Domestic Arbitration Involving Long-Term Supply Contracts
"We have concluded that [Mr.] Steger was quite correct … in concluding that [the tardy and selective disclosure of Claimant] left [Respondent] captive to what [Claimant] had chosen to do."- Arbitration Decision
This matter involved the supply of steel to an automotive production facility. The long-term supply agreement between the parties contained a clause that allowed the Claimant to re-open the contract pricing mechanism if the price of raw material inputs into making steel increased to point where the Claimant incurred a “pre-tax loss” on the sale of its products.
We were retained by the Respondent early in the dispute to liaise with the Claimant as part of the good-faith negotiations required under the contract. In order to re-open the pricing mechanism, the Claimant had to provide “reasonable supporting documentation” to prove that it had suffered a “pre-tax loss” on the sale of its products. Both terms were not defined in the supply agreement. We identified a high degree of variability in the costing of products in the Claimant’s documentation and sought clarification as to the root causes.
We concluded that it was unproven whether the Claimant’s squeezed margins were due to increased input costs or due to the Claimant’s reallocation of other non-triggering costs. The arbitration panel agreed with our determination that “reasonable supporting documentation” had not been provided, and thus the Claimant’s purported termination of the long-term supply agreement was invalid.