BAYER NEW ZEALAND LIMITED v MINISTRY FOR PRIMARY INDUSTRIES [2020] NZHC 3470

BAYER NEW ZEALAND LIMITED v MINISTRY FOR PRIMARY INDUSTRIES [2020] NZHC 3470 [21December 2020]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2019-485-333[2020] NZHC 3470BETWEEN BAYER NEW ZEALAND LIMITEDPlaintiffAND MINISTRY FOR PRIMARY INDUSTRIESDefendantHearing: 29 October 2020Appearances: S McKechnie and A R Winsley for the PlaintiffE Lay and D Watson for the DefendantE Bello for the Interested Party(Frucor Suntory New Zealand Ltd)Judgment: 21 December 2020JUDGMENT 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 on22 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 asBerocca Forward, distributed by Bayer, was a "formulated caffeine beverage" (FCB).2As it happens, the Court of Appeal judgment was delivered prior to this judgment.3 Ienquired of the parties how they wished to proceed, but the parties have been unable1 Bayer New Zealand Ltd v Ministry for Primary Industries [2020] NZHC 789 [High Courtdecision].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.to agree. In those circumstances and given applications for costs have been made onthis application for interim relief, it is appropriate that this judgment is issued.4[3] Berocca Forward contained various additives (vitamins and minerals) that arenot permitted additives in FCBs. Given the declaration, it means that while the productis still on the market it is non-compliant with the relevant food standards (Standards).5Until the making of the declaration the Ministry of Primary Industries (MPI) hadindicated that it did not intend to take any steps to prosecute Bayer for non-compliancedespite Berocca Forward being labelled as a "supplemented food" when MPI's viewwas 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 correctclassification since 2016. At that stage Berocca Forward was labelled as a "dietarysupplement". MPI advised Bayer that the product should not be classified as a "dietarysupplement". While not conceding that the product was not a dietary supplement,Bayer agreed to reclassify the product as a "supplemented food" in order to addressthe MPI's concerns.[5] Since then MPI has consistently advised Bayer that it does not agree that theproduct is "supplemented food". It has maintained that Berocca Forward is an FCB.[6] Bayer launched and began selling Berocca Forward as a supplemented food inJuly 2019. MPI says it had not expected the product to be launched as a supplementedfood at that stage as the parties had agreed that a declaration would be sought as to thecorrect classification. Bayer had filed its statement of claim as part of that arrangementon 17 June 2019. The matter was heard in December 2019 and a declaration was madeby 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 anappeal 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'slawyers to say it was considering its next steps in light of the judgment and whetheror not it would appeal. Bayer indicated the matter needed to be worked through buttold MPI that Bayer intended to be "proactive and will be engaging with MPI on itsfuture plans for Berocca Forward".[8] Bayer filed its notice of appeal a month later. Shortly afterwards, MPI advisedBayer of its expectation that Bayer would comply with the High Court judgment.[9] The Court of Appeal hearing was confirmed in August 2020 for28 October 2020, the day before the hearing of this application. Bayer filed itsapplication for interim relief a few days after confirmation of the fixture.[10] In September, MPI asked for information from Bayer in relation to its "futureplans" for the product in the event Bayer was unsuccessful in its appeal or applicationfor interim relief. Bayer has recently responded to that request with a proposal for astaged phase-out of the product. MPI had not had the opportunity to respond at thedate of this hearing.[11] An interested party, Frucor Suntory New Zealand Limited (Frucor), filed anappeal in support of MPI and opposed the application for interim relief. Frucor didnot appear or make submissions at the hearing in the High Court. However, it hadearlier filed a notice of appearance when served with the application for thedeclaration. It had been served with the proceedings pursuant to directions made inAugust 2019. Other parties served included two industry groups, as well asFood Standards Australia and New Zealand (FCANZ), which developed the standardsunder consideration in the proceedings.[12] Frucor is a competitor in the relevant market, which might loosely be describedas energy and sports drinks and products.6 Frucor was given leave to appear and makesubmissions 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 ofBerocca Forward and its non-compliance with the Standards. Bayer was unaware ofthat until the discovery undertaken in relation to the High Court declarationproceedings.[14] In the course of oral argument Bayer indicated that it would not insist on thewidth of the interim relief it sought in its claim, which extended to "preventing anyperson enforcing or relying on the judgment". It would be content with reliefextending only to the parties to these proceedings. It indicated it would separatelyrespond 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 anappeal, the court appealed from or the Court may, on an interlocutoryapplication,—(a) order a stay of the proceeding in which the decision was givenor 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 notcover declaratory orders.7 Both counsel agreed that this was the position.