Recently, we have learned from a report in Caijing Magazine, that the Higher People’s Court of Zhejiang Province has taken over the case concerning confirmation of legitimacy of an arbitration clause contained in Mr. Zong’s Service Contract. This action was instituted by Mr. Zong Qinghou, Hangzhou Wahaha Group Co. Ltd. (the“Wahaha Group”) and the others against Danone Asia Pte. Ltd., and which was previously heard (without providing an opportunity to Danone Asia to be heard on the merits or substance of the action) by the Intermediate People’s Court of Hangzhou. According to this report, a special procedure will be adopted for this case, under which, the presiding judge may render a judgement, after internal review, without an open hearing, and such first-instance judgment will be the final one. We are highly concerned about this.
On 9 May 2007, Danone Asia and its wholly owned subsidiaries filed eight requests for international arbitration against (among others) Mr. Zong Qinghou and Wahaha Group with the Arbitration Institute of the Stockholm Chamber of Commerce in accordance with the provisions on dispute settlement set out in the various joint venture contracts entered into between Wahaha Group, this company and its wholly owned subsidiaries and the other Chinese joint venture partners. One of the arbitration requests was made against
Mr. Zong Qinghou and Wahaha Group in accordance with the Services Agreement entered into with Mr. Zong Qinghou on 29 June 2003, and seeks, among other remedies, that Mr. Zong Qinghou cease breaching the very clear non-competition provisions as set out in that same Services Agreement.
On 29 June 2007, Mr. Zong Qinghou and Wahaha Group filed a lawsuit with the Intermediate People’s Court of Hangzhou seeking to invalidate the agreed upon arbitration clauses as set out in the Services Agreement, on the unsound basis that the Services Agreement was a labor contract and thus that the all disputes should be submitted to the labor arbitration commissions within the PRC.
As Danone Asia Pte. Ltd. is a company incorporated in Singapore, our understanding is that the Intermediate People’s Court of Hangzhou should serve relevant proceeding documents on us through the diplomatic channel in accordance with the civil and commercial judicial assistance treaties entered into between the PRC and Singapore. However, to date, we have not received any formal proceeding documents served by any court.
Meanwhile, after consulting labor law experts, our legal counsel opines that, the Services Agreement is a service agreement entered into between the Chinese and foreign shareholders and Mr. Zong Qinghou on the management issues of the joint ventures, and does not satisfy the basic requirements to be qualified as a labor contract under the PRC laws and regulations. Therefore, the matter should be submitted to the Arbitration Institute of the Stockholm Chamber of Commerce for arbitration as agreed upon in the contract.
Pursuant to the relevant provisions of the Interpretation of the Supreme People‘s Court Concerning Several Issues on Application of the Arbitration Law of the People’s Republic of China, when a People’s Court hears a case concerning the effectiveness of an arbitration agreement, a collegial bench should be formed to conduct the review and inquiries should be made to the parties concerned. At present, we are waiting for the notification from the relevant court so as to understand the situation and provide our defence in a timely manner.
We will keep the media informed of the progress of this case.