Grupo Dina Initiates Legal Action Against Western Star Trucks Holdings
30 October 2000
Grupo Dina Initiates Legal Action Against Western Star Trucks Holdings For Cancelling Contract
MEXICO CITY, Oct. 27 Consorcio G. Grupo Dina, S.A. de C.V.
, a leading Latin American producer of trucks, today
reported that it has formally filed charges against Western Star Trucks
Holding, Inc. with the International Arbitration Court of the International
Chamber of Commerce (ICC).
Mauricio G. Mendoza Silva, Legal Director of Dina, announced the
initiation of legal action with the ICC, headquartered in Paris, France,
claiming $110 million because of the unilateral cancellation of a multi-year
contract to supply vehicles to Western Star. Both companies had signed the
contract in September 1999.
Dina will seek legal recourse to claim breach of contract because the
purchase orders were initially suspended and later cancelled. The
$110 million lawsuit also embodies claims for the premature and unilateral
cancellation of the contract, outstanding payments due for vehicles sold to
Western Star, payment for damages resulting from the breach of contract, loss
of interest on corporate capital, as well as arbitration and legal costs
associated with the necessary legal action.
Dina's Legal Director has informed the Secretary of the ICC of the charges
against Western Star, and expects to receive a response within 30 days of the
receipt of the document. When the ICC has made a determination as to which
parts of the overall claim fall within its jurisdiction, arbitrators will be
appointed. Both companies will have 30 days to agree upon the designation of a
third arbitrator, who should be of a different nationality and must be
approved by the ICC.
Neither party has yet agreed upon the designation of the third arbitrator,
although each party may submit its recommendation to the ICC. Dina is
considering appointing as its arbitrator Emilio Gonzalez de Castilla, a
prominent Mexican lawyer with extensive experience in this area.
Under the terms of the contract, the arbitration proceedings will take
place in Charleston, North Carolina. If necessary, however, the arbitrators
may meet at other and more suitable locations.
Mr. Mauricio Mendoza explained that, "The arbitration tribunal has
2 months subsequent to the date of the filing of the action to prepare its
statement of the causes of action and the timetable to be authorized by the
ICC. Upon authorization, the arbitration tribunal will have 8 months to begin
and to complete its deliberations, despite the fact that the ICC body may
defer completion." Hence the process may last between 8 to 12 months.
It should be noted that during the legal proceedings both parties would
have the opportunity to present its case together with appropriate supporting
evidence. The decision of the arbitrators as to which party is financially
responsible will be based upon the forthcoming evidence. The final decision
is not subject to appeal, and the timing of the settlement will be binding
upon both parties.
Mr. Gamaliel Garcia, CEO of Dina, explained that his company had hoped
that Western Star (recently acquired by Freightliner LLC) would adhere to the
terms of the contract and rectify the situation. But since, on the contrary,
Dina was confronted with cancellation of the contract this had precipitated
the initiation of legal action. "We had thought from the beginning that we
were entitled to equitable compensation for this situation. Unfortunately, as
a result of the contract cancellation we have experienced significant adverse
consequences and have had to assume that there will be fundamental changes in
the outlook for this year. We are confident that we shall win this lawsuit."
Furthermore, Mr. Garcia confirmed that once the exclusive rights with
Western Star have expired (60 days following cancellation of the contract),
Dina will seek new opportunities to continue exporting its HTQ vehicles to the
United States. "It is our goal to market our proprietary technology. We have
the quality and capabilities to achieve this, and once attained, we will place
our new vehicles on the market."
Since Western Star modified its contract, Dina began cutting operational
costs in an effort to minimize the financial damage resulting from the
breaching of the contract. As of June of this year, Dina's strategy has been
to focus on minimizing operational costs by curtailing plant production and
cutting back on white-collar workers. Mr. Garcia noted that, "In the near
future Dina will be a smaller scale operation, though healthier in the sense
that it will more actively participate within its key strategic markets with a
complete line of products based upon its own technology. If we obtain the
necessary financial resources to finance our customers' purchases of our
vehicles we would expect our sales volume to increase."
On the other hand, to-date because of the cyclical downturn in the U.S.
and Canadian truck market, Dina has been unable to negotiate either the sale
of its vehicle business or key assets to a third party. In fact, the majority
of the existing producers are focusing on downsizing their own operations
before acquiring additional assets. While the company does not dismiss the
possibility of eventually consummating such a transaction, there is nothing
yet to report in this regard.
Mr. Garcia volunteered the information that since June 16, 1999, when Dina
sold a majority interest in Motor Coach Industries (MCII) to Joseph Littlejohn
& Levy, Inc. (JLL), the operations of Dina and MCII have been conducted
independently. Very recently, and reflecting the enlarged and controlling
majority investment in MCII, the Dina Autobus operations has been renamed MCI
Mexico. However, and depending upon marketing and branding considerations in
each market served, the Dina badge and brand will still be used. However, no
further conclusions should be drawn from the renaming of the business and the
branding strategy.
Finally, Mr. Garcia commented that because of Dina's financial situation,
the company's primary concern is to implement the necessary steps to enable
the company to fulfill its commercial and financial obligations.
The company anticipates releasing its financial results for the period
ended September 30, 2000 within the next few days.
The Private Securities Litigation Reform Act ("The Act") provides a "Safe
Harbor" for forward-looking statements to encourage companies to provide
prospective investors with information, to the extent that such statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors which could cause results to be
materially different from those discussed in the statement.
In discussing the future prospects of the Company, management has
identified factors including, but not restricted to the following:
-- Economic and industry conditions, and most importantly interest rates
and inflation.
-- Conditions in Mexico and Argentina, among the Company's primary
markets, which have experienced significant volatility in recent years,
including devaluation of the peso.
-- The successful implementation of the Company's restructuring program.
-- Competitive and overall industry conditions in its major markets.
-- Order flow for its products from major customers.
-- Harmonious relationships with its workers and labor unions that
represent them.
-- The outcome of the lawsuit mentioned herein. There is no assurance
that the eventual outcome will be beneficial to the company.