[17] MPI nevertheless, also noted that the fact the stay related to a "declaratoryorder" as opposed to an "executory order" (which is enforceable by execution) meantthat the Court, in making a declaration, is merely authoritatively indicating that acertain interpretation has always been the true interpretation. Therefore, the Court7 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 YoungDeclaratory Orders (2nd ed, Butterworths, Sydney, 1984) at [101] and [2408]. Court of Appealdismissed an appeal against Fullers Bay of Island Ltd High Court decision in Fullers Bay ofIslands Ltd v Otehei Bay Holdings Ltd [2010] NZCA 594.does not create rights but merely indicates what they have always been. Theauthorities suggest that if an appeal is lodged against a declaratory order, conceptuallythere can be no stay of proceeding. That is why this application must proceed underr 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 turnson whether a judgment is executory or not, however as:9[i]ts classification will simply be something to be added to the mix of factorsthat are taken into consideration when deciding whether to grant interim reliefor not.[19] Ms Watson, for MPI, indicated that the conceptual difference meant that theHigh Court, if it granted interim relief, was allowing the applicant to avoid theconsequences of ongoing non-compliance. She said that was exacerbated by the factthat the non-compliance related to a regulatory regime that relied, for its effectiveness,upon a high degree of voluntary compliance. In summary, Berocca Forward hadalways 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 arefactors that go to a consideration of whether granting interim relief is in the interestsof 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 DymocksFranchise 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 ofjustice. This involves a process of weighing all relevant factors to determine thecorrect balance between the right of a successful litigant to the fruits of a judgmentand 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.12Discussion[23] The first factor in this dispute is whether the appeal may be rendered nugatoryby the lack of relief (although this is not determinative).13 Bayer strongly submittedthis against the effect on MPI as a regulator, and public confidence in the regulatoryregime, if a stay is granted.[24] Frucor submitted that allowing a non-compliant product to be sold in themarket created an uneven playing field for Frucor and other competitors of Bayer astheir products comply with the relevant standards. In response Bayer said that Frucoralso had a non-complying energy product. Frucor denied that its product wasnon-compliant. The Court is not in a position to make a determination as to whetherFrucor'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 thatthe effect on the commercial operations and income of Bayer, if it were being requiredto 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 notthreatened Bayer with prosecution. It has not issued a recall notice, nor has it taken11 Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87; and Keung v GBR InvestmentLtd, 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 sellthe 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 inopposition to the relief sought.14 Ms Bishop noted that the Ministry stronglyencouraged voluntary compliance. If a product was found to be non-complying MPIwould usually work with the food business involved to encourage voluntarycompliance and to provide assistance to comply. MPI was also able to directcompliance by the use of tools such as written warnings or notices. It could also takeenforcement action by issuing infringement notices, or a direction prohibiting sale ofthe product. Finally, it could prosecute.[28] MPI said it took into account a number of factors, including whether there wereany food safety issues and the resources available to MPI relative to the public interestin a prosecution proceeding when it decided what action to take. It said MPI was opento 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 thehearing, indicated any willingness to attempt to comply with the judgment. As I havenoted earlier, Bayer have now provided MPI with a proposal to implement in the eventit 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 complaintsabout Berocca Forward since it had been launched in 2016 – neither ofthose related to the issues before the Court.(b) The commercial impact of being forced to halt sales onBerocca Forward would be "hugely significant". It would mean the14 Ms Bishop's affidavit outlined the "flexible" approach to compliance that MPI took.premix for Berocca Forward, which was already in its hands forproduction and manufacture, would be wasted; and the lead time forordering further premix would be substantial given the impendingChristmas 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 inrelation to production for Bayer but it says there are no negative impactsfrom the continued sale of Berocca Forward for consumers as theproduct is safe.