Nutricia Australia Pty Ltd v NSW Food Authority [2007] NSWSC 861

New South Wales Supreme Court

CITATION : Nutricia Australia Pty Ltd v NSW Food Authority [2007] NSWSC 861

HEARING DATE(S) : 6/8/07, 7/8/07

JUDGMENT DATE : 8 August 2007

JUDGMENT OF : Bell J at 1

DECISION : In light of undertakings given by Nutricia Pty Ltd by its counsel in the terms noted in the judgment, the defendant by itself, its officers or agents is restrained until 20/8/07 from seizing or recalling the following goods produced by the Plaintiff - Karicare Gold Plus infant formula and Karicare Gold Plus follow-on formula.

CATCHWORDS : Interim injunction

LEGISLATION CITED : Food Act 2003

PARTIES : Nutricia Australia Pty Ltd (Plaintiff) NSW Food Authority (Defendant)

FILE NUMBER(S) : SC 30078/07

COUNSEL : Mr N Williams SC / Ms S Mirzabegian (Plaintiff) Mr M Joseph SC / Mr M Cahill (Defendant)

SOLICITORS : Gilbert & Tobin (Plaintiff) Moray & Agnew (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

BELL J

Wednesday 8 August 2007

30078/07 Nutricia Australia Pty Ltd (ACN 076 246 752 v New South Wales Food Authority

JUDGMENT 1 BELL J: On 7 August 2007 upon undertakings being given by the plaintiff, Nutricia Australia Pty Ltd (Nutricia), through its counsel I restrained the defendant, the New South Wales Food Authority (the Authority), from seizing or recalling products produced by Nutricia being Karicare Gold Plus Infant Formula and Karicare Gold Plus Follow-On Formula (the Karicare Gold Plus range) until 20 August 2007. These are my reasons for making that order. 2 The proceedings were commenced by summons filed in Court on 22 June 2007, which was returnable before the Equity Division Duty Judge on 26 June 2007. By its summons Nutricia seeks declaratory relief and an injunction restraining the Authority from seizing or otherwise interfering with the supply to customers of the Karicare Gold Plus range products.

3 On 26 June the proceedings were before Palmer J, who made orders by consent for the service of evidence and standing the proceedings over before the Expedition List Judge on 20 July. Nutricia did not press its application for an interlocutory injunction in light of an undertaking given by the defendant through its counsel. I will return to the terms of the undertaking. 4 The proceedings were subsequently transferred to the Administrative Law Division. They were before the Court on Monday 6 August, on which occasion Nutricia moved on its notice of motion filed in court with its summons on 22 June 2007 to restrain the Authority from seizing or recalling Karicare Gold Plus range products. 5 Mr Williams SC, who with Ms Mirzabegian appeared for Nutricia, read the affidavits of Elizabeth Grinston, which were sworn on 22 June and 6 August 2007 respectively; Josephine Lee Buckman; Gregg John Ward and Michael Speare Hocken Sharpe. 6 Mr Joseph, who with Mr Cahill appeared for the Authority, read the affidavit of his instructing solicitor Norman Abraham Correy that was sworn on 3 August 2007. 7 Nutricia manufactures and supplies toddler milk formula products in Australia and New Zealand. Since December 2006 its Karicare Gold Plus range products have contained long chain fructo-oligosaccharides (FOS) and galacto-oligosaccharides (GOS). Each of these substances is a prebiotic. 8 Infant formula products are subject to standard 2.9.1 of the Australia New Zealand Food Standards Code (the Code). Clause 6(1) of Standard 2.9.1 of the Code prohibits the inclusion of nutritive substances in infant formula products unless: (a) expressly permitted by the Code; or (b) it is naturally present in an ingredient of the infant formula product. 9 At issue in these proceedings is whether FOS and/or GOS are a "nutritive substance" as that term is defined in Standard 1.1.1 of the Code. In the case of Karicare Gold Plus range products containing GOS a further issue concerns whether GOS is naturally present in an ingredient of the infant formula product for the purposes of clause 6.1(b) of Standard 2.9.1 of the Code.

