An ownership dispute over proposed milk processing facilities in Southland has hit the courts, with a jilted group of investors claiming to have missed out on a major opportunity to tap the Chinese market worth at least $227 million.

The tussle harks back to September 2014 when Brian Wagstaff and Richard Young set up a company called Danpac (NZ) to build and run an infant formula factory and hold a minority interest in a site for a proposed milk powder processing factory that was to be owned by Mataura Valley Milk. They entered into a heads of agreement with Randolph van der Burgh and Geoffrey Pollard, Pure Elite Holdings, PEF New Zealand and Ever Health New Zealand that both parties would pour capital into the entity to build a dairy exporter targeting China.

Neither group ended up injecting their capital and Wagstaff and Young took back control of the entity, later amalgamating Danpac with another entity Bodco Ltd, which counts Chinese state-owned enterprise China Animal Husbandry Group as its biggest shareholder, bankrolling the processing plant.

A September 25 judgment in the High Court in Hamilton shows van der Burgh, Pollard and the PEH group of companies claim the agreement didn't have a fixed timeframe meaning delays to capitalise Danpac didn't breach the deal, and that the moves to push them out were themselves breach of the heads of agreement. They estimate their loss to be at least $55m from being deprived of the equity stake in Danpac, and at least $227m in lost value, the judgment said.

Advertisement
Advertise with NZME.

"I apprehend that the second claimed head of loss represents the diminishment of the value of the first plaintiff because it no longer has in place the connection with Danpac, which was a link in the manufacturing and marketing chain that would have led to sales of infant formula products in China," Associate Judge Jeremy Doogue said. "No doubt the assumption is made that the loss of that business, which would have been profitable, has resulted in the diminishment in value of the first plaintiff which was the party that was going to have the advantage of the contractual entitlements arising from the relationship with the defendants and Danpac."

The judge dismissed an application by Wagstaff, Young and Bodco to toss out the case, saying it was arguable that the agreement wasn't clear about when the capital needed to be contributed and that it was "a long way" from meeting the test for a summary disposal.

Judge Dooge said the scale of the damages being claimed "may give rise to some scepticism" but capable operators could "derive substantial revenue from the Chinese market" and missing out on that opportunity "would understandably be damaging to the plaintiffs."