Mar 9, 2008 Reuters

China's Wahaha says Danone talks at impasse

Hangzhou Wahaha Group, China's top beverage firm, said on Sunday talks with joint venture partner French food group Danone to resolve a long-running dispute have hit an impasse as a deadline nears.

Group Chairman Zong Qinghou told reporters on the sidelines of China's annual National People's Congress, or parliament, that he could not accept Danone's demands for ending the feud.

The French company had accused Wahaha of setting up parallel and illegal operations alongside their venture that sells Wahaha branded products such as soft drinks and bottled water.

Zong said Danone has proposed that their joint venture along with the businesses at the centre of the dispute be listed as one entity and that Wahaha guarantees the value of Danone's share of the listed firm will not fall below 50 billion yuan ($7 billion).

Danone and Wahaha were to hold 40 pct each in in the proposed company, leaving the remaining 20 pct to the public, Xinhua said.
Danone wants to ensure at least 50 bln yuan in market value if its stake in the new company is lower than 40 pct, said Zong.

"How can anyone guarantee a share price?" said Zong. "It's up to the market. It doesn't make any sense."

Zong said he has proposed that Danone buy his share of the joint ventures or that it be bought by a third party, but that the French company has rejected those options.

In December, Danone and Wahaha agreed to cease all lawsuits in their highly public and acrimonious dispute and enter talks to resolve the dispute.

The firms failed to resolve the issue and extended the talks for another month, a deadline that will expire at the end of March, said Zong.

"For negotiations to succeed there must be trust and benefits for both sides. These are not negotiations," he said.

"If we don't reach an agreement, then we have to go back to the courts to decide," he said.

Previously the two companies traded a series of lawsuits and countersuits that at one point had spread to California, Sweden, and China's Supreme Court.

The feud became highly personal and eventually involved several Danone executives based in the mainland as well as Zong's wife and daughter. French President Nicolas Sarkozy and his Chinese counterpart Hu Jintao also discussed the issue during a state visit last year.

The maker of LU cookies, Evian mineral water and Activia yoghurt has a 51 percent stake in a joint venture with Wahaha -- named after the sound of a laughing child.

Danone began investing in China in the 1980s and its widespread network helped sales in Asia expand almost 21 percent to 2.4 billion euros in 2006, becoming the mainland's packaged water market leader and number two in the biscuit market.

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毎日新聞　2007/6/12

仏ダノンが中国で合弁企業と対立
　「ブランド勝手に流用」　役員人事も宙に浮き

　仏食品メーカーのダノンが出資する中国の合弁企業「杭州娃哈哈(ﾜﾊﾊ)集団」(浙江省)の飲料水「娃哈哈」のブランド使用をめぐって、ダノンと杭州娃哈哈を実質的に経営する宗慶後董事長(会長)の対立が深刻化している。
　発端は5月。杭州娃哈哈が使用権を持つ「娃哈哈」ブランドを、宗氏の娘が経営する会社がブランドを勝手に使い競合製品を製造・販売しているとして、ダノンがストックホルムの裁判所に仲裁を求めた。ダノンは先週、米カリフォルニア州の裁判所にも提訴した。
　これに対し、宗氏は「ダノンは中国市場の特性を理解せず商機を逸している」と反発。ダノンのアジア本部幹部らが宗氏を侮辱したとする書簡をダノン本社に送り(ダノンが出資する中国の合弁企業29社すべての董事長を辞任した。書簡は、ダノンが経営路線の対立を北京のフランス大使館に持ちかけ外交問題にしようとしたり、宗氏らを24時間態勢で尾行監視したりした
と非難している。
　宗氏の辞任を受けて、ダノンはアジア地区のエマニュエル総裁を急きょ董事長代行に任命したが、杭州娃哈哈の社員らがダノンからの役員受け入れに猛反発。エマニュエル氏らの人事は宙に浮いている。
　杭州娃哈哈は、宗氏らが87年に設立。96年にダノンから出資を受け入れ中国有数の飲料品メーカーに育てた。宗氏は中国の国会に当たる全国人民代表大会の浙江省代表を務める有力者の一人でもある。

NYT 2007/6/8

Rancor Level Rises in Rift Over Danone China Venture

A dispute between Groupe Danone, the French dairy and beverage maker, and its Chinese partner, the beverage maker Wahaha, became even stranger on Friday when Wahaha released several letters written by employees that denounced Danone for being run by "rascals" who were committing "evil deeds."

The letters, which were filled with vitriol and old-fashioned Communist slogans, came a day after the founder and chairman of Wahaha, Zong Qinghou, resigned in anger, saying that his reputation was being ruined by the dispute.

The resignation had appeared to be a victory for Danone, which is trying to gain control of the venture. On Thursday, Danone named Emmanuel Faber, the head of its Asian operations, as the interim chairman of Wahaha.

But by Friday, there were indications that Wahaha was still being controlled by Mr. Zong or a management team loyal to him.

A spokesman for Danone declined to comment.

Mr. Zong, an entrepreneur who has been ranked as one of China's wealthiest individuals, could not be reached for comment on Friday.

But Danone's dispute with its joint venture partner is turning into an increasingly nasty affair, complicating the company's control over one of its biggest and most lucrative investments in China, a beverage maker with sales of more than $1.4 billion a year.

The dispute erupted this year after Danone, which owns 51 percent of the Wahaha joint venture that was founded in 1996, accused Mr. Zong of operating mirror companies that independently sold goods in China under the Wahaha brand name and then pocketing huge profits.

But Mr. Zong has insisted that Danone executives knew about the affiliated companies and even audited them. He said Danone was seeking to acquire most of them but was unwilling to pay a hefty price, setting off the dispute.

Earlier this year, Danone imposed a deadline on its Wahaha partner to stop the companies from selling Wahaha products outside of the joint venture company.

On Monday, after that deadline had passed, Danone filed a lawsuit in the United States against one of Mr. Zong's Wahaha-affiliated companies, claiming that Danone had been cheated out of at least $100 million.

The target of the lawsuit was a company controlled or owned by Mr. Zong and his wife and daughter, who are listed as the company's legal representatives and who live in California.

Angered by the lawsuit, Mr. Zong resigned from Wahaha on Thursday, saying that Danone had used dirty tactics to smear his name and harm his family.

Mr. Zong also said that Danone executives had him followed and photographed, and that the French company had turned the dispute into a public fiasco.

"I can no longer bear the abuse and slander of the two directors from your company," Mr. Zong wrote in a lengthy letter that offered a detailed assessment of how the joint venture with Danone began to collapse. "So I have to resign as chairman of the 29 joint ventures between Wahaha and Danone and the 10 subsidiaries."

The counterattack against Danone continued late Friday, when Wahaha released letters from workers in various parts of the company.

In angry tones, the letters defended the former chairman, and the workers vowed never to accept a chairman appointed by Danone.

In one letter, which claimed to represent the entire sales force of Wahaha, the group called itself "the army of only Chairman Zong."

The letter denounced and made fun of Danone and its directors and insisted that the Chinese people could not be bullied. The workers also said that Danone had engaged in a campaign of slander and intimidation to bring down the former chairman.

At times, the letters seemed to hark back to the days of Chairman Mao, who was known as the Great Helmsman.

"How can our respectable helmsman be forced away by Chinese traitors and rascal directors," one passage said. "We only want Chairman Zong and we firmly reject Danone!"

June 7, 2007 Agence France-Presse

China's largest drink brand accused Danone of takeover

China's largest drink company accused France's Danone on Wednesday of using the courts to force a cheap takeover, in a bitter feud over a joint-venture agreement, branding the action "despicable".

Groupe Danone SA said Tuesday it filed a lawsuit in the United States against companies linked to Wahaha Group, its joint venture partner, for illegally producing identical products and selling them on the Chinese market.

The complaints alleged that the firms broke a Wahaha-Danone agreement by selling the same products as those made by the two parties' joint ventures in China.

A spokesman for Wahaha said Wednesday Danone was trying to pressure Zong Qinghou, the company's millionaire founder and chairman, to sell his firms that make the disputed products cheaply and branded the action "despicable and laughable."

"Danone is bluffing and applying worldwide pressure to force Chairman Zong Qinghou to give in," said Shan Qining.

"What it doesn't realize is Zong's resolve gets harder. Once the public knows the truth, then the departure of Danone from China and the capital market is not far away.

"Danone's real intention... for their actions against Zong is to force him to yield and annex Wahaha at a low price."

The French company, which produces Evian mineral water and Danone yogurts, set up five joint ventures with Wahaha in 1996 under an agreement that bars the Chinese company from making products that compete with it.

Danone owns 51 percent of the joint ventures with Wahaha and the two sides recently agreed for the French firm to invest another 4 billion yuan ($519 million) for controlling stakes in Wahaha subsidiaries.

These subsidiaries, which Zong controls, make the disputed products. But Zong apparently wants to back out of the deal.

The agreement would give the joint venture the exclusive right to produce, distribute and sell food and beverage products under the Wahaha brand.
Danone said Tuesday it had filed its lawsuit in Los Angeles.

"Hangzhou Wahaha Food and Beverage Sales Co. Ltd. is illegally selling products that are the same as those sold by Wahaha joint ventures and is making unlawful use of the joint ventures' distributors and suppliers," Danone said in a statement.

June 7, 2007 Bloomberg

Danone Seeks $100 Million in Damages in Chinese Venture Lawsuit

Groupe Danone SA, the French bottler of Evian, is seeking at least $100 million in damages from companies linked to Chinese partner Zong Qinghou as it sues them for illegal fruit-juice and mineral-water sales.

Danone, based in Paris, said it's losing $25 million every month from unlawful sales of drinks under the Wahaha brand, according to documents filed in Los Angeles Superior Court three days ago. Danone said in a statement June 5 it's suing companies and people that control Hangzhou Wahaha Food & Beverage Sales.

The defendants ``continue to compete unfairly against Danone's joint venture affiliates,'' the filing said. The suit aims to ``stop the defendants' collective scheme to wrongfully interfere with Danone's valuable customer relationships.''