10 Nutricia concedes that the Code does not expressly authorise the addition of FOS or GOS to infant formula products. It is its case that neither is a "nutritive substance" for the purposes of the Code and that GOS is naturally present in an ingredient of the infant formula product. 11 "Nutritive substance" is defined in clause 1 of Standard 1.1.1 of the Code as being: A substance not normally consumed as a food in itself and not normally used as an ingredient of food, but which, after extraction and/or refinement, or synthesis, is intentionally added to a food to achieve a nutritional purpose, and includes vitamins, minerals, amino acids, electrolytes and nucleotides. 12 Michael Sharpe, the Scientific and Regulatory Affairs Director of Nutricia, states that FOS is a substance which is used in the ordinary course as an ingredient of commonly consumed foods such as yoghurts, biscuits, mousses, diet drinks and other products. Mr Sharpe expresses the opinion that nutritional scientists understand the term "nutrition" to be a reference to the ingestion into the blood stream of substances to supply the needs of the human body's metabolism. He says that FOS and GOS are not ingested into the blood stream. He says that both are broken down in the large intestine and converted into compounds that include certain short chain fatty acids. A small quantity of these is absorbed into the bloodstream. Mr Sharpe acknowledges that these supply a small amount of energy and in this sense that they do contribute to the body's metabolism but he asserts that this is not the purpose for which they are added. He also states that the Karicare Gold Plus range of products include milk and that GOS is "naturally present" in small quantities in the lactose in milk. 13 Shortly after Nutricia commenced the supply of the Karicare Gold Plus range of products it received a letter from the solicitors acting for one of its competitors, Wyeth Australia Pty Ltd, alleging that the inclusion of FOS was not permitted under the Code. On 22 March 2007 it received a letter from the solicitors acting for another competitor, HJ Heinz Company Australia Ltd, alleging that the inclusion of FOS and GOS in its infant formula products constituted a breach of the Code. 14 On 30 April 2007 Nutricia received a letter from the Authority stating that FOS was a "nutritive substance" and that its inclusion in infant formula was a breach of the Code. On 31 May 2007 the Authority advised Nutricia of its intention to exercise its power of seizure under s 38 of the Food Act 2003 (NSW). 15 On 8 June 2007 the Authority issued notices to Nutricia requesting information and documents relating to the inclusion of FOS and GOS in the Karicare Gold Plus range of products. On 13 June 2007 Nutricia produced documents to the Authority pursuant to the notices. On the same day Nutricia's solicitors wrote to the Authority submitting that the Karicare Gold Plus range complies with the Code. It invited the Authority to consider a joint approach to this Court for a declaration to resolve the question of whether the inclusion of FOS and GOS in infant formula products constituted a breach of the Code. 16 The Authority issued a media release on 13 June 2007 advising that Nutricia had been warned by food authorities in Australia and New Zealand that it may have breached the Code by placing infant formulas on the market before receiving necessary approvals. The media release included the following representations: Nutricia has been informed that they should have sought express permission before adding any unapproved nutritive substance to infant formulas. "There are obvious different standards for products for adults and products for infants – the rules are there for a reason – to protect the most vulnerable members of our society – and all companies must abide by the same rules." NSW Food Authority Chief Scientist, Dr Lisa Szabo. "I am pleased to advise that NSW Health has said there is no cause for concern if infants are using the formulas but any breach of the approval process must be fully investigated." "Nutritive substances are not permitted in infant formula under the current FSC. Therefore, the NSW Food Authority has requested the company to withdraw the product from the market and is also seeking legal advice." The products, Nutricia Karicare Gold Plus infant formula and Karicare Gold Plus follow-on formula, contain fructo- oligosaccharides (FOS) carbohydrates that are claimed to aid in digestion and occur naturally in a range of plants including wheat, bananas, onions and leeks and are also synthetically produced. Dr Szabo, said that the Authority was not aware of any evidence that the products were unsafe. "Similar products have been sold legally throughout Europe since 2000 with no known health issues among babies or infants" Dr Szabo said. The products have been on sale in Australia since January 2007 and NSW Health says they are not aware of any reports of problems. 17 On 14 June the Authority requested Nutricia withdraw its Karicare Gold Plus range of products from the market. 18 The NSW Department of Health issued notices to parents and health professionals in relation to the Authority's investigation of Nutricia's Karicare Gold Plus range products on 14 June. The advice to health professionals included the following: Nutricia Karicare Gold Plus infant and Karicare Gold Plus follow-on formula are being investigated by the NSW Food Authority due to an apparent breach of legislation. At issue is the added substance fructo-oligosaccharides or FOS. Australian and New Zealand food authorities believe that the company, Nutricia, did not receive the necessary approvals for the substance FOS before placing these products on the Australian and New Zealand markets. There is no current evidence that these formulas are unsafe. FOS is permitted within prescribed limits in infant formula sold within the European Union. Products identical to Nutricia Karicare Gold Plus infant and follow-on formulas have been sold in Europe since 2000 with no known health issues among babies or infants. These products have been on sale in Australia since January 2007 and NSW Health is not aware of any reported problems. FOS are large molecules of the sugar fructose and are found in a variety of foods. They occur naturally in a range of plants including wheat, bananas, onions and leeks. FOS are claimed to aid digestion and assist infants in achieving softer, looser and more frequent bowel motions. Parents and care givers may ask health professionals for information to make an informed choice about the use of these products. There is no cause for concern if parents or caregivers have been feeding infants these formulas. Parents that have been feeding these formulas to their infants will need to choose a different infant formula if the Nutricia Karicare formulas are withdrawn. If parents have these products at home, they can continue using the products until their supply runs out. Parents can expect a change in their infant's stool form and/or frequency with a change in infant formula. This is common and no cause for concern unless the bowel motions are very hard or contain blood. 19 A "fact sheet" published on the Internet by the Children, Youth and Women's Health Service of South Australia under the title "Bottle feeding – infant formulas" contains the following assertions on which Nutricia relies:

