Litigation by the Ministry for Primary Industries (MPI) involved alleged breaches of the Animal Products Act (NZ) -
- Processing dairy product not in accordance with its Risk Management Programme
- Exporting dairy product that failed to meet relevant animal product standards
- Failing to notify its verifier - AsureQuality - of significant concerns that dairy product had not been processed in accordance with its Risk Management Programme
- Failing to notify the MPI Director General within 24 hours that exported dairy product was not fit for intended purpose.
In Wellington District Court Fonterra was fined NZ$60,000 for each of three charges and NZ $120,000 for a fourth charge, with the Hobbs J referring to mitigating factors such as Fonterra's early guilty plea and steps it took to address the issue.
The Court accepted that
the offending resulted from careless failure to follow proper procedure rather than a deliberate or reckless plan - things could have and should have been done better.Fonterra's operational review in September 2013 indicated that contamination occurred in May 2012 after workers became concerned a piece of plastic had fallen into a drier. Rather than downgrade the product it was decided to reprocess the powder, using a non-standard transfer pipe that was thought to be the source of the contamination, ultimately found to be a harmless strain of bacteria rather than clostridium botulinum. Some 38 metric tonnes of contaminated powder had been sold to third party manufacturers who used it to produce infant formula, protein drinks and other beverages (in all an estimated 1,000 tons of third party consumer products by the time of the recall).
The incident led to a precautionary global recall of products containing the contaminated powder and litigation that saw Fonterra reach settlements with seven of eight customers affected by the recall.
The group currently faces civil claims by France's Danone (manufacturer of the infant formula Nutricia), for breaches of the Fair Trading Act 1986 (NZ) and tortious conduct. Danone is taking action through an arbitration panel in Singapore and New Zealand's High Court, after failing to reach a compensation agreement.