(e) There would be a direct financial impact of lost sales and write-offssomewhere in the region of at least $900,000. There was no detail asto the net losses it was projecting. It is not clear what amount of thiswas profit compared to sunk costs.(f) Its market share would be eroded. It would be unable to guarantee thatshelf space currently available for the product would be made availableby retailers if the product was withdrawn and then relaunched in thefuture. The determination of shelf space was allocated in the retailers"range review process", which occurred annually or bi-annually. Thiswould 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 meanthat there would be financial loss to Bayer, it will lose its present market share (Frucorestimated Berocca Forward's sales at 1.5 to two per cent) to other competitors andmay never have the opportunity to relaunch again in the very competitive refrigerateddrinks market.[32] Bayer also noted that the uncertainties involved were particularly acute atpresent because of the wider economic conditions. It noted the first nationalCOVID-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 wereexaggerated.(c) Other competing products had to comply with the relevant standards.[34] Frucor submitted that Bayer had had four years of sales of Berocca Forwardknowing that MPI considered it non-compliant from the start.[35] MPI's primary submission under this head was that Bayer had known for asubstantial period that MPI viewed Berocca Forward as non-compliant. It hadconsistently advised Bayer of its view and that had now been confirmed. MPI saysthat, until immediately before the hearing, Bayer had not taken the opportunity toconsider how it would comply with the regulatory regime in a manner that would allowit to mitigate any potential loss, either before or after the judgment. It had taken acalculated commercial risk, or a gamble, by "reclassifying" and relaunching itsproduct before receiving the Court's decision. It pointed to the decision of PhilipMorris (NZ) Ltd v Liggett & Myers Tobacco Co (NZ) Ltd15 where the Court noted thatthe appellants had taken a calculated risk marketing under a disputed tradename beforethe determination of the lawfulness of that action. The Court there said that "[t]he factthe 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 conclusionthat 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 othersignificant factors.[37] For the reasons I discuss below,17 I do not find that withholding interim reliefwould render the appeal nugatory. Products are regularly recalled and taken off themarket for a period of time. MPI had indicated it would work with Bayer, but it hasbeen, until only days ago, unwilling to engage in those discussions. Bayer hastherefore been operating with the knowledge that MPI considered their productnon-compliant for some four years. Furthermore, although Bayer may suffercommercially, in my view these effects are likely overstated. If an appeal wassuccessful and Bayer had removed their product from the market, there would still beopportunities for Bayer to re-enter the market. The appeal would therefore not berendered 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 participantsand the public, in having an effective regulatory regime, would be injuriously affectedby a stay. It said that, while it was not a commercial competitor with a position toprotect, MPI had considerable genuine and legitimate interest in the effectiveoperation of the food safety and suitability regime. MPI said the objective of theregime, as confirmed in s 4 of the Food Act 2014 was to ensure food businessesproduce products that are fit for purpose and safe for consumption.18 The regime ishighly dependent on voluntary compliance.19 Ms Bishop, who was responsible for thefood compliance services group at MPI, in support of MPI's opposition to the interimrelief said MPI generally tried to work with food businesses. She had been surprisedwhen Bayer had decided to reclassify and relaunch Berocca Forward when MPI hadagreed 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 theoption of applying to the Food Standards Australia New Zealand (FSANZ) to vary the17 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 withthe food standards.relevant standard of the Food Code. It said that was the best approach to addressingthe issues Bayer faced. Bayer did not accept that invitation. In submissions, Bayerindicated that obtaining such change through FSANZ was complicated. WhileFSANZ indicated that the process would take nine to 12 months, Bayer was of theview it would take longer than that.[40] Ms Bishop also indicated that MPI strongly encouraged voluntary complianceacross all areas it regulated. To that end it would assess potential non-compliance andadopts a flexible approach, taking into account the circumstances of thenon-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 asa regulator. Continued non-compliance with standards where the regulatory modelwas focussed on voluntary compliance undermined the integrity of the regulatoryframework. In particular, other food businesses that were committed to complyingwith the Food Code might perceive such continued non-compliance as beingsanctioned by a court. In particular, she was concerned that other food businesseswhich met legislative requirements were disadvantaged by food businesses that ranthe risk of non-compliance and profited as a result.