· It is better for you and your baby not to change the formula unless you really need to. Many babies are more unsettled for a few days when a formula is changed. · If you do change the formula the bowel actions (poos) may also change – in colour, thickness and smell. This is normal and usually does not last. 20 On 16 July the Director General of the New Zealand Food Safety Authority (NZFSA) published a statement noting that it had been notified that certain Karicare Gold Plus range products are non-compliant under the Code. The statement contained representations including the following: FOS has not been subject to the required risk-based safety assessment for the purposes of permitting the addition to infant formula products for sale in New Zealand. In the absence of such a safety assessment, NZFSA is taking a cautionary approach to this situation, particularly, for New Zealand infants who may consume them as part of their total dietary intake. FOS does occur naturally in a range of plants but can also be synthetically produced. Pre-biotics may assist infants in achieving softer, looser and more frequent bowel motions. Until there has been an opportunity to fully assess all safety implications associated with the inclusion of FOS in infant formula products under New Zealand conditions, NZFSA recommends that parents and caregivers with infants consuming either Nutricia Karicare Gold Plus infant formula or follow-on formula gradually change to an alternative product. It is important that infant diets are not changed suddenly as this can cause digestive upsets. The packaging of Karicare Gold Plus infant and follow-on formula does not contain instructions for transitioning off these products, however NZFSA recommends that parents and caregivers choosing to make a change to an alternative product do so in a gradual manner. This could mean replacing one to two feeds a day over three to four days.

21 On 21 June the solicitors acting for Nutricia wrote to the Authority in the following terms: We refer to our previous letters to the Authority, all of which remain unanswered. We wish to put the Authority on notice of the following matters. Our client Nutricia Australia Pty Limited (Nutricia) has been advised by Food Standards Australia New Zealand (FSANZ) that FSANZ is currently considering the option of making a declaration under s 24 of the Food Standards Australia New Zealand Act 1991 that Nutricia's application for an amendment to Standard 2.9.1 is an urgent application. In these circumstances, and given the acknowledgment by the Authority that there is no present risk to the health or safety of consumers arising from the continued availability of Nutricia's Karicare Gold Plus range of infant formula products in New South Wales, Nutricia seeks the Authority's undertaking that it will refrain from exercising its seizure or recall powers under the Food Act 2003 (NSW) unless and until FSANZ has made a decision in relation to section 24 and, assuming that a declaration is made under that section, unless and until such time as FSANZ has determined Nutricia's application adversely to Nutricia. 22 On 22 June Nutricia commenced these proceedings. 23 On 26 June the Court noted the following: The defendant, by its counsel, gives an undertaking to the Court that the defendant will not, by itself, its officers or agents seize or recall the following goods produced by the plaintiff: (a) Karicare Gold Plus infant formula; and (b) Karicare Gold Plus Follow-on formula without giving the plaintiff's solicitors seven days' written notice of its intention to do so.

24 On 20 July 2007 the Authority commenced proceedings against Nutricia charging it with the commission of 13 offences contrary to s 21(2) and s 21(3) of the Food Act arising out of the distribution of the Karicare Gold Plus range products. 25 Section 21 of the Food Act creates offences arising out of non-compliance with the Code. Relevantly it provides: (2) A person must not sell any food that does not comply with a requirement of the Food Standards Code that relates to the food. (3) A person must not sell or advertise for sale any food that is packaged or labelled in a manner that contravenes a provision of the Food Standards Code. 26 Six of the charges are brought under s 21(2). These charges raise the same issue for determination as is raised in these proceedings. 27 Seven of the charges are brought under s 21(3) and contend that the Karicare Gold Plus Infant Formula / Follow-On Formula is sold under a label that contravenes a provision of the Code (the labelling charges). The gravamen of the labelling charges is that representations are made which constitute a health claim contrary to clause 3(a) of the Code, Standard 1.1A.2. 28 The first notice to Nutricia that the labelling of the Karicare Gold Plus range products was considered to contravene a provision of the Code was when the summonses were served on it on 20 July.