Danone set up ventures under the Wahaha brand in 1996 with Zong, the 23rd richest person in China according to Forbes magazine. Danone's growth in the country has slowed since the dispute with Zong began last year. Hangzhou Wahaha Food & Beverage on June 6 called Danone ``despicable and laughable'' and said it expects the French company to leave China.

Danone is suing Ever Maple Trading Ltd., based in the British Virgin Islands, and Hangzhou Hongsheng Beverage Ltd., as well as their representative Kelly Fuli Zong and You Zhen Shi. Hangzhou Wahaha Group, the Zong Qinghou-owned company that has a share of the Danone venture, wasn't named in the lawsuit.

A woman who would only identify herself as Xu and answered the spokeswoman's telephone line at Wahaha Group said the company had no further news to release. Xu said that Wahaha Food & Beverage is a production company that isn't reachable, and Hangzhou, China-based Wahaha Group represents both companies.

Shares of Danone, little changed today in Paris, closed yesterday at the lowest since January.

`Friendly Solution'

``We have always said that we remain open to a friendly, out of court solution,'' Danone spokeswoman Stephanie Rismont- Wargnier said from Paris today. ``We continue to hold discussions with our Chinese partners.'' She said the company was asking for $100 million in damages as well as additional $25 million for every month elapsed from the date of the filing to compensate for lost income.

Kelly Fuli Zong is Zong Qinghou's daughter and You Zhen Shi is her mother, Danone says. The French company yesterday said records in Hangzhou show Ever Maple controls Hangzhou Hongsheng Beverage, the parent company of Hangzhou Wahaha Food & Beverage.

Kelly Zong, a U.S. citizen, and her mother live in San Marino, California, Danone says. A message left on the telephone of a You Zhen Shi listed in San Marino wasn't returned. A recorded answer message identified the resident as ``Kelly.''

`Hidden Structure'

In the filing, Danone says Kelly Zong and her mother created a ``hidden corporate structure'' to siphon profits from the joint venture's products into their own companies.

Danone said Ever Maple, created by Kelly Zong in January 2003, owns 90 percent of Hangzhou Hongsheng Beverage Co., which Zong founded in October 2003 with her mother, who owns the remaining 10 percent.

Hangzhou Hongsheng Beverage in turn owns Hangzhou Wahaha Food & Beverage Sales, created last year with the purpose of selling Wahaha products, the French company said.

Danone has faced other setbacks in China this year. Last week, Shanghai customs officials seized about 118 tons of Evian for health violations. Danone said bacteria found in Evian occur naturally, and that China's health-inspection criteria are different than those of the World Health Organization.

Chinese Assets

In the past 20 years, Danone has bought stakes in Chinese firms such as Bright Dairy & Food Co., Shenzhen Health Food Co., Guangdong Robust Group and Shanghai Aquarius Drinking Water Corp

Danone is the second-biggest shareholder of Hong Kong-listed China Huiyuan Juice Group Ltd., the nation's largest maker of pure-fruit drinks, and last December formed ventures with China Mengniu Dairy Co., the country's biggest producer of liquid milk.

Revenue growth at Danone's beverage unit slowed to 9.1 percent in the first three months from 22 percent in the previous quarter. Danone Chief Financial Officer Antoine Giscard d'Estaing said in April that the company's sales grew slower than the 15 percent pace for the overall Chinese beverage market, and blamed the disparity on Wahaha.

The case is Groupe Danone v. Kelly Fuli Zong, No. BC372121, Superior Court, Los Angeles County (Los Angeles.)

International Herald Tribune 2007/6/12

Brawl threatens huge investment by Danone in China
By David Barboza and James Kanter

HANGZHOU, China: An investigation that began two years ago has blown up into a brawl that threatens the huge investment made by a French multinational firm in one of the best-known Chinese companies.

It began in 2005, when executives at Groupe Danone, the French beverage and yogurt giant, say they noticed something peculiar in the financial figures coming from their joint venture in China with the Wahaha Group.

After a lengthy investigation, Danone officials concluded that their closest partner in China, Wahaha's longtime chairman, Zong Qinghou, was operating secret companies outside the joint venture - companies that were mimicking the joint venture and siphoning off millions of dollars.

Last week, after months of negotiation between Danone and Zong failed to resolve the dispute over those companies and who has the rights to the Wahaha brand, Danone filed a lawsuit in California against a company controlled by Zong's relatives.

That lawsuit has intensified a quarrel between Danone and its Chinese partner into a nasty, and at times bizarre, battle for control over the largest beverage maker in China.

Analysts say the Wahaha dispute is a reminder of the pitfalls that foreign companies face when doing business in China.

"This is a cautionary tale," said Steve Dickinson, a lawyer based in Shanghai at Harris & Moure. "This is not a message that you can't do business in China. But if you come to China and let the Chinese run the business without supervision, they can do this kind of thing."

Of course, Danone officials acknowledge they took a risk on Zong, who is known for his brash management style. But they also say that the 61-year-old entrepreneur helped transform Wahaha into one of the most successful Chinese beverage makers, a company that last year had sales of more than $1.5 billion.

Now, however, Danone is trying to figure out how to deal with what suddenly looks like a corporate revolt at Wahaha.

Zong, one of the wealthiest businesspeople in China and the man who founded Wahaha in the 1980s, angrily resigned as chairman last Wednesday, disputing Danone's claims about secret companies and saying he could no longer deal with what he called Danone's harassment and smear campaign against him and his family.

Two days later, Wahaha - which is 51 percent owned by Danone - released a series of harshly worded employee letters that attacked Danone officials for ignorance and bullying.

In one of the letters, which Wahaha said represented the opinions of large groups of employees, the workers vowed to stand by "Chairman Zong" and to punish Danone's "evil deeds."

And then, over the weekend, Wahaha issued another statement, saying the company's management and staff "strongly disapprove" of two directors appointed by Danone.

Wahaha officials declined to comment for this article.

At a news conference in Shanghai on Tuesday, Danone officials defended their actions and said they were working to resolve the dispute.

But Emmanuel Faber, the head of Danone's Asia operations, also said he was worried that Zong might attempt to destroy the Wahaha brand and start up his own competing company, absorbing Wahaha units.

In a statement released at the news conference, Danone said: "We think that it is inappropriate for anyone to seek to leverage employees, business partners and the public to support their goal of maximizing their own personal wealth, while endangering the business continuity of the company."

The series of heated statements raises another question: Who is now running Wahaha, a company that Zong ruled with an iron fist for more than 20 years, controlling nearly every aspect of the business?

Danone says it still has contact with Wahaha. But the French company also acknowledges that it does not have a single executive based at Wahaha's headquarters in Hangzhou and that Danone officers never participated in the day-to-day operations of the joint venture.

The boardroom drama has cast a dark cloud over Wahaha, a fast-growing beverage company known for its popular children's drinks, fruit juices and bottled water.

According to Danone, most of the problems are tied to Zong, the former chairman. Danone says he and several of his family members began operating a series of parallel companies sometime after 2003.

In 2005, Danone says, those "illegal" Wahaha-related companies began expanding aggressively, manufacturing a growing share of the company's products.

In late 2006, after Danone says it discovered the parallel companies, Zong agreed to sell a majority stake in those companies to Danone, which intended to fold them into the joint venture.

But after signing the agreement, Danone says, Zong pulled out of the deal and then began creating even more mirror companies, including his own separate sales division.

Those moves, Danone say, prompted the company to file a lawsuit in California last week against a group of British Virgin Islands corporations that were registered by Zong's wife and daughter, who have run some of the mirror companies and who list California as their state of residence.

Zong has fought back in public. In a letter posted on the Internet last week, Zong said Danone officials had been fully aware of the outside companies, which he said had been partly funded by company employees, and that Danone wanted to acquire them cheaply.

"To put it seriously, they were trying to bribe me to infringe the interest of small shareholders to achieve the goal of a cheap acquisition," Zong wrote. "When they failed the acquisition attempt, they used the media to spread rumors to attack me and my family, complained to the government and tried to ruin me."

Whether the local Hangzhou government, which owns a piece of Wahaha, will step in is unclear.

But analysts who follow Danone are worried about how the dispute will affect the company's bottom line and its future growth in China.

"If this was settled over a period of months, then it would have been all right for Danone," said Cedric Lecasble, an analyst with Kepler Equities in Paris. "But things have been going in the wrong direction. The situation has turned out to be tougher than I could have imagined."

Some analysts are questioning why Danone did not have better supervision of Zong and Wahaha.

"This was a great business Danone had in China, and over time it was going to give them an awful lot of growth, perhaps 10 to 15 percent each year over the next five years," said Jeremy Fialko, an analyst at ABN AMRO in London. "The joint venture is a very practical business model, but you've got to be cognizant of the risks involved."

Faber, however, suggested that the fraud began slowly, picked up only in 2005 and then accelerated again after negotiations broke down last December. In February, Danone says, it discovered that even more secret companies had been established.

Asked whether Danone's oversight of the joint venture was typical, Faber called it a "fairly unusual or unique case."

But, Faber added: "Wahaha is what it is today because Danone was able to take the risk of letting Zong run the show. This man created a great company. But he has not been very rational recently."

Analysts in China say this was a typical structure for old joint ventures, but often those partnerships ran into trouble once they became profitable and there was a battle for control.

"This is why a lot of companies don't do joint ventures any more," said Dickinson at Harris & Moure. "Many of them ended up like this. You have to have supervision. You need to have protections in place."

Faber, though, says Danone is hoping to find a solution that allows both sides to benefit now.

"At the end of the day, we want a fair share of the pie," he said. "We don't want to destroy the pie."

David Barboza reported from Hangzhou and James Kanter reported from Paris.

June 13, 2007　International Herald Tribune

Wahaha executives threaten to quit Danone venture

The former chairman of the Wahaha Group and many of the company's top executives joined forces Wednesday to denounce their longtime partner, Groupe Danone, and threatened to bolt from a joint venture with the French food and beverage giant and to form a separate company.

