Take-or-pay clauses in energy contracts: the rule on penalties
Produced in partnership with Phillip Ashley, Judith Aldersey-Williams, David Rutherford, and Leontine Mathew of CMS Cameron McKenna Nabarro Olswang LLP
Take-or-pay clauses in energy contracts: the rule on penalties

The following Energy practice note produced in partnership with Phillip Ashley, Judith Aldersey-Williams, David Rutherford, and Leontine Mathew of CMS Cameron McKenna Nabarro Olswang LLP provides comprehensive and up to date legal information covering:

  • Take-or-pay clauses in energy contracts: the rule on penalties
  • English courts’ attitude to take-or-pay clauses
  • Take-or-pay clauses and the rule on penalties
  • Background on primary and secondary obligations and on claims in damages and debt
  • Applicability of the rule on penalties to take-or-pay clauses
  • History and development of the rule
  • Position under current law
  • Cases supporting the current position in the context of take-or-pay clauses
  • The relevance of ‘substance over form’
  • The likelihood of take-or-pay clauses actually being found to be penalties if the rule on penalties applies
  • More...

This Practice Note considers the English Court’s attitude to take-or-pay clauses and provides a thorough consideration the rule on penalties in relation to take-or-pay clauses.

For an introduction to introduction to take-or-pay clauses in the energy sector and the regulatory and competition law issues regularly encountered, see Practice Note: An introduction to take-or-pay clauses in energy contracts.

For more information on drafting take-or-pay clauses and the common features encountered, see Practice Note: Drafting take-or-pay clauses in energy contracts.

English courts’ attitude to take-or-pay clauses

English Courts have generally recognised and upheld take-or-pay provisions in commercial agreements.

In Port of Tilbury (London) Ltd v Stora Enso Transport & Distribution Ltd, the defendant had an ongoing need to import, handle, store and distribute its paper in England. It entered into a long-term contract with the claimant, the Port of Tilbury (the ‘Port’), under which the Port agreed to construct facilities for the handling of the defendant’s paper at Tilbury and provide a number of services such as the unloading of paper shipped to the port and the loading of paper orders for despatch from the facilities. In return, the defendant agreed to supply a minimum quantity of paper to the Port each year, for a term of fifteen years, and pay the Port for handling that quantity of paper. Alternatively, the defendant agreed to supply less paper but still pay for

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