Asiana Airlines, Inc v Gate Gourmet Korea Co, Ltd

• Jurisdiction: Singapore
• Judge: Simon Thorley IJ
• Judgment Date: 27 May 2022
• Neutral Citation: [2022] SGHC(I) 8
• Court: International Commercial Court (Singapore)
• Docket Number: Originating Summons No 11 of 2021
• Published date: 01 June 2022
• Year: 2022
• Hearing Date: 20 April 2022,23 March 2022,24 March 2022
• Plaintiff Counsel: Thio Shen Yi SC and Nanthini d/o Vijayakumar (TSMP Law Corporation)
• Defendant Counsel: Liew Wey-Ren Colin (Colin Liew LLC)
• Subject Matter: Arbitration,Award,Recourse against award,Setting aside
• Citation: [2022] SGHC(I) 8

Simon Thorley IJ: Introduction

By this Originating Summons (“the OS”) the plaintiff seeks to set aside the Final Award (“the Award”) dated 18 February 2021 in an Arbitration (“the Arbitration”) (ICC Arbitration No 24544/HTG) together with an Addendum thereto (“the Addendum”) dated 2 April 2021 pursuant to s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) and Arts 34(2)(a)(ii) and 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). The plaintiff, Asiana Airlines, Inc (“Asiana”) was the respondent and counterclaimant in the arbitration and the defendant, Gate Gourmet Korea Co, Ltd (“GGK”) was the claimant.

The OS was filed in the General Division of the High Court (HC/OS 580/2021) on 11 June 2021 and was transferred to the Singapore International Commercial Court (“SICC”) on 24 August 2021. Following the filing of affidavits and written submissions, there was an oral hearing before me on 23 and 24 March 2022 where Mr Thio Shen Yi SC (“Mr Thio SC”) and Ms Nanthini d/o Vijayakumar appeared on behalf of Asiana and Mr Liew Wey-Ren Colin (“Mr Colin Liew”) appeared on behalf of GGK.

Background

Asiana is a company (organised and existing under the laws of the Republic of Korea) that is engaged in the business of air travel. It is part of a group of companies, the Kumho Asiana Group (“the Kumho Group”).

GGK is a company (also incorporated under the laws of the Republic of Korea) that is engaged in the business of providing catering and other services to the airline industry. GGK is a joint venture between Gate Gourmet Switzerland GmbH (“GGS”) and Asiana. GGS is a subsidiary of the Gate Gourmet group of companies (“Gategroup”).

Since April 2003, catering services had been provided to Asiana by LSG Sky Chefs Korea Co Ltd (“LSGK”), a joint venture between Asiana and a German company. Asiana’s agreement with LSGK was due to expire in June 2018 and, being dissatisfied with the pricing structure adopted by LSGK, Asiana sought to negotiate a replacement agreement with GGK and the Kumho Group. These negotiations bore fruit and resulted in three agreements, one of which was a Catering Agreement (“the Agreement”) dated 30 December 2016 between Asiana and GGK. The Agreement was governed by Korean law.

The other two agreements were a Joint Venture Agreement (“JVA”) between GGS and Asiana and a Bonds with Warrants Subscription Agreement (“BWA”) between an associate company of GGS, Financial Services Sàrl, and the holding company of the Kumho Group.

Under the Agreement, GGK agreed to provide catering and handling services to Asiana for 30 years. The Agreement contained an initial business plan (“the IBP”) that set out calculations for the pricing mechanism for the catering services that GGK was to provide. The Agreement reflected that the IBP would be replaced with an adjusted “2018 Business Plan”. The 2018 Business Plan, in turn, was to be replaced with an adjusted “2020 Business Plan”. The Arbitration was the result of a disagreement between the parties as to the correct interpretation of Annex 1.4 to that Agreement (“Annex 1.4”).

The relevant parts of Annex 1.4 read as follows:¹

Introduction

The terms and conditions for all prices for meals and other Services as of the Commencement Date shall be no less favourable to either Party than the current pricing terms paid by Asiana for any services provided at the Stations that are the same as or similar to the Services. The pricing terms shall be adjusted based on inflation, CPI increases, cost pass-throughs and menu and service changes in accordance with this Annex 1.

Business Plan

The Parties have agreed to adopt the business plan as set out in Appendix 1 (the “Initial Business Plan”).

Provided that the Initial Business Plan shall be adjusted during the following periods: i. The Initial Business Plan shall be adjusted in 2018 at least four (4) months prior to the Commencement Date and the Initial Business Plan shall be replaced with the new business plan starting from the Commencement Date (the “2018 Business Plan”). A sample 2018 Business Plan (i.e.，prior to adjustment pursuant to this clause) is set out in Appendix 1(a). ii. Thereafter, the 2018 Business Plan shall be adjusted prior to January 2020 and the 2018 Business Plan shall be replaced with the new business plan starting from January 2020 until the expiration of the Term (unless otherwise terminated in accordance with Clause 11.2 of the Main Agreement) (the “2020 Business Plan”), A sample 2020 Business Plan (i.e., prior to adjustment pursuant to this clause) is set out in Appendix 1(b).

