Bayer factor central to Air Products' TDA claim against Zachem

15 February 2013 16:00  [Source: ICIS news]

LONDON (ICIS)--US-based Air Products' claim for $98m (€74m) in compensation from Poland's Zachem over a terminated toluene diamine (TDA) feedstock contract is based on the contention that it was entitled to supply the client with TDA manufactured by Bayer rather than itself, Air Products said on Friday.

Industrial gases and chemicals corporation Air Products has applied to the International Court of Arbitration in London (ICC) to initiate proceedings against Zachem, a subsidiary of the Ciech group, for a breach of contract following the cancellation in October last year of the remaining five years of a seven-year TDA supply contract worth around $560m.

In a statement on the dispute, Air Products announced it had also filed a request to the Federal District Court for the Eastern District of Pennsylvania in the US to begin proceedings against Ciech “regarding Ciech’s tortious interference in the contractual relationship between Air Products and Zachem”.

“As a result of this interference, Air Products incurred losses of $16m in recent price concessions to Zachem and of not less than $98m in respect of the wrongful termination of the TDA supply agreement,” the company claimed.

Air Products and Ciech have conflicting views on whether Air Products was entitled to supply Zachem with TDA from a Bayer plant in Dormagen, Germany, following Air Products closure of its own TDA production facility in Pasadena, Texas.

“The agreement between Zachem and Air Products regarding the supply of TDA does not limit Air Products to supplying TDA from its plant in Pasadena, provided that the TDA meets the contract specification,” Air Products added in its statement.

However, in response Ciech spokesman Mariusz Babula issued a statement stating that “the agreement expressly provided that TDA supplied from Air Products was to be manufactured at its plant in Pasadena”.

Air Products, which had supplied Zachem with TDA as feedstock for the production of toluene diisocyanate (TDI) for 20 years, said that Zachem had a track record of accepting TDA from both Pasadena and the Bayer plant in Dormagen. 

“Accepting TDA supplies from the factory in Dormagen allowed Zachem to make substantial savings of millions of dollars per year,” it said.

In his statement, Babula alleged that Air Products had closed its Pasadena TDA facility and then “decided to present Zachem with a fait accompli”.

“Therefore, Zachem was unlawfully forced to accept TDA deliveries from its direct competitor in the TDI sector, Bayer. An immediate refusal of TDA from Bayer was out of the question since Zachem was unable to terminate TDI production day by day, due to technical and social reasons. This is why from September to December 2012, Zachem, having the grounds in the provisions of the contract, accepted non-conforming deliveries while raising appropriate objections each time,” he added.

Zachem notified Air Products of its decision to cancel the remainder of the TDA contract at the same time that owner Ciech was completing a TDI assets divestment deal with Germany's BASF which subsequently resulted in the closure of Zachem's TDI production plant and meant it no longer needed TDA, pointed out Air Products.

“Under the presented circumstances [in which Zachem faced the prospect of only being able to obtain TDA from rival Bayer], it was Zachem management’s duty to seek alternative solutions, including termination of Zachem’s TDI production in a manner giving it a chance for obtaining a fair compensation,” said Babula.

“For this reason, a decision was made to engage in negotiations with BASF which displayed interest in both taking over Ciech’s clients and TDI production technologies from Zachem,” he added. 

($1 = €0.75)

By: Will Conroy
+44 20 8652 3214

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