Fonterra Co-operative Group, the world's biggest dairy exporter, will vigorously defend a claim by French food company Danone over last year's recall of whey protein concentrate.
The French company will file papers in the High Court in Auckland on Thursday, and has already served arbitration papers to be heard in Singapore.
Last August, Fonterra quarantined several batches of whey protein concentrate amid fears it was contaminated with a potentially dangerous form of the clostridium bacteria. The whey protein was ultimately cleared.
Fonterra says it continues to be confident of its position and will vigorously defend any proceedings.
"Fonterra stands by its track record of having world-class food safety and quality standards, quality systems, and robust testing regimes across all its manufacturing facilities," the Auckland-based company said in a statement.
Danone will also terminate existing supply contracts with Fonterra and make "any further collaboration contingent on a commitment by its supplier to full transparency and compliance with the cutting-edge food safety procedures applied to all products supplied," it said.
Units in the Fonterra Shareholders' Fund fell 2.1 per cent to $5.74 on news of the action.
The French company put the cost of last year's recall at euros350 million ($NZ574.95 million) when it announced its third-quarter results, while Fonterra recognised a contingent liability of just $14 million in its own accounts.
"It's hard to know at this point how much of a claim by Danone is real and how much is negotiating tactics," said Matt Goodson, managing director at Salt Funds Management.
Of the eight customers affected by Fonterra's recall, the New Zealand company agreed to a commercial outcome with all of them except Danone, including extending supply contracts for the next 10 years and agreeing to volume increases.
In December, Fonterra chief executive Theo Spierings said he expected any court action would show the New Zealand company had no liability in its contract.
Last month Fonterra cut its 2014 dividend payment forecast to 10 cents a share from 32 cents while keeping its forecast milk payout at $8.30 a kilogram of milk solids.
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