At a press conference in Hangzhou, where Wahaha is based, the company's top executives made clear for the first time that they intend to leave Wahaha if Danone does not give in to a list of demands, including a promise to stop investing in competing Chinese beverage companies and an apology for harming the 11-year-old joint venture.

"If Danone apologizes and agrees to remove two restrictive articles, we're still willing to continue the cooperation," said Yang Xiuling, a Wahaha sales executive. "Otherwise we'll see them in court."

Also among the Wahaha demands is a call for Danone to drop its exclusive claim on rights to the Wahaha brand name.

When asked whether the 13 executives who appeared at the press conference would join the former chairman of Wahaha, Zong Qinghou, in forming a new company if Wahaha and Danone could not resolve their differences, the spokesman for Wahaha answered for the group: "Absolutely."

The stunning announcement further escalates a remarkable and often bizarre corporate battle for control of China's largest beverage maker.

A spokesman for Danone declined comment Wednesday.

But on Tuesday, Danone said it hoped to find an amicable solution to the crisis and had no interest in selling its 51 percent stake in Wahaha.

Yet Danone is now struggling to gain control over a joint venture that went astray last year, after Danone officials accused Zong of forming a series of secret parallel companies that produced identical products and also siphoned off millions of dollars from the joint venture.

To stop the outside companies from proliferating and mimicking the joint venture, Danone filed a lawsuit in California last week against a group of Wahaha-related offshore companies that are controlled by Zong's relatives.

A few days later, Zong, who founded Wahaha in the 1980s and is now one of China's wealthiest businessmen, angrily resigned as chairman of Wahaha, saying he and his family had been harassed and slandered by Danone.

Zong then penned a fiery open letter to Danone, defending his tenure and ridiculing Danone and its executives.

Since then, Zong and Wahaha have aggressively battered Danone in public, posting venomous letters on the Internet and vowing to punish Danone's "evil deeds" and to even destroy the French company in a legal battle.

Zong said on Wednesday he would file for arbitration in Hangzhou. "We will file with the Hangzhou Arbitration Commission as soon as possible."

And Tuesday, a group of Wahaha employees even showed up at Danone's Shanghai headquarters, where they unfurled a poster in protest against the French company.

Zong and Wahaha say these actions were a counterattack against Danone.

Zong, for instance, insists Danone officials knew all along about the outside companies and that Danone officials jealously tried to acquire the companies cheaply after they learned how profitable the companies had become.

Zong also said Danone had violated the joint-venture contract by investing in some of Wahaha's biggest competitors in China.

"Thinking back on the 11 years of our cooperating with Danone, we've done everything and they've done nothing," Zong said at the press conference Wednesday. Zong was joined by a group of senior Wahaha executives, who took turns attacking Danone's leadership.

The executives insisted they had a right to use the Wahaha brand and that the brand was not completely owned by the joint venture, despite Danone's statements.

And they said the joint venture's products had been struggling recently, while the new products offered by the outside companies formed by Zong and some employees were showing strong growth.

Part of the problem, Wahaha executives said, was that Wahaha retail dealers had turned sour on the joint venture products after Danone went public with its dispute with Zong.

Some dealers are now favoring the non-joint-venture products, produced by the outside companies controlled by Zong and the employees, company officials say.

Liu Zhimin, vice chairman of the sales department at Wahaha, said that the joint venture's profits were in decline. And they said that Danone had done little to manage it.

"They don't do anything, except get a share of the profit," Liu said. "They've gotten about $450 million over the past 11 years."

June 18, 2007　Xinhua

Wahaha says its arbitration application accepted over trademark dispute with Danone

China's beverage giant Wahaha Group said on Sunday that the company's application for arbitration over a trademark dispute with its French partner Danone, has been accepted by the Hangzhou Arbitration Committee.

The application asks the committee to terminate a trademark transfer contract signed between Hangzhou Wahaha Group and the joint venture of Wahaha and Danone in 1996, said Shan Qining, a spokesman for Hangzhou Wahaha Group.

Wahaha said its contract with Danone was never approved by China's trademark authority, which means the transfer is invalid and thus the contract should have terminated.

Shan said the Wahaha trademark belongs to Hangzhou Wahaha Group and not with Danone.

Danone, which owns 51 percent stake of the 39 joint ventures, has accused Wahaha of setting up independent companies and selling products identical to those sold by the joint ventures.

Danone is demanding a 51-percent stake in the non-joint venture companies, which Wahaha Group has rejected.

Danone filed its first lawsuit against Wahaha on May 9 in Stockholm.

On June 4, Danone filed a lawsuit in the Los Angeles-based Superior Court against Ever Maple Trading Ltd. and Hangzhou Hongsheng Beverage Co Ltd, and two individuals related to the companies.

Ever Maple Trading Ltd. is the controlling shareholder of Hangzhou Hongsheng Beverage, which is the parent company of Hangzhou Wahaha Food and Beverage Sales Co., Danone's joint venture partner in China.

On June 6, Zong Qinghou, founder and chairman of Wahaha Group, resigned from his post as chairman of its 39 joint ventures with Danone.

Emmanuel Faber has been named interim chairman of the joint ventures.

2006/7/26 APWahaha Steps Up Heat Against Danone

Chinese beverage maker Hangzhou Wahaha Group Co. threatened legal action Tuesday against its French joint venture partner Danone, the latest fusillade in the companies' feud over one of China's best-known brand names.

Group Danone SA and its Chinese joint venture partner, multimillionaire Zong Qinghou - the chairman of Hangzhou Wahaha Group - have been publicly battling for more than two months.

Danone accuses Wahaha of illegally selling products identical to those sold by the companies' joint ventures and has filed a lawsuit in Los Angeles seeking more than US$100 million for the alleged illegal sales. It also filed for arbitration in Stockholm to help resolve the dispute.

Zong resigned from the chairmanship of the joint venture after the lawsuit was filed.

Wahaha, which filed for arbitration in its home base of Hangzhou, in eastern China, "wants to raise a counterclaim" and claim up to 5 billion yuan (US$656 billion) in damages, the Chinese company said in a statement distributed by e-mail.

"Danone has no evidence of legal violations by us," it said.

Spokesmen for Danone had no immediate comment. Earlier this month, the company said it believed an amicable resolution of the dispute was still possible, but it criticized Zong's public complaints.

Relations with Danone soured after Zong rejected a plan by Danone to buy out some of Wahaha's assets, accusing the French company of attempting a hostile takeover.

Zong has sought to rally support through public appeals, insisting that the government-owned parent company of Wahaha has full rights to use the brand name.

Zong founded the Wahaha group in the late 1980s. Beginning in 1996, Wahaha and Danone set up a string of nearly 40 joint ventures, each 51 percent owned by Danone. Earlier this year, Danone officials accused Zong of undermining their business with a parallel network of distributors selling many of the same products.

The dispute between the two companies has resulted in the airing of antagonisms build up over the years.

"Essentially, we functioned as cheap labor for the creation of their wealth and received little in return," Wahaha said in another statement, issued Tuesday.

The Chinese company accused its French partner of "total indifference" to innovative ideas and of trying to "brazenly slander" Zong.

"Wahaha and Mr. Zong cooperated diligently, though not always easily, with Danone for 11 years," it said, adding that it sought to keep the French company from "interfering with our successful operation and management, simply giving them a share of the profits."

"We really could not comprehend why Danone was not satisfied with such a good deal," it said.

BBC 2007/6/26

Under the terms of their 11-year agreement, Wahaha is prohibited from making products that compete with Danone's range.

Danone recently agreed to invest a further four billion yuan (£262m; $519m) in the deal, in return for control over several Wahaha subsidiaries and the right to sell foodstuffs under the Wahaha brand.

It is these subsidiaries that make the disputed products.

Mr Zong founded Wahaha in 1987, selling milk products from a school store.

The Danone deal enabled Wahaha to invest in advanced production facilities, doubling its output between 1996 and 1997.

With its headquarters in Hangzhou in eastern China, Wahaha has 70 subsidiaries spread across 40 manufacturing sites.

2007-07-04 Xinhua

Wahaha to sue 3 joint-venture directors from Danone

　Chinese beverage giant Wahaha Group on Tuesday confirmed its plan to sue three executives of Danone, Wahaha's French joint venture partner.

    "If Danone do not sue the three directors, Wahaha will do it," said Liu Xiangwen, lawyer of Wahaha, at a press conference in Hangzhou, capital of east China's Zhejiang Province.

    Zong Qinghou, chairman of Wahaha Group, said he would sue for a total of one million yuan (131,000 U.S. dollars).

    Emmanuel Faber, who recently replaced Zong Qinghou as chief of Danone and Wahaha's 39 joint ventures, Qin Pang, China director for Danone Asia and Francois Caquelin, a financial director, are the targets of Wahaha's lawsuits.

    Liu claimed that the three men were hired by more than 20 counterpart firms of Wahaha-Danone and carried out a series of investment, marketing and management projects for the firms, which are competitors of the joint-venture in the beverage industry.

    "Their employment in these competitive companies is against China's corporate law ... and their actions have damaged the interests of the joint ventures and the interest of Wahaha's shareholders," Liu said.

    Danone's purchase of three drinks companies - Robust, Shenzhen Yili and Shanghai Jianguanghe - also violated Danone and Wahaha's non-competition agreements, the lawyer added.

    Danone was unavailable for comment on Wahaha's intentions announced at the press conference.

    The move was the latest in the dispute between the Chinese drink group and the French giant that first emerged in April but has since taken on a highly public tone.

    On June 26, Wahaha said it had decided to "demand justice by legal procedures" after Danone had filed for arbitration and lawsuits against it.

    Wahaha said in a statement, "We will respond actively to the lawsuits filed by Danone in Stockholm and the United States, and we plan to launch a counter suit demanding compensation of two billion, three billion or five billion euros."

    The statement continued, "We have conclusive evidence that Danone has broken the law.

    "Wahaha is not against the opening-up policy of China, or cooperation with others, or cooperation with foreign investors. However, we want the cooperation to be equal, mutually beneficial, complementary, mutually respectful with equal interest," the statement said.

