Danone, Wahaha both claim win in ruling on dispute

The two companies, whose legal battle over control of China's best-known soft drink brand Wahaha has heated up again after attempts at reconciliation failed, also both said the latest ruling boosted their confidence of final victory.

Danone, which has accused its erstwhile Chinese partner of setting up parallel businesses outside their joint ventures that illegally sell competing Wahaha-branded products, said in a statement late on Wednesday that a decision on interim measures sought by Danone against Wahaha contained key elements favourable to the French company.

‘The tribunal recognised that there is substantial evidence to support Danone's position on the facts,’ it said.

Danone said, for example, that the panel sided with its claim that it discovered substantial parallel businesses only after substantial investigation, whereas Wahaha said Danone had always been aware of them.

Wahaha on Tuesday had claimed a partial victory after the tribunal rejected Danone's request for interim measures to restrict Wahaha's expansion moves.

But Danone played down the rejection, saying the tribunal was simply trying to avoid making early judgments in the case.

Wahaha lawyer Yang Yongjun said in an interview on Thursday that the tribunal's decision had boosted the company's confidence it would ultimately win the case.

‘The situation is becoming more and more favourable to us, and our optimism is growing by the day,’ he said.

ACRIMONIOUS

In one of the most high-profile and acrimonious conflicts between a foreign company and its Chinese partner, Danone and Wahaha have been trading accusations and lawsuits since April 2007, with legal battles waged in China, the United States, Sweden and the British Virgin Islands

Chinese courts have so far mostly ruled in Wahaha's favour.

A Chinese arbitration commission in Hangzhou, where Wahaha is based, last December ruled in the Chinese company's favour in a dispute over ownership of the Wahaha trademark. Danone has appealed against that decision.

Danone lawyer Peter Yuen said he was not too worried about the legal setbacks in China, as the Paris-based company had a global litigation strategy.

‘There are many battles you can fight. You can loose the battles, but the ultimate objective is to win the war,’ said Yuen, Hong Kong-based partner of British law firm Freshfields Bruckhaus Deringer, which represents Danone.

‘Domestic rulings would have little, if any impact on the decisions to be made in overseas arbitrations.’

Lawyers on both sides agree the Stockholm arbitration, which will hold its final hearing next January and is likely to make a final judgment shortly thereafter, will be the crucial legal battle to seal the joint ventures' fate.

Danone said the Stockholm tribunal had also recognised that Wahaha had sold identical products through non-venture companies and diverted substantial dividends from the ventures in the form of interest-free loans without board approval.

Wahaha lawyer Yang countered that Danone held no ownership rights to the Wahaha trademark and that the diversion of dividend payments was justified.

If the tribunal rules in Danone's favour, the French company, which owns a 51 percent stake in the ventures, will be able to retrieve the Wahaha brand and exercise real power in the joint businesses, which are now essentially controlled by Wahaha Chairman Zong Qinghou, Yuen said.

The lawyers from Wahaha and Danone both said they did not rule out the possibility of eventually resolving the disputes through reconciliation, but this was not likely in the near term after four months of talks collapsed in April.

Wahaha lawyer Yang said Danone had proposed selling its stake in the ventures, which were set up in 1996 and generate annual sales of about 1 billion yuan ($147 million), to Wahaha for 17 billion to 20 billion yuan, but Wahaha only agreed to pay up to 3.2 billion yuan.

Danone's lawyer Yuen said: ‘Reconciliation is always possible, but it takes two to tango.’