The High Court has ruled Fonterra engaged in misleading and deceptive conduct in its dealings with some South Canterbury farmers.
A group of them, who challenged the fairness of contracts, have scored a big win in the first challenge under the non-discrimination provisions of the dairy industry's restructuring laws.
The court also found the co-operative broke the Fair Trading Act, motivated by the need to assuage internal politics among other suppliers and to send a message to other farmers who might want to quit to supply a rival.
The farmers had supplied New Zealand Dairies Ltd but it went bust, and Fonterra bought its factory.
It then paid the farmers less for their milk and would not let them buy shares.
The lead lawyer for the farmers in the action, Ben Russell, said the court ruled Fonterra was, in part, trying to send a message to farmers who signed up to independent companies.
"We will now proceed to stage two, which will involve each of the plaintiffs having to establish the amount of their loss, and of course we're still subject to appeal rights."
Fonterra said it was disappointed in the ruling, and was now reviewing the reasons given and would consider all options including appealing.