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

HANGZHOU, China -

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. For more information, please contact: Baoxiu Ye Tel: +86-10-8457-7630 Email: bx.ye2009@gmail.com

Source: Wahaha Group

Baoxiu Ye at +86-10-8457-7630 or bx.ye2009 at gmail.com