Milk processor Gardians ordered to pay $4.5M to SPX Corp over Southland baby formula plant

Tuesday 29th August 2017

A legal dispute between an international engineering firm and a Kiwi milk processing joint venture has ended in the local business being ordered to pay $4.5 million, with the High Court judge in the case commenting that infant formula production is “not for the faint-hearted”.

The case, which was heard by Justice Gerald Nation in the Dunedin High Court earlier this month, was between the local arm of US-based SPX Corp and Gardians, now known as Gas 1. SPX, which is listed on the New York Stock Exchange, is a global supplier of infrastructure equipment in various markets including food, while Gardians was a joint venture between Auckland-based food processors Sutton Group and interests associated with Grant Paterson, a Southland dairy farmer.

In 2011, SPX agreed to build Gardians a $43 million milk processing plant at Clydevale, near Balclutha, which was due to be completed by October 2012. After the first season, which began in October 2012, Gardians said it had suffered significant losses due to delays in the plant's construction and the quality of the milk powder produced. In March 2013, the two agreed that it would pay SPX $2.1 million immediately, with a further $4.6 million due in stages over the following year.

Ultimately, Gardians refused to pay the $4.6 million, saying SPX hadn't met the required tests. Justice Nation held that Gardians had waived the requirements for some of the tests in its 2013 agreement with SPX, and that the American company had met the requirements for other tests.

Gardians had a counterclaim for $2.1 million under the Fair Trading Act, as it said SPX had misrepresented how much milk powder the processing plant would be able to produce. The judge held that there was no misrepresentation, that the plant had processed all the milk that was available to it in the second season and Gardians hadn't done anything to increase capacity, and that the joint venture hadn't shown it incurred any loss, as the factory was sold in 2014 without an output capacity discount.

The judge did find that SPX was responsible for fixing outstanding construction defects, so found that Gardians was owed $65,339, which was taken off the $4.6 million SPX originally claimed.

As background to the judgment, Justice Nation noted that some New Zealand-based companies have made significant profits from dairy exports in recent years, but the industry "is not for the faint-hearted" particularly in the case of infant formula production.

"The technology and expertise required in milk processing factories is expensive and sophisticated," the judge said. "Supply of the required milk to the factory at the appropriate time is crucial. The markets are demanding and can be impacted by events over which the processor has no control. These were all factors that affected the economic fortunes of the defendant and its investment in an infant formula milk plant built for them by the plaintiff. As it turned out, they also had consequences for the plaintiff."

(BusinessDesk)

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