Take-Or-Pay Agreement

A take or pay contract is an agreement that helps protect the seller if the buyer refuses to buy or take back the items. This is a written agreement between the buyer and the seller. The goal is to protect the seller if the buyer refuses to accept the items. Many call this the „killing clause.“ Another expression of this principle of set-off is that of the general conditions in force in supply contracts, according to which the seller should provide supporting documents and documents on all of its annual deficit amounts which, according to the relevant take or pay clause, have given rise to claims by its suppliers ahead of the seller[15]. Often, take or pay contracts to include clauses describing the circumstances in which the parties will renegotiate the terms of the agreement. These clauses are as follows: this is how take-or-pay contracts encourage energy suppliers to invest in the business. These agreements serve as assurance to suppliers that they will recover the costs. If there is no such contract, the supplier must bear all risks, including the cancellation of an order due to price fluctuations. When an over-the-counter or payment payment is payable, it is often significant and the buyer will dispute it, usually arguing that it is an unenforceable penalty or that the underlying cause was a force majeure event and that, therefore, the amount of TOP is reduced (or both). The fact that an over-the-counter or paid payment is not due due due to a breach or delay (rather, it results from the buyer`s prevailing decision not to take the TOP quantity) is one of the main reasons why most UK and US courts have held that take or pay clauses are enforceable when a buyer challenges the clause as an unenforceable penalty. In these cases, the courts usually quickly indicate that no sanction can be imposed where there is no offence.

Some courts consider that a take or payment clause is similar to a capacity or reserve payment, in which the payment is considered to be consideration for the seller`s obligation to be ready for the performance by making available to the buyer the agreed quantity of goods instead of being a payment for the delivery of the real goods. Other courts often characterize an over-the-counter or payment payment as a down payment for the goods, especially when there is a make-up right, but we find that there is usually no transfer of ownership of the goods until it is delivered later. The justification for take-up or payment clauses is based on the nature of the energy projects, as the investments required for the research, design and construction of such projects are considerable. In this context, the conclusion of long-term contracts between a supplier and a customer guarantees suppliers a guaranteed income, more or less predefined conditions. In this sense, these clauses act as a risk-sharing mechanism between the supplier who has invested considerable funds, often financed by banks and who therefore seek to guarantee a guaranteed income, and the customer who seeks security of supply and a certain flexibility of prices. It also follows from the above that over-the-counter or payment clauses act as an implicit guarantee for the financing of a project by banks, with take-or-pay liabilities often being the main guarantee. The energy sector often uses OTC or payment rules, as energy supply requires a significant investment for overhead costs in gas, crude oil or other resources. Without this way of ensuring that they will have some return on their investment, they would have no incentive to spend capital in advance on production. As mentioned above, force majeure that prevents the buyer from taking the goods is one of the usual deductions on the top quantity, which eliminates any obligation to take or pay for that determined quantity. . .

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