By Rob Bates
In what seems like a substantial victory—but could also be a costly mistake—Tiffany & Co. convinced a Dutch court to scuttle the nearly one-half billion dollar award it forked over to Swatch Group after their watch partnership fizzled.
In December 2013, a Dutch tribunal ordered the renowned retailer to pay the Swiss watch giant $449 million in damages, stemming from the 2011 collapse of the pair’s ill-fated joint watch company. Tiffany declared itself “shocked” by the stinging rebuke, as it had pursued its own complaint against Swatch, which it claimed ignored its input on brand management and product design. The huge sum, while less than Swatch requested, blew a hole in Tiffany’s balance sheet, causing it to post a loss in a quarter that would have otherwise been in the black.
Soon after, Tiffany petitioned a Dutch court to annul the decision, warning investors that arbitration awards in the Netherlands are generally final. But today it beat the odds, as a district court nixed the award, according to a Tiffany 8-K filed with the Securities and Exchange Commission.
In a statement, Swatch acknowledged the loss but added it will appeal to the Netherlands Supreme Court.
“The setting aside has been undertaken on purely formal reasons,” it said, maintaining the award “was issued correctly and contains no formal error.”
If Swatch wins on appeal, the award could be upheld. If its victory stays vacated, that will likely lead to more litigation, as both parties can still pursue their claims in court.
Further legal battles could, Tiffany warned, produce another victory for Swatch, with a new award that could top the Dutch arbitration settlement. Swatch had asked for up to 3.8 billion Swiss francs, or around $3.94 billion, in damages. That might “have a material adverse effect on financial statements or liquidity,” Tiffany warned. On the other hand, Tiffany could pocket up to 540 million Swiss Francs, or $560 million, if it prevails.
Swatch CEO Nick Hayek told Bloomberg that “the decision by this court is not enforceable yet since we will appeal. We won the original case, and are very confident to win the next decision.”