Nestle denies breaching deal to buy milk from Dairygold Co-Op

An Irish subsidiary of Nestlé, the multinational chocolate manufacturing group, has denied before the High Court (Commercial Division) that it has breached an agreement to purchase an annual minimum of 14.5 million gallons of milk from Dairygold Co-Operative Society Ltd.

Dairygold has taken proceedings claiming that Ballyclough Co-Op (later amalgamated with Dairygold) had in 1987 entered into an agreement with Rowntree Mackintosh (Ireland) Ltd (now Montisco Ltd and part of the Nestlé group), for the long-term supply of milk for the purpose of manufacturing chocolate crumb in Montisco's Mallow, Co Cork, premises. The agreement provided for termination on five years' notice.

According to the Dairygold statement of claim, the Co-Op ascertained that Nestlé had decided in principle to cease manufacturing chocolate crumb at its Mallow plant and was centralising all its chocolate crumb production in Scotland.

Dairygold alleged that Nestlé was not prepared to confirm the requirements to give five years' notice in writing to terminate the milk supply agreement.

Yesterday, solicitors acting for Nestlé submitted a letter to Mr Justice Kelly claiming to be at a loss to understand why Dairygold had initiated proceedings when Nestlé "had no intention of committing a breach of contract".

The solicitors said formal notice of the termination of the milk supply agreement was given to Dairygold on November 1st, 2004, and the solicitors were instructed that the agreement would therefore terminate on October 31st, 2009.

The letter added that in September 2004, Dairygold was made aware that Nestlé would welcome an opportunity to discuss potential alternative uses for the milk purchased from Dairygold. The closure of the Lakeland dairy site at Omagh had resulted in Nestlé requiring an alternative supplier of roller-dried milk powder for the Nestlé business.

Mr Justice Kelly adjourned the proceedings for two weeks. He said he had been told by counsel for Nestlé that Dairygold had no cause of action because there had been no breach of an agreement not to take milk.

However, he could not decide such issues at the hearing before him.

He gave Nestlé permission to issue a motion to dismiss Dairygold's proceedings.