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Dairy Code Compliance: The Lactalis Case

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The Federal Court of Australia has imposed hefty penalties on Lactalis Australia Pty Ltd (Lactalis), a large dairy processor, for various contraventions of the Competition and Consumer (Industry Codes – Dairy) Regulation 2019 (Cth) (the Dairy Code), totalling $950,000.

The Dairy Code, a mandatory industry code, came into effect on 1 January 2020, intending to address power imbalances and improve transparency of milk supply arrangements between dairy farmers and dairy processors. Under the Dairy Code:

  • famers and processors are compelled to deal with each other in good faith; and
  • all milk must be purchased under a milk supply agreement (MSA), which complies with the Dairy Code.

Specific contraventions of the Dairy Code by Lactalis relate to Lactalis’ standard form MSA’s and their content, including:

  • a failure by Lactalis to publish their standard form MSA’s on their website by 2pm on 1 June 2020 as required by s 12(2) of the Dairy Code; and
  • publishing and entering into MSA’s containing clauses which permit Lactalis to unilaterally terminate a MSA, in circumstances other than those involving a material breach by a farmer, as required by section 34(3) of the Dairy Code (which constitutes a breach of sections 13 and 17 of the Dairy Code).

Section 76 of the Competition and Consumer Act 2010 (Cth), enables a court to impose a civil penalty where the court is satisfied that a person has contravened a civil penalty provision of an industry code. In determining an appropriate penalty, the Federal Court considered the nature and extent of Lactalis’ contraventions, whether the contraventions were intentional or accidental, the role of Lactalis’ management, the need for deterrence (both specific and general) and Lactalis’ size and financial position. The lack of intention and serious consequences were mitigating factors in determining the appropriate penalty to be imposed on Lactalis, which equated to approximately 2.9% of Lactalis’ profit in the 2020 financial year.

The Australian Competition and Consumer Commission sought further relief in the nature of an adverse publicity order. However, the Federal Court refused to grant the relief sought, on the basis that it played no beneficial role in enforcing the imposition of civil penalties and amounted to further punishment.

The Lactalis case signifies the importance of strict compliance by dairy processors with the Dairy Code – contraventions, including those which may be unintentional, may attract significant penalties.

CIE Legal is experienced in advising on the Dairy Code. For example, Andrew Thompson advised Fonterra on implementing the changes introduced by the Dairy Code. Please contact Andrew or another member of our team if you would like advice in this area.

This content is provided for reference only and may not be current on the date of access. It does not constitute legal advice and should not be relied upon as such.

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