    Wahaha has applied for arbitration over a trademark dispute with Danone at the Hangzhou Arbitration Committee, asking the committee to terminate a trademark transfer contract signed between Hangzhou Wahaha Group and the joint venture of Wahaha and Danone in 1996.

    Wahaha said its contract with Danone was never approved by China's trademark authority, which meant the transfer was invalid and the contract should be terminated.

    Danone, which owns 51 percent stake of the 39 joint ventures, has accused Wahaha of setting up independent companies and selling products identical to those sold by the joint ventures.

    Danone is demanding a 51-percent stake in the non-joint venture companies, which Wahaha Group has rejected.

    Danone filed its first lawsuit against Wahaha on May 9 in Stockholm.

    On June 4, Danone filed a lawsuit in the Los Angeles-based Superior Court against Ever Maple Trading Ltd. and Hangzhou Hongsheng Beverage Co. Ltd, and two individuals related to the companies.

    Ever Maple Trading Ltd. is the controlling shareholder of Hangzhou Hongsheng Beverage, which is the parent company of Hangzhou Wahaha Food and Beverage Sales Co., Danone's joint venture partner in China.

http://chinabusinesslaw.blogspot.com/2007/06/wahaha-v-danone-who-will-have-last.html

June 14, 2007　Wahaha v. Danone: Who Will Have the Last Laugh?

First, the occasion warrants a brief intro of the players.

Danone is currently one of the world’s leading global corporations in fresh dairy products and bottled water, and its production and sales spans around the world.

Wahaha is a bit more complicated. Wahaha Group consists of three large blocks of corporate entities. The first is the original Wahaha Group Ltd., and the City of Hangzhou owns 46% of the stock, and the rest of stocks of the company are unevenly distributed among Mr. Zong, the management, and employees (before 2000, Wahaha Group was a solely state-owned enterprise). The second one is the Wahaha-Danone Joint Equity Venture Group. Wahaha Group Ltd. Controls 49% of the shares, and Danone holds 51%. The third bunch is a host of non-joint venture companies established and operated in essence by Wahaha Group Ltd. and Hangzhou Wahaha Food Products Ltd.

Second, the following is the chronology of the relationship between Danone and Wahaha.

1. 02/29/1996-----Joint Venture Agreement between Wahaha Group Ltd. and Danone, including trademark transfer agreement, non-compete agreement, and confidentiality agreement

2. 03/28/1996-----Wahaha Group Ltd., Danone, and a Hong Kong enterprise agreed to form five joint ventures in China.

3. 04/1996-----Mr. Zong became the chairman of board of directors of the said five joint ventures.

4. From 1996-2007, the original five joint ventures evolved into 39 joint ventures, and everybody made a ton of money.

5. Problems began to surface in 2000 after the reorganization of Wahaha Group Ltd., which became a private entity with the Hangzhou government holding 46% of its stocks. The reorganized Wahaha Group Ltd. began to establish its own joint ventures and separate subsidiary entities, which totaled 17 entities in a span of six years. Apparently, Wahaha Group Ltd. used the Wahaha-related trademark in violation of the Wahaha-Danone Joint Venture Agreement.

6. Danone kept quiet with respect to Wahaha Group’s use of the trademark and apparent breach of the non-compete agreement inherent in the Joint Venture Agreement.

7. In late 2006, Danone initiated an offer to buy all of Wahaha Group Ltd.’s companies which are developed outside of the Joint Venture Agreement, and Wahaha Group Ltd. rejected the offer. The dispute went public in early 2007, escalating into a full blown fight over the ownership and usage of the Wahaha trademark.

8. 05/09/2007, Danone Asia submitted the disputes with Wahaha Group Ltd. with respect to the Joint Venture Agreement to the Stockholm Arbitration Institute.

9. 06/04/2007, Danone sued, in the Superior Court of Los Angeles County, Ever Maple Trading, a company based in the British Virgin Islands, and Hangzhou Hongsheng Beverage, as well as two individuals related to these companies. The two companies are believed to have ties with Wahaha Group Ltd. and Mr. Zong.

10. 06/05/2007, Mr. Zong tendered his resignation as the chairman of the board of directors of the Wahaha-Daone Joint Venture.

11. 06/13/2007, Mr. Zong announced his plan to submit the trademark dispute arising out of the Joint Venture Agreement to the Hangzhou Arbitration Commission.

June 15, 2007　Wahaha v. Danone: Partnership at Grace’s End

When Danone Asia Pte Ltd. (“Danon Asia”) and other Danone subsidiaries located in Asia submitted the dispute to arbitration in Sweden, things between the two partners have turned from the good, to the bad, then to the ugly. And Danone has hired the British law firm Freshfields to represent it in the Swedish arbitration deal. As a side note, Article 26 of the Joint Venture Agreement stipulates that disputes between the contracting parties, if unresolved, are to be arbitrated in the Arbitration Institute of the Stockholm Chamber of Commerce.

My research reveals some of the details of Danone’s contentions and complaints in the arbitration.
The plaintiffs/petitioners are: Danon Asia, Jinjia Investments Ltd., Myen Ltd., Novalc Ltd. The defendants/respondents are: Wahaha Group Ltd., Wahaha Shiye Ltd., Hangzhou Food Ltd., Hangzhou Wahaha Investments Ltd.

The pith of Danone’s complaints is that Wahaha Group and its non-joint venture companies violated the original Joint Venture Agreement (“Original Agreement”) between Danone and Wahaha Group, and that such violation consequently resulted in the infringement of the trademark transfer clauses of the Original Agreement. Danone alleged that the defendants, without approval from the joint venture companies, manufactured products that are same as those of the joint venture companies. These products competed against the joint venture companies’ products, injuring the interests of the joint venture companies.

In addition to the corporate defendants, Danone also joined Mr. Zong, the former chairman of the board of directors of the joint venture companies and the man behind all the non-joint venture companies, as a defendant in the arbitration. Danone, expectedly, complained of Zong’s violation of the non-compete agreement (“NCA”) and non-disclosure agreement (“NDA”). And it also alleged that Zong created conflict of interests, violating his duty to the joint venture company as a board member.

In an attempted strategic move, Zong submitted the same case to the Hangzhou Arbitration Commission on Wednesday (June 13, 2007), hoping to capture a little bit of the home-court advantage. He avers that the trademark transfer clause in the Original Agreement is void for violation of the Chinese law at the time of contract in 1996, and that Danone fraudulently induced Wahaha into the contract.

From a legal stand point, Zong is caught in a tight spot. First, his choice of venue for arbitration is against the express provisions of the Original Agreement, notwithstanding his “need” of a friendly forum. Second, the disputes have already been accepted by the Stockholm Arbitration Institute, where Zong and the other four non-joint venture companies are defendants. So, whether the Hangzhou Arbitration Commission will dismiss the petition remains a very curious legal and possibly political riddle.

And then, to make thing a little more uncomfortable for Mr. Zong, Danone lit a fire in his back yard where he could not even get to. Danone’s lawsuit in Los Angeles against Ever Maple Trading Ltd., Hangzhou Hongsheng Beverage Co Ltd., and Zong’s daughter & wife really added “insult to injury.” Zong’s immediate response to this suit is to resign his position on the Danon-Wahaha Joint Venture board, which demonstrates how enraged he might have been. Aside from making him comfortable, Danone’ choice of forum in California could not have been better since here Danone is immune from the heat of nationalism manipulated by Zong, local politics in Hangzhou (the city is a shareholder of Wahaha Group, remember?), and unpredictable courts.

---

Wahaha v. Danone: My Arbitration is Better Than Yours
Ok, this is getting really interesting!

Remember that Danone submitted the whole dispute to the Stockholm Institute of Arbitration on May 9, 2007? The arbitration is pending there in Sweden.

Remember that Wahaha also applied to have the Wahaha trademark transfer portion of the dispute with Danone arbitrated in the Hangzhou Arbitration Commission (“HAC”) on June 13, 2007?

In my last post, I was not sure whether HAC would take the case since the matter, on a bigger scale, is pending in Sweden.

But, surprise!! HAC accepted the petition for arbitration the very next day on June 14, 2007.

According to a report, Wahaha wants the HAC to determine whether the trademark transfer agreement, as a matter of law, is void since the Chinese Trademark Law requires such transfer to be approved by the China Trademark Office at the time of transfer (1996).

My hunch is that this might be Wahaha’s strongest argument. Wahaha Group in fact competed against Wahaha-Danone joint ventures; Wahaha Group actually used the trademark without the approval of the joint venture pursuant to the joint venture agreement. Therefore, without attacking the legality of the contract, Wahaha will have a very tough job in convincing the tribunals or a jury.

The next question that I anticipate to be raised after the “verdict” on the transfer issue is whether the contract in its entirety will be held as void. In my previous post, I discussed that Chinese Contract Law allows per se illegal clauses to be stricken in an otherwise enforceable contract. Assuming that the trademark transfer agreement is held as void by the HAC, will the original joint venture agreement (“Original Agreement”) survive the ordeal?

From a legal perspective, the rest of the Original Agreement should stand and continue to be effective given Article 56 of the Chinese Contract Law. But the really issue is what good is there for Danone if the Trademark transfer portion of the contract is void. Without the right to the Wahaha trademark, Danone’s joint ventures in China would only be a shell without its core value with which the Chinese consumers identify. Of course, Danone can rely on its own trademarks acquired elsewhere, but that is the topic of another day.

Danone-Yili


The company is a joint venture of Yili Mineral Spring Incorporated of Shenzhen Cities and Danone.

Shanghai Jianguanghe

Robust

Eurofood, March 16, 2000
Danone, the giant French food and drink group, has continued its expansion in the bottled water market with the acquisition of Robust, one of the country's biggest producers of bottled water and dairy-based drinks, from the Chinese authorities.
The Chinese buy comes just a few weeks after the French group acquired the US bottled water group McKesson. Danone is making water one of its core sectors, alongside biscuits and dairy. It is thought likely to offload its Kronenbourg brewing arm, which sits increasingly uncomfortably with its core activities.

