US embassy cable - 05TEGUCIGALPA1832

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