Fonterra hit with $183m damages bill over precautionary infant formula recall; Danone sees decision as 'guarantee that the lessons from the crisis will not be forgotten'

Fonterra has been ordered to pay Danone $183 million (€105 million) in damages over its precautionary recall of whey protein concentrate in August 2013.

The decision has been made by an arbitration tribunal in Singapore.

Fonterra says it has assessed the potential impact of the decision and made a "prudent decision" to revise its forecast earnings per share range down from 45 to 55 cents, to 35 to 45 cents, for the 2017/18 financial year .

The ruling has no effect on its forecast Farmgate Milk Price.

Danone says it welcomes the decision "as a guarantee that the lessons from the crisis will not be forgotten".

In a statement it says: "Danone considers that this arbitration underscores the merit of its legal actions against Fonterra, including to champion the highest standards of food safety across the industry.

"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.

"Danone believes that food companies and their suppliers can only work together through a solid relationship based on trust, transparency and accountability. Danone will continue to build that relationship with its suppliers across the world."

On announcing its trading halt earlier in the day, Fonterra said it expected the decision to be "both lengthy and complex". It also noted neither party had been given advance notice of the tribunal’s findings.

"Fonterra will not be in a position to immediately assess any financial implications and advise the market," it said.

Following Danone's statement Fonterra said it was aware Danone had announced it had been awarded $183 million in damages.

"Fonterra can confirm that this is the amount of the award and is currently considering the full financial implications of the award. Fonterra expects to provide a market announcement on these implications shortly," the dairy co-operative said.

Fonterra subsequently followed up with the statement below. CEO Theo Spierings and chairman John Wilson will host a media conference at 3pm on Friday. 

Here's Fonterra's full statement.

The tribunal in the arbitration with Danone on claims arising out of Fonterra’s WPC80 precautionary recall in August 2013 has issued its award. The tribunal has determined that Fonterra must pay a total of NZD $183 million (€105 million) in recall costs suffered by Danone.

In reacting to the announcement, Fonterra’s CEO, Theo Spierings, said “We are disappointed that the arbitration tribunal did not fully recognise the terms of our supply agreement with Danone, including the agreed limitations of liability, which was the basis on which we had agreed to do business.”

Fonterra has assessed the potential financial implications of the decision and made a prudent decision to revise its forecast earnings per share range for the 2017/18 financial year to 35 to 45 cents, down from 45 to 55 cents.

The decision has no impact on the forecast Farmgate Milk Price.

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.

Both Fonterra and the New Zealand Government conducted extensive reviews into the events. A follow-up review by the Independent Inquiry commissioned by the Fonterra Board of Directors confirmed that the Co-operative’s management acted in the best interests of its consumers and the Co-operative at all times.

“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 prioritise Food Safety and Quality in our commitment to be the world’s most trusted source of dairy nutrition.

“Fonterra is in a strong financial position and is able to meet the recall costs,” said Mr Spierings.

The Co-operative was reviewing the tribunal’s findings closely, but recognised that there was likely to be limited options for challenging the decision of an international arbitration.