The Robust deal is expected to boost Danone's presence in China, which currently accounts for 7.5% of the firm's annual turnover. Some 80% of its business there is drinks, including the Wahaha bottled water brand, the Chinese market leader.

2007-07-12 AP

Danone files counter claim against Chinese joint venture partner in trademark dispute

China-French food and drink maker Danone said Thursday it has filed a counter claim against its estranged Chinese joint venture partner in an increasingly bitter trademark dispute.

Danone legal counsel Randall Lewis said Wahaha failed to fulfill a 1996 agreement to transfer the Wahaha name to the joint venture and recently lied in saying that the State Trademark Office had rejected such a transfer.

Thus far "there has been no circumstance or event that is sufficient to result in the termination of the rights and obligations of the parties under the Trademark Transfer Agreement," Lewis said.

Wahaha last month filed for arbitration claiming the Chinese government never approved Danone's request that their joint venture, set up in 1996, have exclusive use of the Wahaha brand name.

Danone accuses Wahaha of illegally selling products identical to those sold by the companies' joint ventures and has filed a lawsuit in Los Angeles seeking more than US$100 million for the alleged illegal sales.

It also filed for arbitration in Stockholm to help resolve the dispute. Wahaha's founder Zong Qinghou resigned from the chairmanship of the joint venture after the lawsuit was filed.

The months-old dispute has been increasingly played out in public, with Zong accusing the French company of launching a personal vendetta and Danone asserting their legal rights.

---

wsj

Danone Claim Seeks to Win Wahaha Trademark in China

France's Groupe Danone SA said its Chinese joint venture with Hangzhou Wahaha Group Co. has filed a counterclaim against Hangzhou Wahaha to the Hangzhou Arbitration Commission in an effort to secure ownership of Wahaha trademarks.

AFX News Limited 2007/7/23

France calls for 'amicable settlement' of Danone-Wahaha dispute

The French ambassador in China, Herve Ladsous, has called for an 'amicable settlement' of the dispute between Danone and its Hangzhou-based partner, Wahaha.

Speaking at a press conference, Ladsous said that France takes the affair 'very seriously', and has been consulting public authorities with a view to resolving the battle between the two companies, which has been ongoing for several months, marked by a series of lawsuits.

Danone has accused Wahaha of creating 20 independent companies selling products identical to those sold by their joint ventures.

Ladsous, citing the examples of Airbus, Alstom and Peugeot/Citroen, remarked that he hoped the deadlock between Danone and Wahaha would not detract from more successful experiences of joint ventures between French companies and their international partners.

2007-09-01 China Daily

Trademark body sued in latest Wahaha-Danone twist

The legal wrangle between Danone and Wahaha has spread beyond the two companies to the nation's trademark authority.

Hangzhou Wahaha Foods Co, one of five joint ventures set up by the two firms, has sued the Beijing-based State Trademark Bureau over what it claims was "improper administrative behavior" in 1996 and 1997.

Hangzhou Wahaha Foods is 51 percent-owned by French food giant Danone Groupe SA, with the rest controlled by China's largest drinks producer Wahaha Group.

The Beijing No 1 Intermediate People's Court told China Daily on Friday that Wahaha Foods has demanded the trademark bureau rescind its rejection of applications to transfer the Wahaha brand from the Chinese company to the joint ventures because it did not issue a written notice or give a reason for its decisions at the time. The court has accepted the case.

A spokesman with the trademark bureau said on Friday that it has yet to be notified of the legal action by the court. Danone declined to comment on the matter.

Danone, the world's largest yogurt maker, signed an agreement with Wahaha in 1996 that required the transfer of the Wahaha brand from the Chinese company to the joint ventures.

Under the contract, the Chinese company was barred from making products that compete with those produced by the joint ventures, or from using the Wahaha brand without Danone's consent.

But the two parties are divided on the validity of the agreement after Wahaha Group opposed an acquisition proposal from Danone to take 51 percent of non-joint ventures set up by the Chinese side.

Zong Qinghou, founder of Wahaha Group, claims the transfer was not properly approved by the authorities, citing a reply from the State Trademark Bureau, which twice rejected applications for the transfer of the Wahaha brand in 1996 and 1997.

Wahaha claims Danone was aware of the situation and that the two sides had joined forces to get around the rules.

Danone initially said Wahaha had not applied properly for the transfer of the brand, for which Danone paid Wahaha Group 100 million yuan (US$13.25 million).

---

ShanghaiDaily 2007/8/31

Bureau sued for blocking Wahaha trademark sale

A BEIJING court has accepted an appeal from a joint venture partially owned by French beverage maker Groupe Danone SA, which claimed the State Trademark Office broke the law when it denied the company's request to transfer trademarks from Wahaha Group Co.

The lawsuit is the latest legal battle front in an almost months long fight between Danone and Wahaha over China's most famous beverage trademark.

Danone filed a claim with the Hangzhou arbitration bureau against Wahaha Group in July, accusing the biggest Chinese beverage maker of failing to transfer the Wahaha brand to Wahaha Food Co, a joint ventures set up by the two companies in 1996, in compliance with contract obligations.

Danone said in the suit that the joint venture paid 50 million yuan (US$6.6 million) in cash in 1996 to Wahaha Group for the transfer of the trademark.

Danone accused Wahaha Group of setting up more than 20 separate companies that produce competitive products and used the same Wahaha brand without the joint venture's permission.

But Wahaha claimed that the brand still belongs to the group on the basis of a reply from State Trademark Office, saying it "did not consent to the transfer."

In yesterday's appeal to the Beijing No. 1 Intermediate Court, Wahaha Food Co said that since the bureau had made no written explanations for the denial of the trademark transference from Wahaha Group Co, the decision should be "withdrawn" as it has breached the country's regulations of implementation of the trademark law.

The appeal said Wahaha Group applied to the bureau in April, 1996 and September, 1997 to ask for permissions to transfer more than 200 registered trademarks to Wahaha Food Co.

Both the applications were refused by the bureau, which cited the Regulations on Corporation Trademarks Management, a rule that went into effect in 1995 to prevent the loss of ownership of company trademarks.

In May, Danone also filed a lawsuit in Los Angeles seeking more than US$100 million for the alleged illegal sales in addition to arbitration in Stockholm for compensation of 800 million euros (US$1.1 billion).

Wahaha responded in July by filing a lawsuit against three foreign directors appointed by the French dairy giant to their 39 joint ventures for taking a parallel position in other competitive enterprises that breached China's Company Law. It demanded Danone pay one million yuan in compensation.

2007-9-1 Shanghai Daily

Wahaha venture sues trademark office

A BEIJING court has accepted an appeal from a joint venture partially owned by Groupe Danone SA, which claimed the State Trademark Office broke the law when it denied the firm's request to transfer the trademarks from Wahaha Group Co.

In yesterday's appeal to the Beijing No. 1 Intermediate Court, Wahaha Food Co, a venture formed by the French dairy maker and Hangzhou Wahaha Group, said that since the bureau had made no written explanations for denying the transfer of the trademark from the Chinese group, the decision should be withdrawn.

"It has breached the country's regulations governing implementation of the trademark law."

No dates have been set for the court to hear the appeal.

The appeal said Wahaha Group applied to the bureau in April 1996 and September 1997 to ask for permission to transfer more than 200 registered trademarks to Wahaha Food Co.

But the two applications were refused by the bureau, which cited the Regulations on Corporation Trademarks Management, a rule that went into effect in 1995 to prevent the loss of ownership of company trademarks.

The lawsuit is the latest legal battle front.

Danone filed a claim with the Hangzhou arbitration bureau against Wahaha Group in July, accusing the Chinese firm of failing to transfer the Wahaha brand to Wahaha Food Co.

But Wahaha claimed that the brand still belongs to the group based on the reply from the trademark office, saying it "did not consent to the transfer."

2007/10/16 AFP

Danone to sell 20 percent stake in China's Bright Dairy

French food giant Groupe Danone SA, which is embroiled in a long and bitter public feud with a Chinese partner, said Tuesday it was backing out of another venture in the fast-growing Asian market.

Danone will sell its entire 20.01-percent stake in Shanghai-based Bright Dairy and Food （光明乳業）for 955 million yuan (127 million dollars), the Chinese company said.

ダノンは中国では複数の企業と並行して提携。光明と競合する内蒙古蒙牛乳乳とも合弁会社を設立しており、光明からは不満が出ていた。（日本経済新聞）

Danone agreed to sell 104.24 million shares in Bright Dairy at 4.85 yuan per share to each of Bright Dairy's parent Shanghai Dairy Group and S.I. Products Holdings Ltd, Bright Dairy said in a statement to the Shanghai Stock Exchange.

The statement did not give out any reasons for the sale.

Besides its partnership with Bright Dairy, Danone also has a less-than-satisfying tie-up with China's top drinks company Wahaha Group.

The two companies have been going through bitter disputes over their joint ventures and ownership of the Wahaha trademark.

Danone said Tuesday in a statement on the Bright Dairy transaction that "the decision of equity transfer is reached on mutually agreed basis, in viewing of the needs of development strategies of both parties".

"Danone started collaboration with Bright Dairy in 2000 through investment. The two companies have cooperation in product development, technology and management, which has achieved favorable results in the past few years".

The two companies will also terminate an agreement under which Bright Dairy sold and promoted Danone-branded products and used the French company's technologies, the Chinese company said.

Danone will pay 330 million yuan to Bright Dairy as compensation for marketing and distribution expense for Danone, it added.

Bright Dairy said the end of cooperation will "not have any significant negative effect on its financial performance or sustaining operations", although it could impact short-term profit growth.

The deal is still subject to approval from a shareholder meeting on October 31, the China Securities Regulatory Commission and the Ministry of Commerce.

Danone also forged an alliance with Hong Kong-listed China Mengniu Dairy in December last year to form yogurt joint ventures.

Saturday, November 24, 2007 China Business Law Blog

Danone-Wahaha Dispute: No End in Sight

As the Danone-Wahaha dispute drags on, no end seems near for each party in their multi-country, multi-continent war. Lately, Danone has received some good news, whereas Wahaha is feeling the heat of loosing its original lawyers in the United States and some adverse judicial rulings against its off-shore assets.

