Bayer New Zealand Ltd v Ministry for Primary Industries
[2020] NZHC 3470
•21 December 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-333
[2020] NZHC 3470
BETWEEN BAYER NEW ZEALAND LIMITED
Plaintiff
AND
MINISTRY FOR PRIMARY INDUSTRIES
Defendant
Hearing: 29 October 2020 Appearances:
S McKechnie and A R Winsley for the Plaintiff E Lay and D Watson for the Defendant
E Bello for the Interested Party (Frucor Suntory New Zealand Ltd)
Judgment:
21 December 2020
JUDGMENT OF GRICE J
(Interim relief – stay pending appeal)
[1] This is an application for interim relief by Bayer New Zealand Limited (Bayer) to prevent any person enforcing or relying on the judgment in this matter delivered on 22 April 2020,1 pending determination of Bayer’s appeal to the Court of Appeal.
[2] The judgment granted a declaration that a carbonated drink, known as Berocca Forward, distributed by Bayer, was a “formulated caffeine beverage” (FCB).2 As it happens, the Court of Appeal judgment was delivered prior to this judgment.3 I enquired of the parties how they wished to proceed, but the parties have been unable
1 Bayer New Zealand Ltd v Ministry for Primary Industries [2020] NZHC 789 [High Court decision].
2 Under the Australia/New Zealand Food Standards Code: High Court decision, above n 1, at [95].
3 Bayer New Zealand Ltd v Ministry for Primary Industries [2020] NZCA 640.
BAYER NEW ZEALAND LIMITED v MINISTRY FOR PRIMARY INDUSTRIES [2020] NZHC 3470 [21
December 2020]
to agree. In those circumstances and given applications for costs have been made on this application for interim relief, it is appropriate that this judgment is issued.4
[3] Berocca Forward contained various additives (vitamins and minerals) that are not permitted additives in FCBs. Given the declaration, it means that while the product is still on the market it is non-compliant with the relevant food standards (Standards).5 Until the making of the declaration the Ministry of Primary Industries (MPI) had indicated that it did not intend to take any steps to prosecute Bayer for non-compliance despite Berocca Forward being labelled as a “supplemented food” when MPI’s view was that it was properly classified as a “formulated caffeinated beverage” (FCB).
Background
[4] MPI and Bayer had been in dispute over the product and its correct classification since 2016. At that stage Berocca Forward was labelled as a “dietary supplement”. MPI advised Bayer that the product should not be classified as a “dietary supplement”. While not conceding that the product was not a dietary supplement, Bayer agreed to reclassify the product as a “supplemented food” in order to address the MPI’s concerns.
[5] Since then MPI has consistently advised Bayer that it does not agree that the product is “supplemented food”. It has maintained that Berocca Forward is an FCB.
[6] Bayer launched and began selling Berocca Forward as a supplemented food in July 2019. MPI says it had not expected the product to be launched as a supplemented food at that stage as the parties had agreed that a declaration would be sought as to the correct classification. Bayer had filed its statement of claim as part of that arrangement on 17 June 2019. The matter was heard in December 2019 and a declaration was made by this Court that Berocca Forward was an FCB.
4 This is unusual but not without precedent. For instance, in PricewaterhouseCoopers v Walker [2017] NZSC 151, [2018] 1 NZLR 735 at [4], the Supreme Court delivered its judgment on an appeal from the dismissal of a stay application where the substantive matter had settled.
5 Australia/New Zealand Food Standards Code.
[7] Following the issue of the judgment, Bayer’s solicitors contacted MPI’s lawyers to say it was considering its next steps in light of the judgment and whether or not it would appeal. Bayer indicated the matter needed to be worked through but told MPI that Bayer intended to be “proactive and will be engaging with MPI on its future plans for Berocca Forward”.
[8] Bayer filed its notice of appeal a month later. Shortly afterwards, MPI advised Bayer of its expectation that Bayer would comply with the High Court judgment.
[9] The Court of Appeal hearing was confirmed in August 2020 for 28 October 2020, the day before the hearing of this application. Bayer filed its application for interim relief a few days after confirmation of the fixture.
[10] In September, MPI asked for information from Bayer in relation to its “future plans” for the product in the event Bayer was unsuccessful in its appeal or application for interim relief. Bayer has recently responded to that request with a proposal for a staged phase-out of the product. MPI had not had the opportunity to respond at the date of this hearing.
