French food giant Danone's High Court case against Fonterra has been put on hold so the companies can go to arbitration.
Danone, which owns infant formula business Nutricia, launched the legal action against Fonterra after cancelling its supply contract with the dairy co-operative this year.
The companies fell out over last year's botulism scare, which Danone says cost it €350 million (NZ$545m).
The French firm alleges Fonterra breached the Fair Trading Act by making false claims in the early stages of the saga, which led to a mass recall of whey protein powder used for infant formula.
Nutricia had to recall 67,000 cans of its Karicare infant formula brand.
Danone is taking a separate case against Fonterra to arbitration in Singapore. Fonterra argued the case in the High Court in Auckland should wait until the outcome of that arbitration was decided.
During the High Court hearing, Fonterra's lawyer, Alan Galbraith, QC, said Danone's case was being done the wrong way and targeting the wrong company.
But Danone's lawyer, David Goddard, QC, said the delay would be unfair and the arbitration could take more than a year to complete.
Justice Geoffrey Venning ruled the two cases were sufficiently connected that it would be "unrealistic" to deal with them separately without reference to each other.
"In my view the arbitration should go first because the parties agreed the arbitration process was to apply to claims arising out of the supply of product by Fonterra to Danone," the judge said in his judgment.
"The central dispute in this matter lies between Fonterra and Danone."
However, he left the door open for Danone to remove the stay if Fonterra delayed the arbitration.