29 On 2 August 2007 Nutricia announced that it would voluntarily withdraw the Karicare Gold Plus range products from sale in New South Wales. After making the announcement Nutricia wrote to approximately 5,850 health care professionals in New South Wales and to approximately 1,610 New Sales Wales pharmacies drawing attention to the withdrawal of the Karicare Gold Plus range products. It posted information about the withdrawal on its website and caused advertisements to be published in both the Daily Telegraph and the Sydney Morning Herald. 30 Nutricia commenced planning to replace the Karicare Gold Plus range with the Karicare Gold range (a similar product that does not contain FOS or GOS) "a couple of months" prior to 6 August in light of the possibility of the Gold Plus range being withdrawn (Grinston affidavit, 6 August 2007 at [20]). Nutricia's infant formula products are manufactured in New Zealand and it is the "off season" for the dairy industry in New Zealand. There is no milk production in New Zealand until around September. This made it necessary for Nutricia to obtain additional milk powder to use in the replacement products. It made arrangements with a sister company in Malaysia to purchase some of that company's surplus milk powder stocks. Having secured a supply of milk powder stock Nutricia prepared a product description with a list of ingredients for the labelling of infant formula cans. The final tin plate and can labelling for the infant formula was printed in mid-July 2007. Once the cans were completed Nutricia was able to produce stocks of the Karicare Gold range at its facility in New Zealand. As at 6 August it anticipated that the replacement stock of the Gold Infant Formula and Gold Follow-On Formula would be ready for shipment from New Zealand to Australia on 6 and 7 August respectively. Allowing for quality testing and quarantine, Nutricia anticipates that its Gold Infant Formula will be available for distribution to retail trade outlets throughout New South Wales from approximately 15 August and that its Gold Follow-On Infant Formula will be available for distribution in New South Wales from approximately 20 August 2007.

31 Nutricia is concerned at the likelihood of substantial commercial damage to it should the Authority exercise its seizure powers during the course of what it describes as a voluntary withdrawal process. There is intense competition in the infant formula product market. Should the Karicare Gold Plus range be withdrawn before the Karicare Gold range is available for supply in New South Wales, Nutricia apprehends that its competitors will move in and fill the void created by the removal of its products with resulting short and long term adverse effect on its business. In the event of the abrupt removal of the Gold Plus range prior to the availability of the substitute Gold range, Nutricia estimates that it would suffer a loss of approximately $1.2 million per month.

32 On 3 August 2007 Mr Correy, acting on the Authority's behalf, wrote to the solicitors acting for Nutricia stating: We confirm that notice is now given that the undertaking given by the defendant as to the exercise of its powers in relation to seizure or recall of the relevant product is as of today withdrawn. 33 The solicitors acting for Nutricia responded by email to Mr Correy in these terms: Your letter, if it means what it appears to say, would place your client in contempt of court. Your client has given the court an undertaking. It is bound by the undertaking. The undertaking remains in place. If it is to be withdrawn the issue of Nutricia's application for interlocutory relief arises. Under the terms of the undertaking and until your client is released from it by the court, the most your client may do is give seven days notice of its intention to seize or recall the product. These issues were all ventilated in court this morning. As a consequence they have been listed for Monday. Any action on the part of your client before the matters have been resolved would place it in contempt of court. 34 Mr Correy caused a further letter to be sent to the solicitors acting for Nutricia on 3 August 2007 in these terms: Further to your email today, we apologise for the confusion. The earlier letter was dictated to my assistant over the phone from counsel's chambers. Unfortunately, an omission from the letter occurred namely, "as of 7 days from" before the word "today" in the last line. 35 On the hearing Mr Joseph raised an issue as to whether the undertaking had been given to the Court or the Nutricia. The orders made on 26 June were taken out on 27 June and record the undertaking in the terms that I have set out at paragraph [23] above. 36 Nutricia submits that Mr Correy's second letter of 3 August (set out at [34] above) does not constitute written notice of the Authority's intention to seize or recall the subject products. I accepted that to be the case. 37 I was informed by Mr Joseph that no decision had been made to seize or recall the products and that the Authority would consider any submissions made by Nutricia before making such a decision. The proceedings were adjourned on 6 August to allow the Authority to consider the evidence relied on by Nutricia in support of the present application of which it had not had prior notice. 38 On 7 August Mr Williams announced that Nutricia was willing to undertake to the Court that it would cease accepting any orders for Karicare Gold Plus formula products, being the Infant Follow-On and Toddler Supplement, for supply in New South Wales as of 5.00 pm on 7 August and that Nutricia would not despatch after 5.00 pm on 10 August those Karicare Gold Plus products for supply in New South Wales. These undertakings were offered through Nutricia's counsel as a condition of the grant of interlocutory relief restraining the Authority from exercising its powers under s 38 of the Food Act to seize or recall the subject products before 20 August.