By way of background, the following are the battle fronts:

1. Danone v. Wahaha in arbitration in Stockholm
2. Danone v. Wahaha, Zong Qinghou’s daughter and wife, Wahaha off-shore companies in a Los Angeles Superior court
3. Wahaha v. Danone in arbitration in Hangzhou, China
4. Danone v. Wahaha off-shore companies in a British Virgin Islands court
5. Danone v. Wahaha off-shore companies in an American Samoa court
6. Wahaha v. Danone in derivative action in Shenyang Intermediate People’s Court in China

Wahaha was shocked to learn that its litigation lawyers withdrew from the representation in the case pending in Los Angeles. Some speculate that Latham & Watkins withdrew because its client provided false testimony. In any international litigation, changing lawyers midstream always adds a strain to the case, in terms of finances, preparedness, and possibly momentum. Wahaha quickly found new lawyers for its case, and let’s hope that the new lawyers will get up to speed on the case for Wahaha. Because of the change, it will probably take more time for the parties to conduct discovery, thus pushing the trial to a later date if they do not settle.

Bad news also arrived for Wahaha from the courts in the British Virgin Islands and the American Samoa. Reportedly, both courts ruled in favor of Danone, freezing assets of Wahaha’s off-shore companies in both jurisdictions, respectively. The courts also appointed receivers for said companies. Given the two rulings, Wahaha should be evaluating its overall strategies because it has been defending itself in multiple jurisdictions, with less than satisfactory results. It is unknown whether Wahaha will challenge these rulings.

November 21, 2007 　AHN

The already soured relationship between French food giant Danone and the Wahaha Group has turned bitter on Wednesday after a court froze the assets of two more foreign companies associated with the Chinese drinks maker.

The Samoan Supreme Court put two Wahaha subsidiaries, Mega Source Investments and Honour Bright Investments, under receivership 管財人の管理下 on Wednesday on Danone's request.

The British Virgin Islands High Court had already placed Golden Dynasty Enterprise, Gold Factory Developments, Platinum Net, Sunworld Enterprises, Great Base International, Bountiful Gold Trading, Ever Maple Trading Ltd and Wintell Enterprises under the control of a court-appointed receiver on Nov. 9.

These offshore companies are believed to be connected to Hangzhou-based Wahaha and may be used to dissipate the assets of the China's largest beverage company.

"They (Wahaha) are actually majority shareholders of these so-called non-joint venture companies who are producing Wahaha branded products without permission," said Michael Chu, a spokesman for Danone in Shanghai.

The receivers, including accounting firm KPMG, are required to locate and secure the assets of the identified companies.

Danone and Wahaha forged a partnership in 1996. Danone owns 51 percent of the 39 joint venture companies with Wahaha.

The French food firm sued its Chinese partner in June for allegedly selling Wahaha beverages without its permission. Danone claimed losses and foregone revenues of more than $100 million.

Aside from Samoa and the British Virgin Islands, Danone also filed similar lawsuits in Sweden and the U.S.

Wahaha filed a countersuit claiming Danone illegally operates in China.

In addition, final arbitral decisions are also pending in Stockholm and Hangzhou.

Overall, Wahaha has a pretty tough road ahead, while Danone is having the upper hand on the legal matters. Of course, Danone’s business prospect in China is a totally different matter, since winning in courts does not naturally and necessarily translate into winning consumers’ hearts in China. Wahaha is apparently preparing for the worse by using a brand new trademark-Qili

With no end in sight for this international dispute, both parties are probably feeling the battle fatigue, and the bite of their legal fees. Will they try to work things out with some kind of compromise on their own? Will they attempt to reach some kind of agreement with the French president as an intermediary (if he chose to intervene during his trip to China)? Or will they continue the knock-down, drag-out fight? As far as Danone is concerned, the last option seems most likely if Wahaha does not give up a few inches, because Danone currently stands in a very strong position.

2007/12/11 Forbes

Danone Denied In Wahaha Ruling

Shares in French dairy firm Danone turned sour on Tuesday, after the company vowed to appeal a Chinese legal ruling that robbed it of the ownership of the Wahaha beverage trademark after nearly ten years of effective control.

Shares in Danone fell 1.75 euros ($2.57), or 2.9%, to 59 euros ($86.63), during midday trading in Paris. The Wahaha brand of bottled water is the market leader in China, and Danone's beverages sales in Asia accounted for 2.0 billion euros ($2.9 billion) last year.

"We will demand that the commission's decision be cancelled by the relevant court," said Tao Wuping, Danone's chief legal counsel, in Shanghai. He voiced his suspicions of "local protectionism" in the ruling, which turned the clock back ten years by awarding ownership of the Wahaha brand to billionaire Zong Qinghou.

Monday(12/10)'s arbitration decision in Hanghzou marked the latest move in a long line of litigation disputes between Danone and Zong Qinghou, the founder and owner of Wahaha Group. The erstwhile partners are now bitter enemies after Danone built up a majority stake in their joint venture in 1998, setting off a chain of events that resulted in lawsuits against Zong and his family this year.

Danone lost Monday's case on a technicality, for failing to meet a deadline when filing for the arbitration. The company said that it rejected this decision because of Wahaha's own failure to comply with the terms of the joint venture created in 1996. According to Danone, Wahaha never complied with its agreement to transfer its brand to the joint venture in exchange for a total of 100 million renmibi. Political obstacles from China's trademark office meant the two companies chose to settle for a license agreement in 1999, which Danone still sees as valid.

Yesterday's ruling by the Hangzhou Arbitration Commission found that the agreement to transfer the Wahaha brand to its joint ventures with Danone, a focus of their high-profile row, has terminated.

The commission also said Danone's demand for Wahaha Group to abide by the brand transfer agreement had exceeded the lawsuit's time limit.

"This changes nothing," said a Danone spokesperson on Tuesday. "The impact is nil." She told Forbes.com that even though Wahaha was now considered to be the owner of the brand, the 1999 trademark transfer agreement still allowed Danone to use it, as majority shareholder of the former joint venture with Wahaha.

According to Dresdner Kleinwort analyst Warren Ackerman, the Wahaha brand represents 3% of Danone's earnings-per-share. He told Forbes.com that worries that Danone had lost the rights to the brand appeared to be "wide of the mark."

The dispute has escalated to international levels, with Danone successfully demanding a freeze on companies' assets linked to Wahaha in Samoa and the British Virgin Islands. And French President Nicolas Sarkozy's visit to China at the end of November included the Wahaha dispute on the list of topics to discuss with Chinese President Hu Jintao.

日本経済新聞　2007/12/20

仏ダノン　中国蒙牛と合弁解消

　仏ダノンと乳業大手、中国蒙牛乳業は中国での乳製品分野での合弁事業を解消すると発表した。１０月に別の中国乳業大手、光明乳業との資本・技術提携の解消を発表したのに続く中国企業との連携解消。
　ダノンは飲料水などの合弁相手である杭州娃蛤蛤集団とのブランド使用などを巡って係争中。娃蛤蛤はダノンが蒙牛など他の食品関連企業と提携したことを「合弁事業の利益を損なう」と批判してきた。

Paris, December 21st 2007

Joint Statement between Hangzhou Wahaha Group and Groupe Danone

Complying with the expectation of both Chinese and French governments, both Wahaha Group and Groupe Danone agree to finish antagonism and return back to peace talks. Both parties agree to temporarily suspend all lawsuits and arbitrations, stop all aggressive and hostile statements and create a friendly environment for peace talks.
Both parties agree to carry out the talks on the basis of adhering to the principles of equality and mutual benefits, to seek common grounds by tolerating minor differences, to reach mutual understandings and to strive for the success of peace talks. Both parties will work together to further develop all entities operating under the Wahaha brands and contribute to develop the Sino-French friendship and promote the co operation between the companies of the two countries.

China Post December 14, 2007

France's Danone says it wants "appropriate process" to end dispute with Chinese partner

French food and drink maker Danone said Friday it is willing to suspend legal action against its Chinese joint venture partner if the partner shows "concrete actions" to reunify their group.

The offer from Emmanuel Faber, president of Danone Asia Pacific Group, comes after Wahaha Group won an arbitration ruling allowing it to use the popular Wahaha brand name outside of the 39 joint ventures operated by the two.

There needs to be "an appropriate process of negotiations with what we believe is an appropriate platform for an agreement," Faber told a news conference. "It would be held with appropriate guidance from authorities," he said.

He said Wahaha was aware of the offer. He did not give details or a timeframe.

December 22, 2007 NYT

Truce Reached in Fight Over Chinese Beverage Company

After months of legal skirmishes and name-calling over who controls Wahaha, one of China’s biggest beverage makers, Groupe Danone of France and the Wahaha Group of China have agreed to return to “peace talks.”

In a joint announcement late Friday, Danone and the Wahaha Group pledged to “suspend all lawsuits and arbitrations, stop all aggressive and hostile statements and create a friendly environment for peace talks.”

The announcement was the first truce in months in a bitter and lengthy fight over a joint venture that created one of China’s best-known brand names, Wahaha, and then unraveled over allegations of double-dealing, mismanagement, and millions of dollars in profits being siphoned off by a network of secret companies.

The fight has lasted for much of the year, but in recent weeks Danone has signaled its willingness to end hostilities and try to bring Wahaha back to the negotiating table after losing several court rulings in China and facing pressure from the joint venture’s union.

The collapse of the joint venture has been an embarrassment for Danone. In Communist-style rallies this year, workers denounced the French company, some carrying placards and banners that poked fun at Danone and the foreigners who were supposedly almost entirely absent from the company’s operations.

The problems began earlier this year when Danone filed suit in the United States accusing Wahaha’s chairman and founder of operating a group of parallel companies that sold Wahaha-branded products outside the joint venture, and secretly pocketing huge profits.

Wahaha executives denied the accusations, saying the companies were legal and had been approved by Danone. They said that Danone officials were simply angered because the outside ventures had proven so profitable.

