Take Or Pay Supply Agreement

[1] This note generally focuses on contracts for the supply of raw materials governed by English legislation (raw or processed hydrocarbons, minerals, electricity or others) and, in particular, contracts to finance the underlying production infrastructure. While we focus on a buyer`s take-pay obligations, much of the bill is equally relevant to all of the seller`s “delivery or payment” obligations that is reflected. [2] Cavendish Square Holdings BV v Makdessi and ParkingEye Ltd. V. Beavis [2015] UKSC 67. [3] Ebd. The Obiter of Lord Neuberger and Lord Sumption. [4] E-Nik Ltd. v. Ministry of Municipalities and Local Government [2012].

[5] www.reuters.com/article/us-edf-nuclearpower/edf-ordered-to-accept-suspension-of-supply-contract-with-total-idUSKBN22W2KV [6] www.pinsentmasons.com/out-law/analysis/coronavirus-eskom-force-majeure Thus, contracts encourage or pay energy suppliers to invest in the company. Such agreements serve as an assurance to suppliers that they would recover the costs. In the absence of such a contract, the supplier bears all risks, including the buyer who cancels an order due to price fluctuations. It follows from the section 24 method that the seller`s right to make claims against its purchasers under the take-or-pay clauses is subject to restrictions of the mandatory law. Such rights may be invoked if the conditions of the relevant conditions of the delivery contract are adapted to the mandatory nature of the legal conditions. [16] As a general rule, the fine or fine is less than the purchase price. Indeed, the purpose of contracts to take or pay is not to give an unfair advantage to a party, but to reduce the risk. In the example above, Company B may sell to another company the 20 million cubic feet of natural gas that Company A does not buy. A contract to be paid is a written agreement between the buyer and the seller that obliges the buyer to pay, even if the seller does not provide the item. Read 4 min For Company A, the agreement will only be profitable if the price difference it receives from Company C is greater than the amount of the fine it would pay to Company B. Earnings and loss of compensation include the profit made by the seller during the execution of the contract and the parallel contract with its supplier, resulting from speculative purchase and sale on the basis of the price difference test between pipeline gas and liquefied natural gas (LNG).

During the execution of the contract, the seller may have purchased amounts less than his own commitment to the supplier to purchase LNG at lower prices. If proven, the profits from this practice should be deducted from the amounts requested by its customers for the seller`s loss from the activation of payable clauses. The provision of section 24 is an imperative right given the appropriate purpose. Gas sales contracts should adopt the legal requirements for establishing obligations under the “Take-or Pay” clauses and establish specific conditions for the use of the receivables under this clause. In any event, these agreements and claims must not lead to a violation of the parameters of Article 24. It is equally important to assess the compatibility of these clauses, when they are contained in long-term gas supply contracts, with Articles 101 and 102 of the TFUE. In particular, the inclusion of this clause in supply contracts should not distort competition by creating or strengthening a dominant position of certain suppliers or by excessively committing the free trading of their counterparties. The European Commission has recognised that these clauses are not prohibited per se; However, their impact on the European market should be assessed on a case-by-case basis, taking into account criteria such as the supplier`s location in the market in question and the general structure of the market in question, the existence of alternative suppliers and the duration of the contract.

Categories: Uncategorized