French food giant Danone was "lulled into a false sense of security" by allegedly misleading information Fonterra gave it months before the botulism scare exploded into the public domain, the High Court heard yesterday.

Danone is suing in the wake of last year's botulism fiasco and alleges Fonterra Co-operative Group employees provided it with "incorrect and misleading information" in April 2013.

This included that whey protein concentrate - known as WPC80 - was clear of certain bacteria when some testing was yet to be completed, the QC acting for Danone, David Goddard, told the High Court at Auckland yesterday.

Danone also alleges Fonterra told it that all lot codes of WPC80 were put on hold when in fact substantial amounts of it were supplied to the French firm, Goddard said.


Danone was "lulled into a false sense of security" by the statements made to it in April and continued to manufacture and distribute product, Goddard said.

Fonterra in fact knew there were uncertainties about its own product and knew there were risks, he said.

Months later in August, Danone recalled products in numerous countries after Fonterra announced that some of its ingredients used in infant formula and sports drinks might contain botulism. It emerged later that this was a false alarm.

Danone estimated last year the cost of the recall was 350 million ($544.56 million) and Goddard said yesterday that "costs and losses" continue to accrue.

The claims against Fonterra Group emerged yesterday as the co-op applied to halt the legal action against it while arbitration proceedings between Danone and Fonterra Ltd took place in Singapore.

While Fonterra Group is targeted in Danone's New Zealand action, a subsidiary - Fonterra Ltd - is party to the arbitration.

The Queen's Counsel representing Fonterra Group, Alan Galbraith, said all the dealings between parties took place between Fonterra Ltd and the French company. These parties had made a supply agreement, which had an arbitration process for sorting out disputes. Galbraith said yesterday issues between the parties should first be determined at arbitration under the terms of the supply agreement.

But Goddard said the court should not "close the door" on its legal action and that arbitration would not provide "final determination" of claims against Fonterra Co-operative Group because the parent company was not involved in the Singapore process. The parties needed to get their "skates on" and deal with issues in the New Zealand proceedings, Goddard said. Justice Geoffrey Venning, who was hearing the application, reserved his decision.