[43] Ms Bishop noted that apart from the fact that a competitor had complained thatBerocca Forward had continued to enjoy an unfair advantage in the market place byselling a product not meeting legal requirements, if it were permitted to continue, otherfood 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 theoperation of the food safety and suitability regime. Voluntary compliance by foodbusinesses is central to that.[46] Retailers and consumers rely on the fact that only complying products will besold and that there are sanctions in place for non-compliance. Otherwise theregulatory regime will be perceived as unfair and its reputation will suffer. MPI isentitled to expect compliance from Bayer, particularly when it has consistently advisedBayer of its position and agreed a method of resolving it by obtaining a declarationand MPI's view has been confirmed as correct by this Court. Those factors areimportant 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. MPIsubmitted that this application for interim relief had not been pursued with suchdiligence. Although there was some delay, the substantive appeal was being pursuedwith diligence. I do not consider that factor has significant weight.[49] I do note however, that Bayer was not, until this week, willing to discussalternatives to continued production and sale of the product at present levels. It hasknown 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 toclarify 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 wasunsuccessful, and it has declined to engage in an approach to the standard setting bodyto vary the standard, which would have potentially resolved the whole problem. Bayerhas 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 asFrucor, must be taken into account. As Frucor indicated, Bayer is competing with anon-compliant product while others must ensure its products are compliant. This isan uneven playing field. It also may give rise to a view by Frucor and other producersthat 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 thisapplication.[51] There has been no indication by MPI that it intends to take steps to enforce itsview and the declaration. The present effect of a stay would be to manage Bayer'scommercial risk of continuing to market the product.[52] I accept that Bayer may suffer commercially if it did take the product off themarket. However, it still has the opportunity to discuss a more flexible arrangementthan an immediate exit with MPI. The commercial risk that it wishes to assume is forBayer to determine in the present circumstances.[53] From the information provided by Frucor, it does appear that Bayer hasoverstated the commercial effects on it of refusing to make an interim order. It mayhave opportunities to re-enter the market, as outlined in Frucor's evidence, at a laterdate. However, I can make no determinative findings on that issue.[54] Accordingly, in my view, weighing up all the relevant factors, the balance ofconvenience favours declining the application for interim orders for a stay. It is alsoin the interests of justice to do so.[55] Therefore, if the appeal had not been determined and so overtaken matters, Iwould have dismissed the application.Costs[56] Bayer and MPI agreed at the hearing that costs should follow the eventcalculated on a 2B basis. I would have made orders in those terms. However, in viewof the memoranda received last week concerning costs, if Bayer seeks to take adifferent position it has until close of business on 23 December 2020 to file amemorandum in that regard.Confidentiality: sensitive material[57] Applications for confidentiality in relation to material on the court file relatingto commercially sensitive information were made under Part 7 of the High Court Rules2016. In the circumstances such orders are appropriate.[58] Orders are made accordingly in the following terms:(a) All commercially sensitive and confidential information (together, theInformation) is to be kept confidential on the Court file and not madeavailable for inspection as follows:(i) Information marked in grey in the affidavit of Natalie Acevskidated 17 August 2020, in the applicant's synopsis ofsubmissions, and specific information in the bundle ofdocuments for interim relief; and(ii) Information included as exhibit "A", annexed to the affidavit ofBrad Erceg dated 27 October 2020.(b) The Court file is to be marked accordingly, and the applicant and Frucorare to be notified of any request to access the file pursuant to theSenior Courts (Access to Court Documents) Rules 2017.(c) No individual or organisation, apart from the party whose informationit is, may publish or disclose any of the Information._____________________Grice JSolicitors:Simpson Grierson, Wellington for the Applicant.Crown Law Office, Wellington for the Respondent.Bell Gully, Auckland for the Interested Party.