French firm Danone says a stay of its attempt to claim an estimated €350 million (NZ$546m) in damages from Fonterra would be unfair.
In a hearing in the High Court in Auckland today, Fonterra is seeking to have Danone's New Zealand court proceeding put on hold pending the outcome of arbitration in Singapore between the two dairy giants.
Danone is seeking compensation over last year's botulism scare, which prompted a recall of whey protein concentrate that cost it an estimated €350 million. It claims Fonterra breached the Fair Trading Act.
Danone's lawyer David Goddard QC said an indefinite stay on the proceeding would be unfair for Danone.
He said there was no indication its New Zealand High Court proceedings would prejudice the arbitration, which was likely to take a long time to complete.
"This is not going to be resolved in three months or six months or even, I'd suggest, in 12 months."
Goddard said the two separate proceedings arose from the same events but involved different claims.
"Fonterra employees made statements that they either knew, or were made aware, that they weren't true."
Danone's claims against Fonterra stemmed from communications between the two companies in April last year, when the contamination issue first arose.
Goddard said the affected product, WPC80, had been cleared of clostridium perfringens bacteria when there was still more testing being done.
While Fonterra said all lots of the product had been put on hold, Danone said that was not true and substantial amounts had been used to manufacture products supplied by Danone, he said.
Earlier, Fonterra's lawyer said Danone's case is being done the wrong way and targeting the wrong company.
Alan Galbraith QC, for Fonterra, said all the dealings that took place with Danone were governed by a supply agreement with Fonterra Ltd rather than Fonterra Group, which is named in the proceeding.
Galbraith said the Hautapu processing plant at the centre of the scare was owned by Fonterra Ltd.
Although Fonterra employees in New Zealand are employed by Fonterra Group, this is normal commercial practice and the employees were at all times acting on behalf of Fonterra Ltd, he said.
"Fisher & Paykel Services Ltd employs all Fisher & Paykel employees in New Zealand but that doesn't mean when you buy a fridge you buy it from Fisher & Paykel Services Ltd," he said.
Galbraith also said the supply agreement capped Fonterra's total liability for claims at A$30m (NZ$32.3m).
"The reason for the cap was the supply of the product is profitable, but not very profitable for Fonterra," he said.
"The big profits aren't earned by Fonterra but its customers.
"It capped its liability because it shouldn't be exposed to losses disproportionate to the benefits of the commercial contract."
Galbraith said Danone was trying to "avoid the consequences" of the supply agreement.
"Fonterra's submission is it should first be determined under the terms of the supply agreement," he said.
"The court can then determine if there's anything left over to be litigated."
The hearing continues.