The Federal Court of Australia has rejected legal proceedings brought by Freedom Foods Group against Blue Diamond Growers and ruled the remaining proceedings must head to arbitration in the US.
Blue Diamond Growers lodged two claims in the US District Court and the Eastern District of California in September 2020. It alleged FFG was undermining Blue Diamond’s market share in Australia for its own financial gain by using Blue Diamond’s almond base for its own competing products. It is seeking roughly $26 million.
The companies entered a licence agreement in 2011 in which FFG would exclusively manufacture Blue Diamond almond beverages in Australia and New Zealand. It was amended in 2014, giving FFG permission to manufacture private label brands but using the Blue Diamond almond base. Blue Diamond would provide rebates, which are now at the centre of the court action.
FFG’s former CEO Rory Macleod was also named by Blue Diamond in its lodgement as complicit in the alleged fraud and breach of contract.
FFG countered, alleging misleading and deceptive conduct by Blue Diamond having not acted in good faith under the franchising code and unconscionable conduct in breach of Australian consumer law. FFG alleged it was not required to obtain almond base ingredients exclusively from Blue Diamond and that the licencing agreement was a franchising agreement under the Franchising Code of Conduct.
Federal Court Justice Mark Moshinsky rejected that claim and ruled proceedings be stayed on the condition Blue Diamond provides certain undertakings, including all sets of proceedings be heard in Californian Arbitration. In the Californian arbitration, Blue Diamond will accept that, in regard to the allegations it has lodged against FFG, sections 18 and 21 of Australian Consumer Law must be applied. And Australian law is to be applied by the arbitrator in determining the applicants claims under those provisions, Justice Moshinsky ruled.
Blue Diamond alleged Freedom’s manufacture of other brands including MilkLab and Australia’s Own – which are not organic or private label – was in breach of their agreement.
The court documents state: “By the time Blue Diamond became aware of Freedom’s fraud and breaches of the licence contracts, Freedom had already established its MilkLab brand and products in the marketplace, the market share for Blue Diamond’s products had significantly decreased and Blue Diamond’s brand and consumer reputation had deteriorated.”
In its 1H FY21 results, FFG's plant-based beverages rose 17 per cent to $75.2 million, with MilkLab’s sales increased 50 per cent.
Interim CEO Michael Perich said MilkLab had delivered “robust growth” across all channels and FFG was looking to continue growing sales for MilkLab with further penetration into the out-of-home channel.
“MilkLab sales increased 50 per cent in the half year, with the brand continuing to build customer loyalty as health-conscious consumers increasingly opt for plant-based milks, particularly in the fast-growing specialty cafe market. MilkLab is now sold in mor than 8000 cafés, with enormous potential for expansion through new milk alternative products such as oat milk, new sales channels such as quick service restaurants and grocery stores, and in international markets such as New Zealand, South East Asia and China,” Perich said.
The Australian Financial Review reported Blue Diamond senior vice-president Raj Joshi was surprised FFG was “publicly touting MilkLAB almond milk as a critical element of its turnaround and recapitalisation strategy in Australia when that brand is at the very centre of our legal proceedings in California”.
FFG is also facing two class actions launched by Slater & Gordon and Phi Finney McDonald.
Full details of its recapitalisation plan are due next week, with its shares still in voluntary suspension.