[11] An interested party, Frucor Suntory New Zealand Limited (Frucor), filed an appeal in support of MPI and opposed the application for interim relief. Frucor did not appear or make submissions at the hearing in the High Court. However, it had earlier filed a notice of appearance when served with the application for the declaration. It had been served with the proceedings pursuant to directions made in August 2019. Other parties served included two industry groups, as well as Food Standards Australia and New Zealand (FCANZ), which developed the standards under consideration in the proceedings.
[12] Frucor is a competitor in the relevant market, which might loosely be described as energy and sports drinks and products.6 Frucor was given leave to appear and make submissions as an interested party in the Court of Appeal on 28 October 2020.
6 Defining energy drink has proved difficult: High Court decision, above n 1, at [81]–[87].
[13] Frucor had also earlier made a complaint to MPI concerning the marketing of Berocca Forward and its non-compliance with the Standards. Bayer was unaware of that until the discovery undertaken in relation to the High Court declaration proceedings.
[14] In the course of oral argument Bayer indicated that it would not insist on the width of the interim relief it sought in its claim, which extended to “preventing any person enforcing or relying on the judgment”. It would be content with relief extending only to the parties to these proceedings. It indicated it would separately respond to any third party who attempted to rely on the judgment if that occurred.
The legal position
[15]Rule 12(3) of the Court of Appeal (Civil) Rules 2005 (Rules) provides:
12 Stay of proceedings and execution
…
(3) Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on an interlocutory application,—
(a)order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or
(b)grant any interim relief.
…
[16] Rule 12(3)(b) applies here. A stay of the proceeding or execution does not cover declaratory orders.7 Both counsel agreed that this was the position.
[17] MPI nevertheless, also noted that the fact the stay related to a “declaratory order” as opposed to an “executory order” (which is enforceable by execution) meant that the Court, in making a declaration, is merely authoritatively indicating that a certain interpretation has always been the true interpretation. Therefore, the Court
7 Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd HC Auckland CIV-2009-404-7207, 2 November 2010 at [31] [Fuller Bay of Islands Ltd High Court decision]; citing PW Young Declaratory Orders (2nd ed, Butterworths, Sydney, 1984) at [101] and [2408]. Court of Appeal dismissed an appeal against Fullers Bay of Island Ltd High Court decision in Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd [2010] NZCA 594.
does not create rights but merely indicates what they have always been. The authorities suggest that if an appeal is lodged against a declaratory order, conceptually there can be no stay of proceeding. That is why this application must proceed under r 12(3)(b) and the appropriate approach is to seek interim relief.8
[18] I accept that interim relief can be granted in a situation such as this. Little turns on whether a judgment is executory or not, however as:9
[i] ts classification will simply be something to be added to the mix of factors that are taken into consideration when deciding whether to grant interim relief or not.
[19] Ms Watson, for MPI, indicated that the conceptual difference meant that the High Court, if it granted interim relief, was allowing the applicant to avoid the consequences of ongoing non-compliance. She said that was exacerbated by the fact that the non-compliance related to a regulatory regime that relied, for its effectiveness, upon a high degree of voluntary compliance. In summary, Berocca Forward had always been non-compliant and MPI had been of that view throughout.
[20] The parties both referred to the well-settled factors concerning interim relief, set out in Keung v GBR Investment Ltd.10 These factors are not exhaustive but are factors that go to a consideration of whether granting interim relief is in the interests of justice. These are:
(a)whether the appeal may be rendered nugatory by the lack of relief;
(b)the bona fides of the applicant as to the prosecution of the appeal;
(c)whether the successful party will be injuriously affected by the stay;
(d)the effect on third parties;
(e)the novelty and importance of questions involved;
8 Fullers Bay of Islands Ltd [High Court decision], above n 7, at [31]–[32].
9 Jackson v Te Rangi (No 2) [2015] NZHC 1149, [2015] NZAR 1070 at [19].
10 Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11]; citing Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9].
(f)the public interest in the proceeding; and
(g)the overall balance of convenience.
[21] The ultimate question is whether the grant of interim relief is in the interests of justice. This involves a process of weighing all relevant factors to determine the correct balance between the right of a successful litigant to the fruits of a judgment and the need to preserve the position in the case of a successful appeal.11
[22]The strength of the appeal is recognised as an additional factor.12
Discussion
[23] The first factor in this dispute is whether the appeal may be rendered nugatory by the lack of relief (although this is not determinative).13 Bayer strongly submitted this against the effect on MPI as a regulator, and public confidence in the regulatory regime, if a stay is granted.
