What Are Take Or Pay Agreements

What Are Take Or Pay Agreements

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. Another expression of this principle of compensation is that of the common conditions, which are met in the supply contracts, under which the seller should provide evidence and documents relating to all of its annual deficits, which has resulted in claims by its suppliers against the seller under the “take-or pay” clause. It is interesting to note that neither the English nor the American courts have defended the position that the existence of a right of make-up is a precondition for the implementation of a take-or pay clause. In some U.S. cases, the courts have ruled that if a right to makeup exists, but the buyer is not able to take such amounts of makeup in the future the buyer is not excused from his obligation to fulfill the contract in its entirety. Moreover, most experienced energy lawyers and commentators agree that the existence of a reasonable right of make-up makes it much more difficult for a buyer to later argue a defence that the clause is an unenforceable sanction. The inclusion of conditions or obstacles to the buyer`s ability to obtain quantities of make-up, such as excessively restrictive deadlines or termination requirements, can of course be reduced against the use of makeup rights as a defence. While a take-or-pay clause can somehow be proven as a sanction (which the English and American courts can still see in some settings), such a finding is not a defence of the buyer`s liability under the contract, but rather has an impact on the nature and extent of the harm available to the seller in the event of non-compliance with the purchaser. Perhaps the most common type of take-take in a large energy project is the take-or-pay contract.

A properly constructed take-pay contract provides the seller with an assured source of income, guaranteeing a reasonable return on significant project investments and risks to which they are exposed.

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