the [respondents] the terms of supply set out in the Milk Supply agreements signed by the [respondents]?

Question 3 Did [Fonterra] advise the [respondents] about the extent of the [respondents'] ability to buy shares and to supply milk on a shared-up basis in terms or to the effect pleaded in paragraph 31 of the Amended Statement of Claim, or as pleaded in paragraph 31 of the Amended Statement of Defence?

Question 4 Was such advice misleading and deceptive conduct in trade in breach of s 9 of the FTA? (For clarity, this issue excludes any question of reliance by the [respondents] on the alleged advice as pleaded in paragraph 53 of the Amended Statement of Claim, but all other factual — including contextual — issues raised in the pleadings of relevance to liability will be traversed.)

Question 5 Did [Fonterra's] advice to the [respondents] about the extent of the [respondents'] ability to buy shares and supply milk on a shared-up basis (as per Question 3, above) amount to a misrepresentation in terms of s 6 of the CRA? (For clarity, this issue excludes any question of reliance by the [respondents] on the alleged advice as pleaded in paragraph 56 of the Amended Statement of Claim, but all other factual — including contextual — issues raised in the pleadings of relevance to liability will be traversed.)

8 Muir J found in favour of the respondents on each of the questions. 3 Fonterra appeals against the judgment, contending that all five questions ought to have been determined in favour of Fonterra.

9 At the heart of the submissions made by Mr Hodder QC on behalf of Fonterra are the propositions that the respondents were not “new entrants” and that s 106 of DIRA does not apply to milk supply contracts such as those entered into by the respondents. In relation to the causes of action under the FTA and the CRA, Fonterra's essential submission is that the respondents failed to satisfy the onus of proof and that the Judge was wrong to find in favour of the respondents.

The facts in more detail

Events leading to the sale agreement between Fonterra and the receivers

10 NZDL was placed into receivership shortly before the 2012/13 dairy season was due to begin on 1 June 2012. The receivers met with the NZDL suppliers on 18 May 2012 to discuss NZDL's financial position and to give an overview of the forthcoming sale process. The suppliers formed a committee to represent their views to the receivers and to potential buyers of NZDL's business.

11 At the time of receivership NZDL's suppliers were owed approximately

$20 million and were unsecured creditors of the company. The Judge found their paramount concerns were to recover past amounts due to them (referred to in evidence as “retros”) and to find a buyer for their milk in the forthcoming season.

12 Between 25 May and 1...