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The Fiji Water Saga– the Details and Legal Analysis by Scott Putnam -- Part II

In the first part of this two part series, Fijiguide.com's videographer and resident attorney, Scott Putnam, provided a timeline that illustrated the genesis of the contractual dispute between Fiji Water and the Fijian government. (See The Fiji Water Saga– the Details and Legal Analysis by Scott Putnam ...).

In part two of this series Scott analyzes the situation so that we can discern what exactly is going on.

As of Monday, November 29, 2010, Fiji Water stated that it would walk away from Fiji and it used the international press to pressure the Fijian government to acquiesce. The Fijian government, in turn, stated it would turn the aquifer over to another international bottler/distributor. Both positions, while upsetting to the 400 Fijian workers who work at Fiji Water, were disingenuous and only negotiating tactics. Here is why:

Since 2004, Fiji Water has spent approximately US$10 million a year on marketing a global brand with the name “Fiji”. If Fiji Water were to walk away from Fiji, it would lose this brand name, the market that goes with the name, and all the profits from the name. The Fijian government knows this and is keenly aware that the company, despite its threats to leave, really has no choice. It is wedded to Fiji.

The Fijian government, in turn, is also wedded to Fiji Water for the foreseeable future. If the government were to turn the bottling operation over to another company, and such company were to distribute said product in the United States (for example), Fiji Water would most likely file a complaint in US Federal District Court against such company alleging conversion, trespass, intentional interference with contract, and a myriad of other allegations that basically state: “You’re unlawfully taking property that is mine.” Fiji Water would seek lost profit and business damages for hundreds of millions of US dollars.

There is no company in the world that would assume this potential liability by agreeing to bottle and distribute the water.


Fiji Water could also sue the Fijian government in US District stating that the new tax rate is essentially a seizure of the company (as alleged by Mr. Cochran). However, it is doubtful such a claim would hold up. A reduction in profit does not equate to a seizure of a business.

So, where does this leave the two parties?

Well, Fiji Water is not waiving its contractual position; they will most likely seek a return to the F$0.0003 per liter rate either through the Fijian courts or with a new government (elections in 2014). If the courts or the new government agree with Fiji Water’s position, Fiji Water will also most likely seek a return of the extra monies paid in tax, plus interest. It could be very, very expensive for the Fijian government.


In the interim, both the Fijian government and Fiji Water will continue their negotiations. In the end, the attorneys for both sides will probably reach a settlement agreement that lowers the tax rate somewhere between F$0.0003 and F$0.15. In return for this concession by the government, Fiji Water will most likely agree to drop any claim to
the original tax rate and any monies taxed at the F$0.15 tax rate. In addition, the term of the license granting Fiji Water the right to mine the aquifer by the Fijian government will be shortened – considerably.

This will allow the Fijian government to actually transfer the license to another company (should it be necessary) without the fear of liability attaching to the new company. But this agreement may take years to work out. There is a lot of money yet to earned in legal fees.

 

 

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Tags: David Gilmour, Fiji water

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