[6] Danone took further legal action by filing a suit in Los Angeles Superior Court against Ever Maple Trading and Hangzhou Hongsheng Beverage Co Ltd on 4 June 2007,[7] companies controlled by Zong's wife and daughter.
[11] Major parts of the drinks business were injected into the joint venture, and Zong became its chairman whilst remaining the managing director of the holding and operating companies.
[1] The holding was held through a Singapore registered entity called Jinjia Investments Co (金加投资公司), the board of which consisted of two Danone representatives, and Francis Leung Pak-to (梁伯韬) from Peregrine.
It is now 65% owned by Zong, 10% by his wife, and 25% by Platinum Net Ltd.[12] The Hangzhou Wahaha Food and Beverage Sales Co. (杭州娃哈哈食品饮料营销有限公司) "WHHFBSC", registered on 19 December 2006, is an external company allegedly now the centre of a parallel distribution network.
[15] Zong set up non-jv owned factories, such as the Hangzhou Xiushan Shunfa Packaging Co. (杭州萧山顺发食品包装公司),[15] to manufacture or pack products identical to WHH.
Danone further alleges that dealers were asked to set up new bank accounts for their deposit payments in the name of WHHFBSC to sell products from these factories.
[15] Danone agreed to terms of joint venture which did not give it much involvement, allowing the day-to-day running of the company rested in the hands of Zong,[19] while he continued in his autocratic ways.
"[2] Up until just before the conflict became public, Zong was allowed to pursue his own commercial strategy through external ventures where Danone had no wish to be.
The article was written by a Xinhua journalist to whom Zong had given an "internal reference" document in the hopes of influencing political leaders on the fate of Wahaha.
[21] By 2005, Danone realized Zong controlled as many as 20 external businesses making drinks, and claims these represented approximately 25% of Wahaha products.
[6] On 4 June,[7] Danone filed suit in Los Angeles Superior Court against Ever Maple Trading and Hangzhou Hongsheng Beverage Co Ltd, as well as Zong's wife and daughter who run the two companies.
[6] In August 2007, Hangzhou Wahaha Foods Co, the leading joint venture company, sued the State Trademark Bureau over what it claims was "improper administrative behavior" in 1996 and 1997.
It was reported on 22 November that the assets of two Samoan registered entities were frozen and put into receivership under the order of the Supreme Court of Samoa;[31] Danone won arbitration in Stockholm.
[27] On 10 November, the Hangzhou Arbitration Committee ruled on the technicality that Danone had failed to appeal against its decision not to approve the transfer within the allotted time.
[33] On 21 December, under political pressure from the respective governments, Danone and the Chinese partner agreed to suspend their legal battle and resume negotiations.
[9] Whilst the surrender of 51% to two foreign partners may have appeared not to interfere with control of the company, Zong resented the takeover of Wahaha by stealth.
The restrictions contained in contracts and regulations considerably cramped the entrepreneurial style of Zong, who complained of limits the control structure placed on him.
Amongst others, Zong controls Hangzhou Xiushan Shunfa Packaging Co. which makes WHH branded products, and WHHFBSC, which is a parallel distribution company.
Interpreting a clause in the JV agreement that the foreign partner must endeavour not to act in detriment to the interests of the JV,[4] Zong is upset that Danone acquired sizeable stakes in many of its competitors, namely China Huiyuan Juice Group, Shenzhen Health Food, Bright Dairy & Food.,[3] and a 49% joint venture with Mengniu.
WHH principally objects to Danone's role as owner since 2001 of its largest competitor, Guangdong Robust Group (乐百氏(广东)饮用水有限公司), which is a 92% owned subsidiary, and Shanghai Aquarius Drinking Water Co., Ltd. (上海正广和饮用水有限责任公司), in which it holds 50%.
[4] In failing to obtain a follow-through, and in the light of a media assault by Zong, Danone had run out of options for an amicable solution to the dispute.
[20] The dispute took on a personal dimension when Danone filed in Los Angeles against his wife and 25-year-old daughter, who represented interests which owned the external ventures.