39 Nutricia submitted that the balance of convenience favoured the grant of an injunction for a period of 14 days, extending by seven days the effect of the undertaking earlier given by the Authority. Nutricia submitted, and I accepted, that the inclusion of FOS and GOS in the Karicare Gold Plus range products does not raise any health or safety concern having regard to the evidence that I have set out above and in particular to the reported statements of Dr Szabo and the contained in the Advice to Health Professionals issued by NSW Health. Nutricia submitted that seizure of the Karicare Gold Plus Range products before it has had the opportunity to substitute the Karicare Gold range products, which are the same save for the absence of FOS and GOS, may occasion unnecessary disruption to babies who are currently being fed the Karicare Gold Plus range. My attention was directed to the evidence of the unsettling effects on babies of a sudden change of formula. I accept that the evidence points to the desirability of babies being changed to an alternative formula over a period of days. Nutricia did not submit that the evidence established that taking a baby off a Karicare Gold Plus range product would occasion any risk to the health of the baby. It submitted that it is likely to suffer significant commercial loss should the Authority seize its Karicare Gold Plus range products before it has had the opportunity of substituting supplies of the Karicare Gold range product. I was satisfied that is so.

40 Mr Joseph submitted that the Court did not have jurisdiction to grant the injunctive relief that was sought since the Authority is vested with powers under the Food Act including to seize non-conforming foodstuffs pursuant to the provisions of s 38. The submission at its broadest did not seem to me to sit with the terms of the undertaking given to the Court through the Authority's counsel on 26 June. In my opinion the undertaking was still of effect as at 7 August. Mr Joseph submitted that the Court would not in the exercise of discretion grant injunctive relief, or decline to release the Authority from its undertaking, since a relevant change in circumstances was the decision to prefer charges against Nutricia for offences under the Food Act. It was submitted to be clear from this decision that the precondition for the exercise of the powers of seizure under s 38, which requires that an authorised officer form a belief on reasonable grounds, had been made out. In Mr Joseph's submission the Court should not make orders having the effect of preventing the Authority from exercising the powers conferred on it for the benefit of the public. In the event that it exercised its powers wrongly, provision is made for compensation under s 51 and for other redress under Division 2 of Part 4 of the Food Act. In this respect I accepted Mr Williams' submission that the compensation provisions of the Food Act would not serve to compensate for the likely losses that would be occasioned to Nutricia should their products be wrongly seized.

41 Mr Joseph submitted that the undertakings offered on Nutricia's behalf did not include the recall of the Karicare Gold Plus range product. The orders sought were framed in order to allow Nutricia time to have supplies of its substitute product available in New South Wales. To the extent that Mr Joseph raised the concern that stockpiles of the Karicare Gold Plus range product might have a shelf life of months or years it seemed to me not to be a consideration that bears relevantly on the determination of Nutricia's application, which was to restrain the Authority to 20 August. 42 There is a serious issue to be tried as to whether FOS and GOS are nutritive substances as defined in Standard 1.1.1 of the Code and as to whether GOS is naturally present as an ingredient of the infant formula product in accordance with clause 6.1(b) of Standard 2.9.1 of the Code. Given that no issue of safety arises, and given my acceptance of the likely commercial loss to Nutricia in the event of the seizure of the Karicare Gold Plus range before it is able to put its substitute range into the market, I considered that the balance of convenience favoured the relief that was sought. I was mindful that the labelling charges raise a discrete issue. I considered that the Authority was aware of the representations contained on the Karicare Gold Plus range products at the time it gave the undertaking to the Court that I have set out at paragraph [23] above. 43 For these reasons I made the following order: In light of undertakings given by Nutricia Pty Ltd by its counsel in the terms noted in paragraph [38] above, the defendant by itself, its officers or agents is restrained until 20/8/07 from seizing or recalling the following goods produced by the Plaintiff - Karicare Gold Plus infant formula and Karicare Gold Plus follow-on formula. **********

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