The future of an arm of Medina Dairy is in doubt after it lost a significant portion of its milk supply during an ongoing contract dispute with a group of farmers.
A High Court judge overturned an order that forced a group of dairy farmers to continue to supply Watson’s Dairies, owned by Medina, while a breach of contract dispute is under way between the two parties.
Watson’s obtained an interim injunction on 30 September that compelled the 16 farmers to continue to supply it with milk as it said in court filings that it would be unable to sustain its business while the wider dispute is resolved.
But in a ruling at the Chancery Division of the High Court on Tuesday (6 October), Justice Marcus Smith refused Watson’s application for the injunction to be maintained until a trial on the legality of the way in which the farmers exercised their notice period can be heard.
The continuing dispute rests on whether the farmers have terminated their milk contract in a valid way.
The farmer group, operating under the name Meadow Milk, claims that Watson’s breached its contract by lowering the price below a value determined by a basket pricing mechanism, allowing it to trigger a short three-month notice period to quit rather than the normal 12 months.
Watson’s claims that the application to terminate the contract was not valid.
In his ruling, Mr Justice Smith said the market in milk supply is operating properly and Watson’s has the ability to go into the spot market and obtain the milk it needs.
This was even the case if the cost of purchasing additional goods was liable to cause a company to go under, as that was a reflection of the way the market operated, he added.
If it is subsequently shown that the farmers had operated in breach of contract, Watson’s would be able to claim damages from the group in compensation, he said.
Dairy farmer Jonathan Procter, who was part of the Meadow Milk group, said: “We would like to thank our legal team, the NFU and its Legal Assistance Scheme for their support and input, without which we could not have successfully achieved this fantastic outcome in defending these injunctive proceedings for the benefit of both Meadow Milk Ltd and the many other dairy farmers.”
Unfairness in the dairy industry
Esther Woolford, a partner at law firm Clarke Wilmott, who acted on behalf of the farmers, said she was delighted with the result.
It left her clients free of their unfavourable contracts with Watson’s Dairies, allowing them to send their milk elsewhere under better terms and conditions, she said.
“The on-going litigation between Watson’s Dairies and our clients is a reflection of the unfairness that prevails in the dairy industry today.
“Dairy farmers are expected to bear the risk of contracts that are weighted heavily in favour of the milk processors, who unilaterally introduce revised contract terms, pricing mechanisms and price cuts without negotiation.
“In the case of our clients, when the notified milk price went below a safety net basket of prices, they served three months’ notice in accordance with the terms of their contracts. The validity of these notices is being contested by Watson’s Dairies in the main litigation which our clients wholeheartedly defend.”
Attention will now turn to robustly defending the farmers’ case in the continuing litigation, she added.
In a statement a spokesperson for Watson’s Dairies said the company had spent considerable time and effort over the summer trying to reach terms with Meadow Milk in relation to contracts entered into directly between individual members of Meadow Milk and Watson’s.
“Watson’s are disappointed that they were unable to reach a satisfactory resolution with Meadow Milk and that some of the producers have decided to proceed with contracts elsewhere.
“A court hearing on 6 October determined that those producers should be allowed to proceed with contracts with other dairies pending a resolution of the underlying dispute as to the validity of the producers’ notices to terminate.
“Court proceedings in respect of the validity of those notices therefore remain live and it would be inappropriate for Watson’s to comment further at this time.”