Nalco Sues Us Firm For Supply Default

National Aluminium Co Ltd (Nalco) has sued the United States-based Peak Chemicals, the largest international supplier of caustic soda, for defaulting on its supply contract, and has sought international arbitration to settle the dispute.

The company has appointed retired chief justice of India, Justice R S Pathak, who is Indias representative to the International Court at the Hague, as the arbitrator in accordance to the clause in its contract with Peak Chemicals, which allows Nalco to first approach an Indian panel of arbitrators before going to the international court.

Nalco had entered into a contract with Peak Chemicals, a multi-billion dollar company, for procuring 35,000 metric tonnes of caustic soda in 1995-96. However, Peak Chemicals defaulted on its agreement by failing to supply any amount beyond the first shipment of about 11,000 metric tonnes.

 

This forced Nalco to buy the balance amount of caustic soda from the open market at the prevailing rates of over $300 per ton. This, said company executives, imposed heavy losses on Nalco as the market rates were far higher than the contract rate of about $103 per tonne agreed with Peak Chemicals.

Failing to get Peak Chemicals to compensate for its losses, Nalco lodged a claim of damages with the arbitration panel citing violation of its supply contract.

Meanwhile, Peak Chemicals has cited force majeure as its defence before the arbitrator. The American company has stated that it was forced to cut down on its supplies worldwide during the year due to sudden drop in production of caustic soda by major manufacturers.

Many manufacturers, claims Peak Chemicals, were forced to stop production at various sites due to environmental clampdown in Europe and the United States. This resulted in excess demand which pushed up global caustic soda prices by over 200 per cent in the space of three months.

Peak Chemicals has argued that Nalco was not the only buyer to be affected by the global shortfall in caustic soda which forced most suppliers to default on its supply commitments. However, Nalco executives maintain that Peak Chemicals had deliberately failed to honor the contract in order to take advantage of the rising prices as there was no default on a similar agreement by a Japanese firm during the same year.Peak defaulted on its pact of supplying 35,000mt caustic soda after the first shipment of about 11,000mt. This forced Nalco to buy from the open market at higher rates