A2 Milk succeeds in halting New Zealand class action until similar Australian lawsuits are completed

The trans-Tasman dairy company has convinced the New Zealand High Court to streamline a class action filed in Auckland with proceedings filed in Victoria over its share price crash in 2021.

A2 Milk shares have rallied almost 30 per cent in the past year as CEO David Bortolussi’s turnaround strategy gains traction. Picture: Britta Campion/The Australian

Trans-Tasman dairy company A2 Milk has convinced the New Zealand High Court to halt a class action, alleging misleading and deceptive conduct, until similar proceedings are completed in Australia.

Investors launched a class action against the company in Auckland last May, seeking compensation after suffering losses from a “significant decline” in the value of A2 Milk shares between August 19, 2020 and May 9, 2021. During that time, A2 shares collapsed from almost $20 to below $6.

But Justice Rebecca Edwards has ruled that the action be put on hold until two similar cases are concluded in Australia, citing the Australian and New Zealand Trans Tasman Proceedings legislation.

Justice Edwards found the New Zealand proceeding was substantially similar to the class actions filed by Slater & Gordon and Shine Lawyers in the Victorian Supreme Court in late 2021, involving the same facts, same defendant and shareholder plaintiff and similar law.

She was satisfied that the Victorian Court has jurisdiction to hear claims of both New Zealand and Australian shareholders, and that the Victorian Court is the more appropriate forum to hear the class action claims – and given the Australian proceedings were already underway and likely to progress faster than the New Zealand action.

A2 Milk says it has complied with its disclosure obligations “at all times” and a spokesman said it was pleased with the New Zealand High Court’s finding, “which streamlines the class actions into one ongoing proceeding”.

“(It) already includes all A2 shareholders who purchased their shares on the ASX or NZSX and deals with both Australian and New Zealand law issues,” the spokesman said.

“The stay will also prevent the risk of inconsistent findings by courts hearing cases with substantial overlap and will promote efficiency and cost saving for the parties and group members, which Her Honour noted was the very purpose of the Trans Tasman Proceedings Act that New Zealand and Australia put in place.

“The Company considers that it has at all times complied with its disclosure obligations, denies any wrongdoing, and will vigorously defend the Victorian Proceedings.”

A2 has been struggling to recover from the Covid-fuelled collapse of the lucrative Chinese daigou – or reseller market.

But in the past year, its turnaround strategy under chief executive David Bortolussi – who joined the company in February 2021 – has been gaining traction, with its shares gaining almost 30 per cent to $6.82 in the past 12 months.

This compares with the record near-$20 high the company reached in mid 2020.

Mr Bortolussi has been working to reposition the company in its biggest market, China, as well as deepen its expansion across the US via a partnership with chocolate giant Hershey and launch new products such as A2 half-and-half milk.

It will also send up to 1 million tins of infant formula to the US within months after the Food and Drug Administration finally granted it temporary import approval last November.

Australian-based CHC Investment Fund III, a subsidiary of Court House Capital, funded the New Zealand proceedings.

Last May, Philip Skelton QC, who represented investors in the New Zealand class action, alleged A2 management gave “inaccurate” earnings guidance, breaching the Financial Markets Conduct Act and the Fair Trading Act.

“In summary, the legal action alleges that as a result of A2 Milk issuing misleading guidance and failing to amend or withdraw that guidance in a timely manner, shareholders were not given accurate information about the company’s ability to meet its revenue and margin forecasts,” Mr Skelton said at the time.

“The action claims that because of the inaccurate information given to the market, investors were unable to make informed decisions as to whether to buy, sell or retain A2 Milk shares; many investors lost substantial sums as a result of acting on that misleading information.

“This legal case highlights the pivotal role a company has in managing shareholder expectations around the company’s ability to realistically achieve its financial projections. Unless material information is disclosed and forecasts amended to reflect updated assessments, it is reasonable for shareholders, especially those who have invested in a publicly listed company like A2 Milk, to assume that existing forecasts remain valid.”

A2 Milk closed up 0.2 per cent, or 1c on Wednesday at $6.83.