The tribunal, in Singapore, determined Fonterra must pay a total of NZ$183m (US$125m) in recall costs suffered by Danone after the recall of whey protein concentrate WPC80 in 2013 over what turned out to be an unfounded botulism scare.
Fonterra CEO, Theo Spierings, said the company was disappointed that the arbitration tribunal did not fully recognize the terms of the supply agreement with Danone, “including the agreed limitations of liability, which was the basis on which we had agreed to do business.”
Danone welcomes decision
However, Danone welcomed the announcement.
Danone said the arbitration decision was a guarantee that the lessons from the crisis will not be forgotten.
Danone said it considers the arbitration decision underscores the merit of its legal actions against Fonterra, including “to champion the highest standards of food safety across the industry.”
Danone said in April 2014, Fonterra had already been fined by judgement of the Wellington District Court for having breached several provisions of the New Zealand food safety regulations.
The French company said it believes food companies and their suppliers can only work together through a solid relationship based on trust, transparency and accountability, and that Danone will continue to build that relationship with its suppliers across the world.
No impact on farmgate price
Fonterra said it has assessed the potential financial implications of the decision and revised its forecast earnings per share range for the 2017/18 financial year to 35 to 45 cents (US$0.24-0.31), down from 45 to 55 cents (US$0.31-0.38).
The co-operative said the decision has no impact on the forecast Farmgate Milk Price.
Spierings added Fonterra is in a strong financial position and is able to meet the recall costs.
The arbitration followed events in August 2013 when Fonterra issued a precautionary recall advice to some customers who had been supplied with its WPC80 ingredient and products containing WPC80. It was later confirmed that there had been no food safety risk to the public.
Acted on incorrect information
Both Fonterra and the New Zealand Government conducted extensive reviews into the events.
Spierings said the decision to invoke a precautionary recall was based on technical information obtained from a third party, which later turned out to be incorrect.
“While there was never any risk to the public, we have learned from this experience and as a result have made improvements to our escalation, product traceability and recall processes, and incident management systems.
“We operate in a fast-changing and complex industry, and will always prioritize food safety and quality.”
Trading halt
The co-operative said it was reviewing the tribunal’s findings, but recognized there would be limited options for challenging the decision of an international arbitration.
Prior to the announcement, Fonterra requested an immediate trading halt to be applied to their respective securities on the ASX; NZX Main Board/Debt Market; and the Fonterra Shareholders Market.
The request was made to give Fonterra time to consider the outcome of the case.