The Initial Business Plan, the 2018 Business Plan and the 2020 Business Plan shall be collectively referred to as the “Business Plan”.

The adjustments to the Business Plan shall be limited to any changes to cost elements and passenger numbers based on the actual results during the relevant period. The net profit as committed in the Business Plan will be preserved.

[emphasis in bold in original; emphasis in bold italics added]

The reference to “no less favourable” terms was a reference back to clause 6.1.1 of the Agreement (“the NLF Clause”) which provided:²

All prices for meals and other Services to be provided under this Agreement shall be as set forth in Annex 1 and subject to the pricing methodology and adjustment mechanisms set out in this Agreement and Annex 1: provided that, at any time after the Effective Date, Asiana shall provide information requested by [GGK] that [GGK] deems, in its sole discretion, reasonably necessary for it to formulate the pricing terms for the first 12 months after the Commencement Date (the “Initial Pricing Period”), which shall be no less favourable to either Party than the current pricing terms paid by Asiana for any services provided at the Stations that are the same as or similar to the Services; provided, that, Asiana shall not be obligated to provide any information that is subject to confidentiality; provided, further, that [GGK] shall use any information furnished by Asiana solely for purposes of formulating the pricing terms for the Initial Pricing Period. The pricing terms shall be adjusted in accordance with Annex 1.

[emphasis in original]

Asiana took the position that the IBP represented preliminary projections to be refined in the 2018 Business Plan and the 2020 Business Plan based on the actual results from performance under the Agreement. Accordingly, each subsequent Business Plan should be adjusted wholesale, including the cost elements, passenger numbers and “Net Profit Figures”. In short, there was to be a substantive renegotiation at each stage so as to ensure that the adjusted pricing mechanism was to be no less favourable to either party than the current pricing mechanism. This would necessarily involve a renegotiation of the Net Profit Figures. On the other hand, GGK took the position that the word “adjustment” meant what it said and did not encompass a full renegotiation process. Further adjustments were only to be made to the cost elements and passenger numbers. The Net Profit Figures committed in the various business plans could not be adjusted at all, they were to be “preserved”.

GGK failed to commence operations by the date stated in the Agreement. The parties then entered into a Supplemental Agreement under which GGK was to ensure delivery of services through a third party (“the Alternative Arrangement”). GGK hired a third party, Sharp Do & Co Korea LLC (“SDCK LLC”), and the parties amended the Agreement to provide that GGK remained responsible for the obligations notwithstanding the Alternative Arrangement. SDCK LLC encountered difficulties in the Alternative Arrangement and GGK and SDCK LLC entered into a settlement agreement under which GGK paid SDCK LLC the costs it incurred.

Notwithstanding the fact that the parties were unable to agree on the pricing mechanism, GGK nonetheless commenced operations and invoiced Asiana on the basis of its interpretation of the pricing mechanism in the Agreement. Asiana made some payments but otherwise objected to GGK’s interpretation.

GGK commenced the arbitration on 6 June 2016 (“the Arbitration”) pursuant to clause 28 of the Agreement which provided that the seat of the Arbitration should be Singapore and that the Arbitration should be conducted under the Rules of Arbitration of the International Chamber of Commerce.

GGK sought an order that Asiana should pay all outstanding invoices and a declaration that the pricing mechanism in the Agreement was binding and did not require any further agreement.

Asiana counterclaimed against GGK for a declaration that GGK was bound to negotiate and agree with Asiana on an adjusted pricing mechanism under the 2018 Business Plan (or, alternatively, on the 2018 Business Plan and the 2020 Business Plan), for an order that GGK repay excess payments based on the adjusted pricing mechanism and for an order that GGK pay for the costs Asiana paid to SDCK LLC arising from the Alternative Arrangement.

In the Award, the tribunal (the “Tribunal”) allowed GGK’s claims and dismissed Asiana’s counterclaims. GGK later requested that the Tribunal correct a clerical error. The Tribunal allowed GGK’s request and issued the Addendum.

Asiana seeks to set aside the Award and the Addendum on the basis that there was a breach of natural justice and a failure to consider all issues placed before the Tribunal. Asiana’s complaints in outline are that: The Tribunal failed to give any or any proper consideration to the expert report of a Korean law expert, Professor Young-Joon Kwon (“Professor Kwon” and “the Kwon Report”), and therefore applied the wrong principles when interpreting the terms of the Agreement. In particular, it failed properly to address the aspects of the Kwon Report which supported the assertion by Asiana that GGK’s interpretation of the Agreement...