Danone says court delay would cause injustice if Fonterra arbitration fails

Danone's subsidiary Nutricia recalled 67,000 cans of Karicare formula. Photo / Bevan Conley

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Danone Asia Pacific Holdings, the local unit of the French food company, argued in the Court of Appeal it was an injustice for it to have to wait potentially until 2018 to go to trial against Fonterra Cooperative Group regarding last year's dairy contamination scare, should planned arbitration fail to resolve its issues.

Danone counsel David Goddard QC told the Appeal Court in Wellington that should the arbitration scheduled for 2016 in Singapore fail to appease Danone, the company wouldn't be able to pursue any outstanding issues in New Zealand's High Court until 2018. Goddard was arguing against a High Court ruling in July that granted Fonterra's application to stay proceedings during arbitration to avoid overlap and duplication of resources.

In response to questions from the Appeal Court judges, Justices Douglas White, Mark Cooper and Christine French, Goddard said he would agree to continuing the stay on the trial, on the condition pre-trial steps such as a statement of defence, targeted discovery and any interlocutories arising from those steps could continue. That would allow Danone to go straight to trial should arbitration fail. If the stay remains in place as is, it would be necessary for Danone to "crank the proceedings up from scratch" should it fail to resolve issues in arbitration, Goddard said.

Responding for Fonterra, counsel Alan Galbraith QC said arbitration would deal with all the substantive issues, except for Danone's wish to widen the net of those included in the proceedings in an attempt to avoid limited caps that applied in the supply agreement between Fonterra Ltd and Danone Asia Pacific Holdings.

Danone and Fonterra's supply agreement included a provision limiting Fonterra's liability to A$10 million per claim or series of claims, with total liability in any one year capped at A$30 million.

Following the arbitration, the parties would likely need to rethink the High Court proceeding and it could need to be repleaded, Galbraith said. There was no point setting off down an unknown path, he said. Danone is claiming damages for what it claims were lost sales of 350 million euros and cost impacts of 280 million euros.

Running both processes at the same time risked inconsistency and tactical game play to the detriment of the arbitration, and of no benefit to the High Court proceedings which would probably have to be rethought, Galbraith said.

The Appeal hearing, scheduled for one day, is continuing this afternoon.