[24] Frucor submitted that allowing a non-compliant product to be sold in the market created an uneven playing field for Frucor and other competitors of Bayer as their products comply with the relevant standards. In response Bayer said that Frucor also had a non-complying energy product. Frucor denied that its product was non-compliant. The Court is not in a position to make a determination as to whether Frucor’s product is compliant or not. I therefore put that to one side.
[25] Frucor also submitted and provided evidence in support of its contentions that the effect on the commercial operations and income of Bayer, if it were being required to withdraw the product from the market pending the appeal, were overstated.
[26] Before I go on to consider the relevant factors, I note that MPI has not threatened Bayer with prosecution. It has not issued a recall notice, nor has it taken
11 Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87; and Keung v GBR Investment Ltd, above n 10, at [11].
12 Keung v GBR Investment Ltd, above n 10, at [11].
13 Cousins v Heslop [2007] NZCA 377, (2007) 18 PRNZ 677 at [10]; Keung v GBR Investment Ltd, above n 10, at [20].
steps to enforce the judgment. All it has done is to advise Bayer that it should not sell the product unless and until interim relief is granted or the appeal is successful.
[27] In submissions Ms Watson, for MPI, pointed to the affidavit of Ms Bishop in opposition to the relief sought.14 Ms Bishop noted that the Ministry strongly encouraged voluntary compliance. If a product was found to be non-complying MPI would usually work with the food business involved to encourage voluntary compliance and to provide assistance to comply. MPI was also able to direct compliance by the use of tools such as written warnings or notices. It could also take enforcement action by issuing infringement notices, or a direction prohibiting sale of the product. Finally, it could prosecute.
[28] MPI said it took into account a number of factors, including whether there were any food safety issues and the resources available to MPI relative to the public interest in a prosecution proceeding when it decided what action to take. It said MPI was open to reaching a position that might accommodate some of Bayer’s practical concerns, particularly in respect of existing stock but Bayer had not, until the week of the hearing, indicated any willingness to attempt to comply with the judgment. As I have noted earlier, Bayer have now provided MPI with a proposal to implement in the event it is unsuccessful in obtaining interim relief.
[29]I now turn to look at the relevant factors.
Would the appeal be rendered nugatory by the lack of interim relief?
[30]Bayer says:
(a)The product is safe. It had only ever received two customer complaints about Berocca Forward since it had been launched in 2016 – neither of those related to the issues before the Court.
(b)The commercial impact of being forced to halt sales on Berocca Forward would be “hugely significant”. It would mean the
14 Ms Bishop’s affidavit outlined the “flexible” approach to compliance that MPI took.
premix for Berocca Forward, which was already in its hands for production and manufacture, would be wasted; and the lead time for ordering further premix would be substantial given the impending Christmas break.
(c)The product has a limited shelf life, so stockpiling is not a viable option.
(d)As for effects on third parties, there may be some flow on effects in relation to production for Bayer but it says there are no negative impacts from the continued sale of Berocca Forward for consumers as the product is safe.
(e)There would be a direct financial impact of lost sales and write-offs somewhere in the region of at least $900,000. There was no detail as to the net losses it was projecting. It is not clear what amount of this was profit compared to sunk costs.
(f)Its market share would be eroded. It would be unable to guarantee that shelf space currently available for the product would be made available by retailers if the product was withdrawn and then relaunched in the future. The determination of shelf space was allocated in the retailers “range review process”, which occurred annually or bi-annually. This would mean further delay in Bayer’s ability to place the product.
(g)The product could not be diverted to any other market.
[31] Simply put, Bayer says a range of commercial and supply chain factors mean that there would be financial loss to Bayer, it will lose its present market share (Frucor estimated Berocca Forward’s sales at 1.5 to two per cent) to other competitors and may never have the opportunity to relaunch again in the very competitive refrigerated drinks market.
[32] Bayer also noted that the uncertainties involved were particularly acute at present because of the wider economic conditions. It noted the first national COVID-19 lockdown had seriously impacted its sales.
[33]Frucor’s evidence indicated:
(a)Its “V” products were in competition with Berocca Forward.
(b)The delays in the “range review processes” claimed by Bayer were exaggerated.
(c)Other competing products had to comply with the relevant standards.
