The Tasmanian Land Company (TLC), owned by a New Zealand council, sold its dairy business in 2016 to Chinese-owned Van Dairy Group for $275 million.
The sale included a pre-existing agreement to supply milk to processor Fonterra.
In May 2016, one month after the sale was finalised, Fonterra announced it would drastically cut milk prices retrospectively for the 2015/16 financial year.
Shortly afterwards, TLC agreed to pay Van Dairy Group $2.2 million in a “lump sum adjustment” to account for the disadvantage sustained by the latter as a result of the post-closing price difference.
In mid-2017, Fonterra agreed to pay suppliers, including Van Dairy Group, an extra payment of 40 cents per kilogram of milk solids in 2017/18.
TLC argued in the Supreme Court of Tasmania that those additional payments were intended to reverse the reduction in milk prices in 2015/16.
It argued Van Dairy Group wasn’t entitled to the extra payments as well as the $2.2 million adjustment.
TLC claimed Van Dairy Group was obliged to pay TLC the extra payments, calculated to be about $2.27 million.
But in a decision delivered on Wednesday, Justice Michael Brett dismissed the claim, finding TLC had failed to establish it “on any basis”.
“The income in advance payment was legitimately made after negotiation and in full and final settlement of the parties’ rights under the contract,” he wrote.
“It was clearly justified on the basis of the contractual rights and obligations of each party at the time.
“In respect of the additional payments, the defendant was entitled to the fruits of its ownership of the assets and its production of milk in the 2017/18 year.”
Van Dairy Group’s farm in northwest Tasmania covers about 17,000 hectares, with annual milk production reaching up to 80 million litres.
The 2016 milk price cut prompted an Australian Competition and Consumer Commission inquiry which found a range of industry market failures.
