COURT OF APPEAL OF NEW ZEALAND
TE KŌTI PĪRA O AOTEAROA
16 NOVEMBER 2016
FONTERRA CO-OPERATIVE GROUP LTD v MCINTYRE AND WILLIAMSON
PARTNERSHIP AND ORS (CA736/2015)
 NZCA 538
This summary is provided to assist in the understanding of the Court’s judgment. It does not comprise part of the
reasons for that judgment. The full judgment with reasons is the only authoritative document. The full text of the
judgment and reasons can be found at www.courtsofnz.govt.nz.
1. The Court of Appeal has today dismissed an appeal brought by Fonterra against a High Court ruling that Fonterra had
discriminated against a group of dairy farmers by offering them less favourable terms on which it would purchase their
2. The respondents are South Island dairy farmers who were contracted to supply milk to New Zealand Dairies Ltd (NZDL)
when it went into receivership in May 2012.
Fonterra successfully tendered to purchase NZDL’s plant in Studholme. As part of the deal, NZDL’s suppliers agreed to
switch to selling their milk to Fonterra.
3. Subsequently the suppliers launched proceedings in the High Court, alleging that the terms on which Fonterra agreed
to accept their milk supply breached section 106 of the Dairy Industry Restructuring Act 2001 (DIRA). This section
prohibits Fonterra from discriminating between suppliers in the same circumstances. The respondents argued that Fonterra
breached this section by preventing them from buying more than 1,000 shares in Fonterra in their first year as suppliers
and offering them a lower price for their milk. They were successful in the High Court, with Justice Muir ruling that
Fonterra had breached the relevant section. He also found that Fonterra had misled2 the suppliers in relation to their
inability to buy shares in Fonterra under the Fair Trading Act 1986 (the FTA) and the Contractual Remedies Act 1979 (the
4. On appeal, Fonterra argued that Justice Muir had erred in several respects. Fonterra argued that because the
respondents had entered into supply contracts outside the relevant application period the anti-discrimination provision
in DIRA did not apply. Further, on Fonterra’s argument, even if DIRA did apply, Fonterra had not discriminated against
the suppliers because the less favourable terms were justified by Fonterra having agreed to pay the suppliers $20
million NZDL owed them under their previous supply contracts (“retros”).
5. The Court of Appeal did not accept these arguments. Justice Randerson gave the reasons of the Court, upholding
Justice Muir’s findings for essentially the same reasons he had given. It was clear from DIRA and Fonterra’s
Constitution that its contracts with the suppliers were regulated by DIRA. In terms of DIRA, the respondents were “new
entrants” who had become “shareholding farmers” when they completed contracts with Fonterra that involved the purchase
of 1,000 Fonterra shares. This meant DIRA applied to them and Fonterra had to ensure it offered them the same terms of
supply as shareholding farmers in the same circumstances.
6. Fonterra’s agreement to pay the suppliers’ retros did not justify Fonterra offering different terms to the suppliers.
The price paid by Fonterra for NZDL’s assets reflected the value of those assets. There was no evidence the price paid
was increased to enable the retros to be paid. The Court of Appeal found it was likely the less favourable terms were
imposed on the suppliers because they had been Fonterra suppliers in the past but had chosen to leave the co-operative.
Fonterra did not want to allow them to return as shareholders without some penalty for their perceived disloyalty.
7. Fonterra also argued — in relation to the allegations of misrepresentations under the FTA and CRA — that the
respondents had not shown on the evidence that Fonterra had made the misrepresentations alleged. It noted that the
suppliers’ contracts clearly stated they would not be entitled to become full Fonterra shareholders in the first3
season, and argued Justice Muir had placed too much emphasis on oral recollections of witnesses instead of the
contemporaneous written evidence.
8. The Court of Appeal did not consider there was any basis to interfere with Justice Muir’s findings. He found that
Fonterra representatives had conveyed that the respondents could not purchase more shares because they were outside the
application period, when in fact Fonterra had discretion to accept applications to purchase shares in spite of this.
Further, Fonterra representatives had misled the suppliers by conveying the impression that existing shareholders were
subject to the same restrictions on the acquisition of shares in the company.