On 24 November, a Dutch court ordered G-Star to pay damages of just under USD 2.6 million based on losses due to the sudden stop of orders, lost profits, and the estimated value of the company in different scenarios. This is a lower court decision, and we expect G-Star to appeal.
About the case
- In April, we reported on an interim decision by the Amsterdam District Court finding G-Star Raw (G-Star) liable for damages after cancelling capacity with its Vietnamese supplier Vert in 2020.
- According to the interim decision, G-Star held a three-year contract with Vert from 2019-2021. G-Star filled almost all of Vert’s production capacity. In April 2020, G-Star announced that its third quarter 2020 order would be scaled back due to the pandemic. In August 2020, G-Star announced that it would not be placing any more orders with Vert. As a result, the factory closed in 2020.
- The court’s decision was based on G-Star’s long-term relationship with Vert, the fact that G-Star represented the majority of Vert’s production, the foreseeability of the harm, G-Star’s code of conduct and the lack of measures by G-Star to mitigate the impact.
- The court asked the parties to respond to questions and provide further details to determine the final damages amount. On 24 November, the court published its judgment, setting the damages amount at just under USD 2.6 million based on losses due to the sudden stop of orders, lost profits and the estimated value of the company in different scenarios.
- The court awarded damages of USD 2,547,972.40, including the following:
- Damages of USD 1,915,000.00 based on the loss of opportunity, i.e. the lost potential profit for investors because G-Star stopped its orders in 2020 rather than 2021. The damages were calculated on the basis of the probabilities of the following two scenarios and Vert’s value in each scenario.
- Closure scenario – The court estimated that there was a 45% chance that if G-Star had waited to exit the factory in 2021, Vert would not have found sufficient new customers and would have closed down in May 2021. In this scenario, G-Star would not be liable for the company’s loss of value. The court estimated an equity value of USD 1.2 million.
- Restart scenario – The court estimated that there was a 55% chance that Vert would have succeeded in finding sufficient new customers after May 2021 but not enough customers to keep the factory running at the same rate. In this case, G-Star would be liable for the company’s loss of value. The court estimated an average equity value of USD 2.5 million.
- Losses of USD 191,029 due to the sudden stop of orders in 2020 (e.g. redundancy costs, electricity costs, etc.)
- Lost profit of USD 230,743.40 on missed orders from Vert
- Lost profit of USD 61,200 from other Vert customers
- Loss of USD 150,000.00 due to loss of anticipated up-charge.
- The court also awarded additional costs to Vert for expert and lawyer fees, court fees and interest.
- This decision is significant as it has put a figure on Vert’s potential losses based on estimates, even though G-Star had not placed purchase orders for the goods cancelled and the goods were not in production.
- This is a lower court decision and we expect G-Star to appeal. If the decision is confirmed by a higher Dutch court, it will be much more significant and may set a precedent.