VW-Suzuki Divorce: Court Orders Suzuki To Pay Damages, VW To Sell Stakes In Suzuki

After a lengthy four-year legal tussle, the ‘divorce’ proceedings between Volkswagen and Suzuki is almost settled.

On Sunday, an arbitral tribunal in London announced its ruling that the alliance between Volkswagen AG and Suzuki Motor Corporation is now terminated, effective 18-May 2012.

The court also rejected Suzuki’s counterclaim that Volkswagen had breached the agreement, claiming that Volkswagen is withholding technology transfer to Suzuki. Instead, the court ruled that it was Suzuki that had breached its contractual obligations to Volkswagen under the agreement and that Volkswagen has the right to claim damages.

The amount of damages that Suzuki has to pay Volkswagen, if any, would be addressed in a further stage of the arbitration proceedings.

On the other hand, Volkswagen was ordered by the court to allow Suzuki to purchase Volkswagen’s 19.9 percent stake in Suzuki.

“We welcome the clarity created by this ruling. The tribunal rejected Suzuki’s claims of breach and found that Volkswagen met its contractual obligations under the cooperation agreement. Nevertheless, the arbitrators found that termination of the cooperation agreement by Suzuki on reasonable notice was valid, and that Volkswagen must dispose of the shares purchased. This decision is based on the principle that a contract may be terminated upon reasonable notice. Volkswagen expects a positive effect on the Company’s earnings and liquidity through the sale of the Suzuki shares.

“Furthermore, the arbitration court confirmed that Suzuki committed an infringement of the agreement. Suzuki broke off an ongoing cooperation project at the end of 2010/beginning of 2011 and failed to give Volkswagen last-call rights for the delivery of diesel engines. Volkswagen reserves the right to claim damages against Suzuki,” said Volkswagen Group.

Suzuki Motors Corporation said “As a result of VW disposing of its shares in Suzuki, there will be a change in our largest shareholder, which is also a major shareholder.

“At this stage, Suzuki does not foresee any need to amend its forecast of consolidated results for the fiscal year ending March 31, 2016, however, if any matters that need to be disclosed occur, such matter will be promptly disclosed.”

Background

In December 2009, Volkswagen AG and Suzuki jointly announced that the two were entering a ‘long-term strategic partnership.’

Briefly, the main objective of the partnership was to allow Volkswagen to leverage on Suzuki’s expertise in compact cars and its distribution channels in India, where Suzuki’s local joint venture Maruti-Suzuki is India’s largest automotive brand. In return, Suzuki would be given access to Volkswagen’s fuel-saving advanced diesel and hybrid technology.

Less than a year later, Suzuki signed an agreement to purchase diesel engines from Fiat, which Volkswagen argued was a breach of the agreement.

Suzuki’s CEO Mr. Osamu Suzuki was also unhappy with Volkswagen listing Suzuki as an ‘associate company’ in the Group’s 2010 annual report, which in Volkswagen’s terms meant a company which Volkswagen has direct or indirect influence in.

Osamu Suzuki asserted that Suzuki is an independent company, despite having Volkswagen as a majority shareholder, while Volkswagen reasoned that its annual report is compiled in accordance to international accounting rules.

On 18-November 2011, Suzuki served a notice of termination to Volkswagen.