Meanwhile, Wahaha officials charged that Danone had violated the terms of the joint venture by investing in some of the company’s biggest Chinese competitors in the food industry.

At times it seemed unlikely the two sides would ever find common ground. The Chinese company has been operating essentially without any input from Danone for months because Danone does not have a single executive at the joint venture, despite owning a majority stake.

This week, however, in a sign of easing tensions, Danone said it would end a planned joint venture with a Wahaha competitor, Mengniu Dairy. Danone had already ended a similar joint venture with Bright Dairy & Food, another Chinese beverage maker.

In the statement released Friday, Danone and Wahaha said they would “work together to further develop all entities operating under the Wahaha brands and contribute to develop the Sino-French friendship and promote the cooperation between the two companies of the two countries.”

AFP

Danone and Chinese partner Wahaha drop legal battle, return to talks

The French food group Danone and its Chinese partner Wahaha said Friday they had agreed to suspend their legal battle and resume negotiations to settle their differences.

The groups said in a statement that in compliance with the wishes of the French and Chinese governments they "agree to finish (with) antagonism and return to talks."

"Both parties agree to temporarily suspend all lawsuits and arbitration, stop all aggressive and hostile statements and create a friendly atmosphere for talks."

Danone is the world leader in dairy products and the second leading provider of bottled water.

Earlier this month shareholders in two joint ventures between Wahaha and Danone filed suit against Danone seeking 10 million yuan (1.3 million dollars) for violating their rights, a lawyer for the plaintiffs said.

The lawsuit filed in eastern China's Weifang city was the latest action in an extensive and bitter ownership feud over the Wahaha brand name between companies that were once partners in a model of Sino-foreign cooperation.

"Danone has been buying the shares of other companies that compete with Wahaha, this is in violation of its shareholder agreements with Wahaha," lawyer Qian Weiqing.

Qian said that Danone had bought between 20 percent and 90 percent of seven Chinese food and beverage companies that are directly in competition with Wahaha.

Danone, which holds 51 percent of 39 joint venture companies with Wahaha, filed a lawsuit on June 4 for breach of agreement, accusing the Chinese beverage giant of selling Wahaha-branded beverages without its permission.

It has brought the case to an arbitration commission in Sweden and filed a lawsuit in the United States alleging Wahaha had set up 20 independent competing companies that sold the same products as the Danone-Wahaha venture.

April 23,2008 chinastakes.com

Wahaha vs. Danone: A Failed Economic Nationalist and a Lame French Predator

The investigation into Wahaha Chairman’s, Zong Qinghou, 300 million Yuan tax evasion has affected the ongoing talks to resolve the equity dispute between Wahaha and Danone. The negotiations have now come to a stalemate and both parties are now more willing than ever to simply end their relationship.

It was reported to China’s tax authority last August that Zong Qinghou had kept secret a large part of his domestic and overseas income; it was also revealed that he hadn’t declared his personal tax truthfully. The State Administration of Taxation soon pressed the Hangzhou local Taxation Bureau to conduct an investigation and the case was put on record in November 2007.

The investigation discovered that Zong Qinghou evaded tax on the income he derived from payments made during Wahaha’s cooperation with Danone. According to the files provided by Danone, from the time the two companies started the joint venture in 1996, up until 2006, Danone paid a total of $71 million to Zong Qinghou as service fees, incentive shares in overseas subsidiary and stock repurchase.

Following Zong’s demands, these funds were deposited into his own, as well as his wife’s, his daughter’s and Ms. Du Jianying’s, the former party secretary of the Wahaha Group, Hong Kong bank accounts. More than $50 million was deposited in Zong’s bank account while the other $20 million was deposited into the other’s accounts. Zong Qinghou did not pay any tax in mainland China, Hong Kong, or Singapore, where Danone’s implicated branch is located.

China’s tax department has not initiated any lawsuits against this popular Chinese entrepreneur. There are discussions inside the tax department about the amount owed by the Chairman. Zong paid more than 200 million Yuan to the department after the investigation was launched. This brought the amount owed by Zong down to a few million Yuan instead of the nearly 300 Million Yuan he initially owed.

In order go gain sympathy from the public in the dispute with Danone, a French giant, Zong Qinghou once sought to emphasize Wahaha’s identity as a local Chinese enterprise, but the revelation that he was involved in tax evasion has since got him into trouble. China is now emphasizing the need for corporate responsibility and one of the basic requirements for responsible business is regular tax payment. Zong Qinghou has quite obviously failed to meet this criterion.

Some media have raised the prospect that Danone might have been the source of the information that led to the discovery of Zong’s tax evasion. Negotiations between the two parties have been restored after governments from both countries intervened in the dispute, but the negotiations have not been very satisfying.

On December 20th 2007, Wahaha and Danone officially declared a cease fire, and agreed on a two-month negotiation period, February 20th being the last day. However, since no agreement had been reached by this date, both parties agreed on a one month extension. Once again, no agreement had been reached by March 20th and both parties agreed to extend the negotiation period by another three weeks thus making April 10th the deadline.

By April 10th, Wahaha and Danone had not reached any compromise, nor had they signed any agreements extending the cease-fire.

Speaking to Caijing magazine, a Danone spokesman said that Danone was willing to solve this problem by selling its shares in the Danone-Wahaha joint venture, but the key issue lies in the price.

The two parties considered three possible solutions: combining the joint venture with Wahaha’s other subsidiaries and getting listed; Danone quits from the joint venture by selling its shares to Wahaha; Zong Qinghou quits the joint venture by selling his shares to Danone.

However, none of these solutions was deemed acceptable to both parties, and the negotiations ended with no agreement. Compared with Wahaha, Danone is in more of a hurry to resolve this problem and get on with its development in China. The French company has made a lot of money in China, but it has also encountered a host of difficulties.

After its frustrating experience in the Danone-Wahaha joint ventures, Danone, which entered the Chinese market more than 10 years ago, sought to cooperate with Meng Niu, a dairy product maker based in Inner Mongolia, to produce and market yoghurt. The plan was not approved by the Chinese government and Danone is now attempting to purchase Miaoshi, a small dairy product maker in Beijing, with hopes of resuming independent production.

Danone’s complete break with Wahaha seems unavoidable. Caijing reported that Zong Qinghou paid a commission to a famous investment bank for the evaluation of his companies. It is still not clear whether this is in preparation for a future sell or listing plans.

2008/8 AFP

China's Wahaha wins court victory in trademark dispute

A Chinese court has ruled that China's largest soft drink maker is the owner of the Wahaha trademark, ruling against France's Danone, the Chinese company's former partner, the companies said Tuesday.

The Wahaha Group was the rightful owner of the brand name, the Hangzhou Intermediate People's Court said in a ruling dated July 30, that endorsed an arbitration decision from December, Wahaha said in a statement.

"The dispute over the ownership of the Wahaha brand, which lasted more than one year, was finally settled and it was affirmed that Wahaha brand belongs to Wahaha," the Chinese drink maker said in a statement.

However, Danone plans to pursue the case at a higher court, Danone spokesman Michael Chu said in a statement.

"Danone will continue to pursue all legal options to protect its contractual rights and financial interests," the company said.

The firms have been locked in a protracted and bitter feud over the ownership of the Wahaha brand name. The dispute involved a series of joint venture firms once lauded as a model of Sino-foreign cooperation.

Danone, which holds 51 percent of 39 joint venture companies with Wahaha, said it discovered Wahaha chairman Zong Qinghou had set up an entire production and distribution network, which operates in parallel to the joint ventures.

It filed a lawsuit on June 4 last year for breach of agreement, accusing the Chinese beverage giant of selling Wahaha-branded drinks without its permission.

The action sparked a series of retaliatory lawsuits in China and abroad, including in the United States and Sweden.

Wahaha spokesman Shan Qining told AFP on Tuesday talks with Danone faltered because the two companies differed widely over the value of the joint ventures.

"We would never give up solving the issue through talks, but it has to be based on mutual respect. We definitely cannot accept Danone's valuation," Shan said, without providing further detail.

---

chinadaily.com.cn

In its latest statement, Danone said: "The Hangzhou court only carried out a procedural review for this case (specifically, the Hangzhou court failed to conduct a substantive review of the accuracy and legality of the determination of facts and application of law) and rendered its ruling based on a procedural review only."

Although the Hangzhou court ruling is final, Danone said it would report the matter to the appropriate superior judicial authorities in China. It also said the arbitration proceedings in Stockholm would begin hearing in January.

2008/10/14 Forbes 　　　　　　　　　

Amid Milk Scandal, Wahaha Looks To Slurp Up Sanlu

Would a rose by any other name smell as sweet? Or, in this case, will milk by any other name stay sour? Chinese soft drink giant Hangzhou Wahaha Group wants to buy Shijiazhuang Sanlu Group石家荘三鹿集団, whose brand was destroyed when the company became engulfed in the tainted milk crisis that has gripped China's dairy industry and reverberated across the world. Some analysts have their doubts that trust could ever be restored in the Sanlu brand, though.

Wahaha joins other companies like Sanyuan Food 北京三元食品 and Wondersun Dairy �K龍江完達山乳業 that are eager to pick up Sanlu on the cheap, according to state news agency Xinhua on Monday. Wahaha head Zong Qinghou told state media that the company wanted to build its own domestic supply chain for milk powder because imported milk powder used in Wahaha milk drinks was getting pricey. He said that China's appetite for milk was booming and that his firm could restore Sanlu's operations.

Analysts appeared to differ on whether Wahaha will be able to redeem Sanlu, though. "I do not think even the Wahaha name can salvage Sanlu's operations without damaging Wahaha's reputation," said Shaun Rein, founder and managing director of China Market Research Group. Trust figures highly into Chinese consumer choices, particularly for products as sensitive as baby formula, he said.

The tainted milk scandal, which also implicated the country's biggest dairy companies, such as China Mengniu Dairy, Yili Industrial Group and Bright Dairy & Food, ignited a public health and media relations uproar. Milk formula produced by Sanlu contained the highest levels of the industrial chemical, melamine, in question.

