Danone says recall caused by Fonterra whey botulism scare cost it $981 million

Danone is fighting to keep its New Zealand lawsuit against Fonterra alive and is appealing the High Court decision to put the case on hold.

The French food giant's action against Fonterra was put on hold last month, with a High Court judge saying arbitration in Singapore should happen first. But Danone filed appeal documents with the Court of Appeal yesterday.

The High Court judge erred "in law and in fact in granting the temporary stay", a spokeswoman said.

Danone, the parent company of infant formula maker Nutricia, in January started court action in New Zealand and arbitration proceedings in Singapore to get compensation after the Fonterra whey protein concentrate recall, which was triggered by a botulism scare.


It put the cost of the recall at 350 million ($554 million) when it revealed its third-quarter results last year but in its court action it alleges projected costs and lost sales will total 630 million ($981 million). Danone wants compensation from Fonterra for losses and the harm it says was caused to its reputation.

Fonterra wrongly suspected in August last year that 38 tonnes of whey protein - used to make products including Nutricia infant formula - had been contaminated with a botulism-causing bacterium.

The whey protein was ultimately cleared but not before a recall of baby formula products amid fears that children could be harmed.

Nutricia recalled 67,000 cans of its Karicare formula in New Zealand.

Fonterra applied in June in the High Court at Auckland to suspend the action it is facing in New Zealand pending the determination of the Singaporean arbitration involving companies in Fonterra Group and Danone. Justice Geoffrey Venning granted the stay application last month.

He said the facts underlying Danone's High Court claim and the arbitration "are essentially the same".

There was a risk of inconsistent findings of fact and law in the two proceedings and there would be a duplication of witnesses and evidence.

"Given the substantial degree of factual overlap between the claims in the Singaporean arbitration and these proceedings I consider that it would not be in the interests of justice for both claims to proceed in tandem."


The court case

What Danone is alleging in its court action:

• In discussions with Fonterra in April last year, Danone says it was given assurances there was no safety risk from the use of supplied whey protein concentrate.

• It says that by giving these assurances, Fonterra Co-operative Group breached the Fair Trading Act and engaged in misleading and deceptive conduct because the New Zealand company had information that it did not disclose.

• The French food giant also says that if Fonterra had not made false and misleading representations, it would have refused to accept the New Zealand company's product and would have made a more orderly recall of its baby food.

• Danone alleges that Fonterra knew or should have known the French company was relying on it to give it correct information. Danone says the dairy co-operative had a duty to take care the information it gave was correct and any updates were provided promptly. Danone alleges Fonterra breached these duties.

• Danone also says Fonterra Group breached its duty of care when manufacturing the whey protein concentrate to ensure it was free from any defect giving rise to a risk to health and safety.