[34] Frucor submitted that Bayer had had four years of sales of Berocca Forward knowing that MPI considered it non-compliant from the start.
[35] MPI’s primary submission under this head was that Bayer had known for a substantial period that MPI viewed Berocca Forward as non-compliant. It had consistently advised Bayer of its view and that had now been confirmed. MPI says that, until immediately before the hearing, Bayer had not taken the opportunity to consider how it would comply with the regulatory regime in a manner that would allow it to mitigate any potential loss, either before or after the judgment. It had taken a calculated commercial risk, or a gamble, by “reclassifying” and relaunching its product before receiving the Court’s decision. It pointed to the decision of Philip Morris (NZ) Ltd v Liggett & Myers Tobacco Co (NZ) Ltd15 where the Court noted that the appellants had taken a calculated risk marketing under a disputed tradename before the determination of the lawfulness of that action. The Court there said that “[t]he fact the appellants chose to take a gamble was a most vital consideration in determining” the application for stay.16
[36] MPI submits that the matters relied upon by Bayer do not lead to the conclusion that the appeal will be rendered nugatory if the Court does not grant interim relief, but,
15 Philip Morris (NZ) Ltd v Liggett & Myers Tobacco Co (NZ) Ltd [1977] 2 NZLR 41 (CA) at [42].
16 At [42].
in any case, that factor should not be determinative as it is outweighed by other significant factors.
[37] For the reasons I discuss below,17 I do not find that withholding interim relief would render the appeal nugatory. Products are regularly recalled and taken off the market for a period of time. MPI had indicated it would work with Bayer, but it has been, until only days ago, unwilling to engage in those discussions. Bayer has therefore been operating with the knowledge that MPI considered their product non-compliant for some four years. Furthermore, although Bayer may suffer commercially, in my view these effects are likely overstated. If an appeal was successful and Bayer had removed their product from the market, there would still be opportunities for Bayer to re-enter the market. The appeal would therefore not be rendered nugatory.
Whether the successful party will be injuriously affected by the stay
[38] MPI says its interests as a regulator, as well as those of industry participants and the public, in having an effective regulatory regime, would be injuriously affected by a stay. It said that, while it was not a commercial competitor with a position to protect, MPI had considerable genuine and legitimate interest in the effective operation of the food safety and suitability regime. MPI said the objective of the regime, as confirmed in s 4 of the Food Act 2014 was to ensure food businesses produce products that are fit for purpose and safe for consumption.18 The regime is highly dependent on voluntary compliance.19 Ms Bishop, who was responsible for the food compliance services group at MPI, in support of MPI’s opposition to the interim relief said MPI generally tried to work with food businesses. She had been surprised when Bayer had decided to reclassify and relaunch Berocca Forward when MPI had agreed to go to Court to seek a declaration as to the correct classification.
[39] Ms Bishop said that on a number of occasions MPI had raised with Bayer the option of applying to the Food Standards Australia New Zealand (FSANZ) to vary the
17 See below at [49]–[53].
18 Food Act 2014, ss 4, 12 “meaning of safety and suitability” and s 14.
19 Section 30 of the Act requires food businesses to comply with s 14. Compliance is required with the food standards.
relevant standard of the Food Code. It said that was the best approach to addressing the issues Bayer faced. Bayer did not accept that invitation. In submissions, Bayer indicated that obtaining such change through FSANZ was complicated. While FSANZ indicated that the process would take nine to 12 months, Bayer was of the view it would take longer than that.
[40] Ms Bishop also indicated that MPI strongly encouraged voluntary compliance across all areas it regulated. To that end it would assess potential non-compliance and adopts a flexible approach, taking into account the circumstances of the non-compliance, with a view to obtaining voluntary compliance if possible.
[41] MPI said it was open to accommodating some of Bayer’s practical concerns, particularly in respect of existing stock but Bayer had been unwilling to engage.
[42] Ms Bishop was concerned about the broader considerations for the Ministry as a regulator. Continued non-compliance with standards where the regulatory model was focussed on voluntary compliance undermined the integrity of the regulatory framework. In particular, other food businesses that were committed to complying with the Food Code might perceive such continued non-compliance as being sanctioned by a court. In particular, she was concerned that other food businesses which met legislative requirements were disadvantaged by food businesses that ran the risk of non-compliance and profited as a result.
