Since the buyer still has to pay the full contract price for quantities it does not accept during the applicable measurement period, the buyer is generally entitled to a so-called ”catch-up” right in such a payment (commonly referred to as a ”take-or-pay payment”), i.e. a right to take the amount of LNG for which it made the take-or-pay payment at a later date. Under U.S. law, a provision that allows the buyer to choose to pay for LNG that was not taken during the applicable valuation period in exchange for future catch-up fees is considered an alternative to the obligation to receive and pay for LNG during the applicable valuation period. ==References=====External links===A payment on take or payment is not considered a payment of damages, which could otherwise be attacked as an unenforceable penalty as it is disproportionate to the seller`s actual loss or damage if the buyer does not accept the intended quantities of LNG. [3] It is also clear that a ”take or pay” contractual structure is enforceable in English contract law, although the reasoning with which the English courts defend this position is somewhat different. [4] As described above, a usual deduction from the TOP quantity consists of goods that the seller was unable to deliver. When drafting a take-or-pay clause, it should be carefully observed that the buyer cannot prevent the delivery of the goods and then claims that it should be a deduction of the TOP quantity. To resolve this problem in a ”take or pay” contract, the best legal and formulation practice for a seller is to provide that its obligation is fulfilled when it offers or makes available the agreed quantity of goods for delivery to the buyer, rather than declaring that the seller must deliver the goods to the buyer. There are a number of English cases which seem to equate the offer of delivery with the actual delivery, but these cases did not occur in the single contractual situation where the buyer`s obligations are in the alternative, and these cases are therefore distinguishable for such reasons. Such cases are also contrary to UCC`s arguably more well-founded practice, which states that the seller`s obligation is fully fulfilled if it offers the buyer the specified quantity and quality of the goods to be delivered to the agreed place of delivery. The same explanatory report, which specifically refers to the restrictions of the law[6], goes on to state: ”Article 25, paragraph 3, of the draft law contains provisions to protect electricity producers who conclude contracts for the supply of natural gas with suppliers of their choice.
In this context, it is provided that the natural gas supply contracts of holders of an electricity generation licence concluded with depa or third parties may not contain more onerous clauses than those provided for in the respective contracts of DEPA or third parties with their own suppliers, in particular as regards take-or-pay clauses. It is therefore envisaged that DEPA or third parties may not impose take or payment clauses that exceed in total the sum of the obligations of DEPA or third parties towards their own suppliers. In addition, DEPA or third parties may not demand payment of the price of the expropriation, regardless of the purchase by consumers of natural gas which they supply themselves, unless DEPA or third parties are required to pay the price provided for in the take-or-pay clauses of their own supply contracts. In the latter case, DEPA or third parties shall charge the defaulting consumers which they supply themselves only in proportion to each of them`s participation in the corresponding costs of DEPA or third parties, as provided for in the supply contract between them. Another key element of a take or payment clause is that the TOP quantity is not defined, but is adjusted to reflect events that occur during the year. As a general rule, the TOP quantity is reduced by quantities that: (a) the Seller has not made available for delivery; (b) have been rejected on the grounds that they do not meet the quality specifications; and (c) the Buyer was unable to take due to force majeure. These standard deductions reflect the basic principles that a buyer should not pay for goods that could not be delivered; the obligation to take or pay applies only to goods that meet the required specifications (or that the buyer accepts, even if they are not specified); and that force majeure should contribute to the full release of some of the obligations affected by force majeure. Another area that is discussed in detail when negotiating a ”take or pay” contract revolves around whether the seller is obliged to actually deliver the goods or whether the seller is simply obliged to make this quantity available to the buyer for delivery at the agreed place of delivery. From a purely legal point of view, the completion of the delivery essentially requires both the offer of delivery by the seller and the receipt and acceptance by the buyer. For example, a seller cannot supply gas to a piping system if it has not designated that quantity for transportation with the pipeline operator, and the seller cannot supply gas from a piping system if the buyer closes a valve immediately after the place of delivery. Similarly, a seller may not deliver LNG or liquid fuel to the buyer`s receiving terminal if it does not allow the ship to dock and connect to the unloading facilities. In all of the above cases, the Seller is able (and wishes) to offer or make available the gas for delivery, but delivery has been prevented by an act or omission of the Buyer.
Take or Pay is a written provision in a contract under which a party is required to deliver goods or pay a certain amount. Take or pay provisions benefit both the buyer and the seller by sharing the risk, and can benefit society by facilitating transactions and reducing transaction costs. The Japan Fair Trade Commission (JFTC) recently conducted an investigation to examine destination restriction clauses in contracts for the sale and purchase of liquefied natural gas (”LNG”). At the end of the conclusions reported by the JFTC, there is a somewhat critical comment about the ”take it or pay” contractual structure that has long been used in the LNG industry. [1] Background: In the case of a traditional ”take or pay” contract, the buyer must pay the full contract sale price for the full quantity contracted for each measurement period (usually on an annual basis), including the quantities that it does not actually absorb during the measurement period […].