ANHEUSER BUSCH BEING SUED FOR USD 5.5 MILLION FOR

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001832

SIPDIS

STATE FOR EB/CBA, EB/IFD, WHA/EPSC, L/CID, AND WHA/CEN
COMMERCE FOR MSIELGELMAN
GUATEMALA FOR COMATT: MLARSEN
STATE PASS USTR

E.O. 12958: DECL: 09/05/2015
TAGS: EINV EFIN PGOV KJUS BBSR HO
SUBJECT: ANHEUSER BUSCH BEING SUED FOR USD 5.5 MILLION FOR
BREACH OF A CONTRACT THEY CLAIM DOES NOT EXIST

REF: (A) TEGUCIGALPA 1324

Classified By: Classified by EconChief PDunn for Reasons 1.5(e)


1. (C) Summary: Anheuser Busch (AB) is defending itself from
a charge of breaching a distribution contract that they claim
was canceled over a year ago. Despite cancellation of its
contract, and under what AB lawyer consider suspicious
circumstances, local brewer Cerveceria Hondurena got a
license from the GOH as sole distributor of AB products. It
then allegedly used that license to sue AB for damages. AB
is challenging both the factual and procedural bases of the
suit in court, but has privately indicated it would prefer to
settle the case and would welcome either arbitration or
mediation from the GOH Minister of Industry. End Summary


2. (SBU) On August 22, Anheuser Busch (AB) representative
Juan Cintron briefed CDA, ADCM, and EconChief on the status
of a pending USD 5.5 million lawsuit filed in Honduras by
Cerveceria Hondurena (CH) for breach of contract. In the
suit, CH alleges AB breached a contract giving CH
distribution rights for AB products in Honduras. AB has
countered that the contract had been canceled and therefore
could not have been breached.


3. (SBU) According to AB, subsequent to AB's cancellation of
the CH contract and under what AB lawyers consider suspicious
circumstances, CH was granted a license as Honduran
distributor for AB products. CH then used that license and
their allegation that the previous contract was still binding
to file suit against AB for damages. Under Honduran law,
because AB is a foreign firm, CH was required to take their
case to arbitration. CH did not do so, and AB is challenging
that procedural failure, as well as responding to CH's
specific allegations.


4. (C) AB is not currently seeking Post assistance,
preferring to see if the evidence submitted in the pending
appeal is sufficient to void the case. However, AB lawyers
note that civil cases (since they are conducted entirely on
paper, rather than in oral hearings) can drag on for several
years, and the final judgment will include both damages and
all legal costs incurred. In addition, AB feels such a
lawsuit would send a strongly negative signal to potential
investors or firms seeking distributors in Honduras,
particularly when the ink on the new Central American Free
Trade Agreement is not yet dry. For these reasons, from a
legal perspective, AB would prefer to move the case to
arbitration, where they believe it should have gone in the
first place.


5. (C) From a purely business perspective, AB would prefer an
out-of-court or out-of-arbitration settlement of the matter.
From AB's point of view, it is not worth the effort, expense,
and potential ill-will to fight a protracted legal battle
over USD 5 million. Asked if AB is pursuing such a
settlement, Cintron indicated he was not authorized to
discuss those matters, but he said AB would welcome a
good-offices invitation to both parties from the Minister of
Industry to sit down to discuss options for resolving the
case.


6. (C) According to Cintron, events unfolded as follows:

December 2003: following rival brewer SAB-Miller's purchase
of CH, AB decided to cancel CH's contract to act as Honduran
distributor of AB products. CH appealed for an extension
through the holiday season to allow for liquidation of
existing stocks. AB agreed to this extension.

February 2004: AB formally notified CH of the termination of
the contract.

March 9, 2004: CH acknowledged in writing the cancellation
of the contract.

March 14, 2004: CH requested from the GOH Ministry of Trade
and Commerce (SIC) a license as sole distributor of AB
products.

July 2004: SIC formally rejected CH request for license,
allegedly citing CH's inability to produce a valid contract
with AB.

September 2004: A Supreme Court Magistrate (NFI),acting in
his/her capacity as a notary public, certified that CH does
have a contract with AB. Using this certification, CH
reportedly again requested and was granted a distribution
license from SIC. AB's local lawyers have reportedly
expressed concerns that this series of events may have
involved "improper influence."

December 7, 2004: Based on the license and alleged contract,
CH filed suit against AB for breach of contract. Using the
legally stipulated formula, they calculated damages as
average gross profits of the previous five years, or
approximately USD 5.5 million.

April 2005: AB formally notified of suit and given until
July to respond.

July 2005: AB responded, claiming that the contract had been
canceled, therefore no breach was possible nor was the
issuance of the license in question valid. CH countered with
its own version of the facts at issue. The case was remanded
to civil court in San Pedro Sula, where it is currently
pending the establishment of a date for decision.


7. (SBU) This is not the first high-profile case involving
monopolistic Cerveceria Hondurena this year. CH, a
subsidiary of South African Breweries-Miller Brewing, is the
defendant in a trademarks violation case brought against them
by a now-defunct Honduran liquor distiller (Ref A). CH
maintains a de facto monopoly on beer production and
distribution in Honduras and markets one of its four popular
national beers under the name 'Bahia.' According to sources,
the trademark name 'Bahia' was sold to a third party several
years ago as a wine cooler name. That third party is now
bringing suit again CH. The trademark Bahia name was
originally registered as a wine cooler, rather than a beer.
CH believes that the product they sell is distinct from the
product formerly registered as 'Bahia.'


8. (C) Comment: Post will follow the case with interest, and
advocate for a just, timely, and transparent resolution while
being careful not to appear to be pressing for a particular
verdict. Post will also approach Minister of Industry Irving
Guerrero to suggest he convoke the two parties to the dispute
in an effort to resolve the case before incurring major legal
expenses. End Comment.

Williard
Williard