An Amsterdam court has overturned Swiss watchmaker Swatch’s US$450 million award against US jeweller Tiffany.
In a decision , the District Court of Amsterdam ordered the 2013 award to be set aside, ruling that the arbitral tribunal had stepped outside its authority in finding Tiffany in breach of a number of implied terms of a joint venture contract.
The court relied on an article in the arbitration clause of the contract, which limited the tribunal’s authority to “change, modify or alter” the terms of agreement.
A Netherlands Arbitration Institute tribunal chaired by Belgium’s Filip de Ly issued the award a few days before Christmas in 2013, compensating Swatch for profits lost through the failed joint venture.
The companies had entered the joint venture in 2007, agreeing that they should share the profits from Swatch’s production and distribution of Tiffany-branded watches over a 20-year period. But Swatch terminated the agreement in 2011, alleging that Tiffany had sought to block and delay the development of the joint venture.
The majority of the tribunal composed of De Ly and Switzerland’s Georg von Segesser upheld Swatch’s claim on the merits, finding Tiffany liable for four breaches of implied terms to the agreement. These included an implied obligation to use reasonable efforts to meet the targets set out in the joint venture’s business plan.
The arbitrator appointed by Tiffany, Belgium’s Bernard Hanotiou, dissented.
The tribunal was unanimous, however, as to the damages owed, ordering Tiffany to pay US$450 million of the US$5 billion Swatch originally claimed. It also rejected Tiffany’s US$500 million counterclaim.
Although the majority of the tribunal made express mention of the provision relied on by the Amsterdam District Court, it took the view that it was permitted to interpret the agreement but not to supplement it.
However the court said that by analysing the agreement against the background of the joint venture’s business plan, the arbitrators had added to the explicit provisions of the contract.
Counsel to Tiffany in the court proceeding, Eelco Meerdink of De Brauw Blackstone Westbroek in Amsterdam, says: “When parties agree to a specific limitation on the authority of the tribunal, it is ultimately for the courts to review whether the arbitrators have observed that restriction. In ruling that the majority of the tribunal exceeded its mandate by not taking into account the limitation agreed upon in the arbitration agreement, the court correctly applied this review.”