"Sanlu has dropped so low in the minds of consumers" that even Wahaha, which has significant brand cachet, will find it difficult to restore credibility to Sanlu, Rein said. "Unless there are political reasons, especially in light of the Danone fight, it just does not make sense for Wahaha to consider taking over Sanlu, as they have more to lose than gain from the consumer side."

Wahaha has been involved in a drawn-out legal fight in five countries with French dairy giant Danone Group over a joint venture that went sour. Local officials might well be eager to unload Sanlu, in an effort to preserve jobs and supply networks, since the company looks unlikely to recover given the intensity of public anger.

Others appeared more upbeat about a deal, though. Chinese consumers will eventually get over the Sanlu link, said Zhu Weihua, an analyst for China Merchants Securities. They will have to return to buying domestically produced milk powder, as many cannot afford to buy imported products. He added that local authorities will likely be amenable to a Sanlu sale, and tighter government controls on food safety may help restore consumer confidence.

Government officials and dairy companies have sought to deflect blame lower down the supply chain, resulting in arrests of dairy middlemen and farmers. Many concerned parents are not buying this campaign, though. Parents of children sickened by contaminated milk have filed lawsuits, and some lawyers are pushing for a class-action lawsuit against the country's dairy producers.

The scandal has spiraled globally as multinational companies such as Nestle issue recalls on products from candy bars to yogurt and take a closer look at their global supply chains to see if any milk ingredients can be traced to China.

January 8th 2009 drinks-business-review.com

Wahaha says court rejects Danone's claim, revokes certain orders given to KPMG

Wahaha Group has received a new adjudication order from the High Court of the British Virgin Islands, in which Danone's claim was rejected, and the interim freezing and receiving orders that would allow KPMG to take over the assets of Wahaha's non-joint ventures as a third party were revoked.

In November 2007, the British Virgin Islands judge commissioned KPMG, as the receiver, to freeze and take over the assets of Wahaha's non-joint ventures entirely based on the words of Qin Peng, chairman of Danone Asia Pacific Management, when the defendant was absent from the court.

KPMG then started to execute the jurisdiction in China without the permission of the necessary Chinese authorities. For this reason, three subsidiaries of Wahaha in Suqian, Jiangsu province 江蘇省宿遷市　took the accounting firm to court. In late November 2008, the Suqian Intermediate People's Court ruled in favor of Wahaha as the court of first instance, requesting KPMG to make a formal apology and pay RMB300,000 in damages. KPMG is still yet to apologize and provide the required financial compensation to Wahaha.

In December 2008, the British Virgin Islands High Court opened a court session to hear the case. The court overruled Danone's claim and withdrew the freezing and receiving orders which would allow KPMG to take over the non-joint ventures of Wahaha.

The adjudication order not only made the freezing and receiving orders invalid, but also requested Danone to pay related fees that Wahaha incurred during the case. In addition, Wahaha will enjoy the right to decide whether or not to cease if Danone fails to submit a stay pending appeal to the appellate court within 14 days.

Jun. 25, 2009 PR Newswire

KPMG's Appeal Rejected by Jiangsu Higher People's Court, Marking Danone's Seventh Loss to Wahaha in Three Months

The Higher People's Court of Jiangsu Province recently rejected the appeal lodged by KPMG and its branch firm in Guangzhou and ruled that the original verdict shall be upheld, which marks the end of the hot "KPMG Case" -- Danone vs Wahaha, as well as Danone's 7th loss to Wahaha in three months, considering the same verdicts made for the previous "Henan Case", "Liaoning Case" and "Trade Mark Case".

About the KPMG Case

The case dates back to Nov., 2007, when Danone filed a lawsuit in the British Virgin Islands (hereinafter referred to as "BVI") and Samoa, against Wahaha's foreign shareholders of non-Wahaha joint ventures that have nothing to do with the "Danone - Wahaha" dispute, claiming these shareholders had conducted a "co-conspiracy" with Wahaha to conduct fraud against Danone. In this case, Danone, on one hand, said they had filed an arbitration against Wahaha in Sweden and hoped the courts in BVI and Samoa could "suspend proceedings" and wait for the final award, while on the other hand, it greatly exaggerated the case to the courts, claiming that the situation they were facing was "very dangerous" and requiring the court to immediately freeze and take over the assets of the defendants. The courts in both BVI and Samoa issued, without the defendants making any defense in court, an order to temporarily freeze the assets of the defendants and allow KPMG designated by Danone to take them over.

Since then, KPMG, designated by Danone, without permit of any court of China and beyond its authority, began to carry out take-over work in China by issuing take-over notices to many non-Wahaha joint ventures and their auditors, Administration for Industry and Commerce, as well as banks, which finally was filed as a case by Suqian Wahaha Beverage Co., Ltd and other companies to the court. On Nov. 20, 2008, the Intermediate People's Court of Suqian City made the first verdict, ruling the notice-making practice of KPMG was a violation of China's judicial sovereignty and constituted infringement against Wahaha, and that KPMG should immediately stop such practices, apologize and offer a compensation of RMB300,000 yuan.

KPMG refused to accept such a verdict, and appealed to the Higher People's Court of Jiangsu Province. On Feb. 25, 2009, the Higher People's Court of Jiangsu Province tried the case again and made its final decision in the verdict numbered 0043 Sumin Er Zhong Zi (2009), ruling that the notice-delivering practice of KPMG violated the principle of China's judicial sovereignty(1) and brought obvious loss to Wahaha; all the laws applied are applicable; no unfair practice of procedures occurred.

Accordingly, the Higher People's Court of Jiangsu Province made its final verdict, ruling the appeal shall be dismissed and the original verdict upheld.

On the other side of the globe, the High Court of BVI also made a verdict on December 30, 2008. After reviewing all the evidence and presentations of both the plaintiff and the defendants, the judge ruled that the take-over order should be withdrawn because the case "is not actionable", that is, Danone has no reason to sue these defendants. Besides, the judge also severely criticized Danone for its misleading and concealing acts in this case, which led to the wrong verdict previously made by the court. In the final ruling, the judge also pointed out, "It can be clearly seen that the plaintiff wants to, through the asset receiver, collect relevant information about the defendants so as to lodge a case, which is unacceptable and can never be used as the grounds for the appointment of a receiver. Therefore, the defendants' worry that the plaintiff may make abusive use of the take-over order is understandable."

Attorney points out that "the case has much to do with Danone"

However, Danone and KPMG have denied their relationship with the case. After the first trial verdict of Suqian Intermediate Court, Ding Ying, Danone's spokesman claimed that, "KPMG is appointed by British Virgin Islands and Samoan court as the receiver and is only responsible for the court, which has no relationship with Danone." Currently in the second trial of Jiangsu Higher Court, KPMG said in an appeal: "The acts of Jannie Wong are a personal act, not the acts of her duties." The foreign court, ultimately, appointed Jannie Wong as individual receiver rather than the appellant (KPMG) as the receiver. So KPMG should not be taken as the defendant in this case.

Qin Peng, Chairman of Danone Asia-Pacific Management Co., Ltd. said in a statement to the BVI court: "The proposed (i.e. foreign stakeholder of Wahaha non-joint venture) Asset Manager is Mr. Casey McDonald from KPMG BVI, who is a certified public accountant in BVI. His co-operative manager is Jannie Wong who works in KPMG China. Her Address is Guangzhou, China. If the court agrees with the plaintiff's application, McDonald consents to be the asset manager." The attorney of Wahaha believes this means that Danone and KPMG had reached a tacit agreement before it went to the BVI court and, KPMG agreed to come forward to act as a receiver, while Danone commanded backstage.

Attorney Ye Zhijian from Zhejiang Tiance Law Firm who is familiar with the case said: "Under the guise of a receiver appointed by foreign courts, KPMG attempted to bypass the jurisdiction of China's judicial sovereignty, requiring the Wahaha non-joint venture and other relevant agencies to disclose business information and implement a series of acts related to maintainable freezing of property. Its purpose is to provide asset information to Danone and preserve the assets, in response to the litigation instituted by Danone outside China. Therefore, this case has much to do with Danone." In fact, viewing from Danone's own testimony, it was in close collaboration with KPMG before the prosecution. It hoped that KPMG would assist it in taking over and investigating Wahaha's assets, which is conducive to its lawsuit with Wahaha. KPMG's remuneration for engagement in takeover activity was paid for by Danone.

Wahaha's litigation against KPMG in Suqian is just a beginning. Earlier on KPMG was engaged in a large-scale takeover (found illegal by Intermediate People's Court of Suqian City) in almost all Wahaha non-joint ventures. As a result, these Wahaha non-joint ventures may file similar lawsuits against KPMG in succession. "The coming days for KPMG will not be very easy," commented attorney Ye.

Danone defeated seven times by Wahaha in three months

Two months ago, Henan Higher People's Court made a verdict in the second trial, rejecting the appeal of Danone's two subsidiaries - Myen Pte Ltd. and Festine Pte. Ltd. on non-competition. Then Liaoning Higher People's Court rejected an appeal by another Danone subsidiary - Novalc Pte Ltd. - on non-competition. Not long ago, Wahaha won the trademark case and now many Wahaha companies have won their second trials in KPMG case. As a result, in three months, Danone lost seven times in Wahaha related cases. The final score for the match between Danone and Wahaha is 0:38 now.

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC Institute) has not made a ruling for the dispute. Attorney Ye said: "as the ever biggest and most influential case since China's opening and reform, the impact of Danone-Wahaha case has gone beyond the dispute itself. The result of the case will directly influence confidence of Chinese enterprises in the foreign arbitration institute."


(1)According to Article 265 of the Civil Procedural Law of the People's Republic of China: If a legally effective judgment or written order made by a foreign court requires recognition and enforcement by a people's court of the People's Republic of China, the party concerned may directly apply for recognition and enforcement to the intermediate people's court of the People's Republic of China which has jurisdiction. The foreign court may also, in accordance with the provisions of the international treaties concluded or acceded to by that foreign country and the People's Republic of China or with the principle of reciprocity, request recognition and enforcement by a people's court.