VICTORIA'S consumer watchdog pulled the pin on an investigation into "fake" organic milk when it was sued by the company it was investigating.

And the person who lodged the complaint was also sued as the company, Snowy Mountains Organic Dairy, went all-out to shut down the investigation.

After five years of legal proceedings, The Weekly Times can finally reveal Consumer Affairs Victoria backed away after Snowy Mountains launched a defamation case against it.

The watchdog was preparing a statement of claim when it was sued.

One of the nation's most respected media and free-speech lawyers, Bruce Donald, said CAV stopped investigating Snowy Mountains only "because legal proceedings were at foot".

"It hardly serves the public interest, which they (CAV) are established to protect," Mr Donald said.

CAV has refused to comment on the matter.

Snowy Mountains also brought three separate legal actions against organic retailer Scott Kinnear, who had written to CAV questioning the organic status of the company's product, which he was selling.

The Weekly Times can also reveal Snowy Mountains sued The Weekly Times, ABC radio and individual journalists from both organisations and Mr Kinnear, both for defamation and also for misleading and deceptive conduct under the Federal Trade Practices Act.

The company also brought legal action against Mr Kinnear's company, the director of CAV and Snowy Mountains founder Stephen Whitsed, who was no longer involved with the company.

Mr Whitsed had advised Mr Kinnear that Snowy Mountains Organic Dairy was no longer supplied by its "organic" farmer, who was not certified as organic anyway.

Not one of these matters ever made it to trial.CAV has repeatedly refused requests, via Freedom of Information law, for investigation documents.

It refused to supply The Weekly Times with a copy of its investigation into Snowy Mountains, the statement of claim it was preparing against the company or copies of testimony from the company's employees.

Mr Kinnear said the three lawsuits against him and five years of anguish might have been saved had CAV proceeded with a successful prosecution.

"It would have been an iron clad defence for me ... as well as the financial cost. It's very stressful ... it certainly affected my family," he said.

The action against Mr Kinnear raises the possibility that complaints to other watchdogs such as the Australian Competition and Consumer Commission could also be met with civil lawsuits.

Mr Donald said  SLAPP suits - Strategic Lawsuits Against Public Participation and free speech - were  often unlikely to succeed  but intimidated defendants.

Melbourne barrister and former spokesman for Free Speech Victoria Brian Walters SC also criticised CAV.

``If it's the case CAV backed off because it was frightened of a lawsuit not directly related to what it was doing, that's a dereliction of duty,'' Mr Walters said.

He said    it was ``unusual'' Snowy Mountains had targeted individual journalists.

Courts lacked ``robustness'' in striking out SLAPP suits and failed to recognise the impact a lawsuit had on a person, he said.

He  criticised companies being able to deduct the cost of legal action from their taxable income while individuals could not.

Mr Walters' comments  were  echoed by consumer group Choice, the Consumer Action Law Centre, the Law Institute of Victoria, Liberty Victoria and Victorian Shadow Consumer Affairs Minister Michael O'Brien, who also called for individuals making complaints to a regulator be immune from litigation.

Organic Federation of Australia chairman Andre Lei said it was ``critical'' people prescribed organic diets were buying genuine organic products.

CAV declined to comment, as did the ACCC.

A spokeswoman for the Victorian Government said amendments in 2007 had given added protection to consumers complaining to a watchdog, but refused to guarantee the Kinnear situation could not be repeated.

Snowy Mountains  received a $220,000 grant from the Howard Government in May 2006 but closed down in  March last year.

The grant was to double the company's workforce of 15, but at the time it closed, media reports said the company had 16 factory employees.

Local Liberal federal MP,  Indi member Sophie Mirabella, who handed over the grant, said ``assessment by the relevant Government department'' had determined  the company was eligible but she did not say what checks had been made to ensure the money had been  spent as intended.

The former Snowy Mountains produce general manager declined to comment.