[43] Ms Bishop noted that apart from the fact that a competitor had complained that Berocca Forward had continued to enjoy an unfair advantage in the market place by selling a product not meeting legal requirements, if it were permitted to continue, other food businesses may perceive that compliance with the Food Code was optional.
[44] In response Bayer says there is no commercial element involved for MPI, therefore, it will not be injuriously affected in that sense.
[45] In my view, MPI has a strong interest in maintaining the effectiveness of the operation of the food safety and suitability regime. Voluntary compliance by food businesses is central to that.
[46] Retailers and consumers rely on the fact that only complying products will be sold and that there are sanctions in place for non-compliance. Otherwise the regulatory regime will be perceived as unfair and its reputation will suffer. MPI is entitled to expect compliance from Bayer, particularly when it has consistently advised Bayer of its position and agreed a method of resolving it by obtaining a declaration and MPI’s view has been confirmed as correct by this Court. Those factors are important here.
Other factors
[47]The parties agreed that the points on appeal raise novel issues.20
[48] The applicant has prosecuted the appeal with appropriate diligence. MPI submitted that this application for interim relief had not been pursued with such diligence. Although there was some delay, the substantive appeal was being pursued with diligence. I do not consider that factor has significant weight.
[49] I do note however, that Bayer was not, until this week, willing to discuss alternatives to continued production and sale of the product at present levels. It has known for some four years that MPI considered Berocca Forward was non-compliant. Bayer took the step to relaunch the product despite agreement to issue proceedings to clarify the position. There is no suggestion there is anything underhand about that. Nevertheless, Bayer has resisted taking steps to mitigate its losses in the event it was unsuccessful, and it has declined to engage in an approach to the standard setting body to vary the standard, which would have potentially resolved the whole problem. Bayer has taken a calculated gamble in launching the product and continuing to market it.
[50] In my view the effect on third parties, including other competitors such as Frucor, must be taken into account. As Frucor indicated, Bayer is competing with a non-compliant product while others must ensure its products are compliant. This is an uneven playing field. It also may give rise to a view by Frucor and other producers that non-compliance will not attract sanctions.
20 The merits of the appeal have now been determined but, in my view, were a neutral factor in this application.
[51] There has been no indication by MPI that it intends to take steps to enforce its view and the declaration. The present effect of a stay would be to manage Bayer’s commercial risk of continuing to market the product.
[52] I accept that Bayer may suffer commercially if it did take the product off the market. However, it still has the opportunity to discuss a more flexible arrangement than an immediate exit with MPI. The commercial risk that it wishes to assume is for Bayer to determine in the present circumstances.
[53] From the information provided by Frucor, it does appear that Bayer has overstated the commercial effects on it of refusing to make an interim order. It may have opportunities to re-enter the market, as outlined in Frucor’s evidence, at a later date. However, I can make no determinative findings on that issue.
[54] Accordingly, in my view, weighing up all the relevant factors, the balance of convenience favours declining the application for interim orders for a stay. It is also in the interests of justice to do so.
[55] Therefore, if the appeal had not been determined and so overtaken matters, I would have dismissed the application.
Costs
[56] Bayer and MPI agreed at the hearing that costs should follow the event calculated on a 2B basis. I would have made orders in those terms. However, in view of the memoranda received last week concerning costs, if Bayer seeks to take a different position it has until close of business on 23 December 2020 to file a memorandum in that regard.
Confidentiality: sensitive material
[57] Applications for confidentiality in relation to material on the court file relating to commercially sensitive information were made under Part 7 of the High Court Rules 2016. In the circumstances such orders are appropriate.
[58]Orders are made accordingly in the following terms:
(a)All commercially sensitive and confidential information (together, the Information) is to be kept confidential on the Court file and not made available for inspection as follows:
(i)Information marked in grey in the affidavit of Natalie Acevski dated 17 August 2020, in the applicant's synopsis of submissions, and specific information in the bundle of documents for interim relief; and
(ii)Information included as exhibit "A", annexed to the affidavit of Brad Erceg dated 27 October 2020.
(b)The Court file is to be marked accordingly, and the applicant and Frucor are to be notified of any request to access the file pursuant to the Senior Courts (Access to Court Documents) Rules 2017.
(c)No individual or organisation, apart from the party whose information it is, may publish or disclose any of the Information.
Grice J
Solicitors:
Simpson Grierson, Wellington for the Applicant. Crown Law Office, Wellington for the Respondent. Bell Gully, Auckland for the Interested Party.
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