Template:M summ EFET Allowance Annex 7

7.1 Definition of Force Majeure

Functionally, the definitions of “Force Majeure” under Clause 7.1 the EFET Annex and Clause 13 of the IETA, and the definition of “Settlement Disruption Event” under (d)(i)(4) of the ISDA Emissions Annex are the same — here is a comparison between IETA and EFET, and here is a comparison between EFET and ISDA — so you do wonder whose idea it was to call it something different.

Let us speculate: the IETA was written first, is independent of the ISDA universe, and for reasons best known to IETA’s crack drafting squad™, they decided to call this a “Force Majeure”. Being an event beyond the reasonable control of the affected party there is some logic to this.

ISDA’s crack drafting squad™ was, as usual, late to the “novel asset class” party and, as it couldn’t find a spot, decided to park its tanks on IETA’s lawn, borrowing much of the technology wholesale but unable to call this event a Force Majeure because the ISDA Master Agreement already has a Force Majeure Event, this is quite different — for whatever reason, the timings are a lot longer — and that would confuse people even beyond ISDA’s tolerance for confusing people.

So ISDA’s crack drafting squad™ went with its product specific “stuff happens” label, “Settlement Disruption Event”. In any case, to make your lives easier, “Force Majeure - Emissions Annex Provision” redirects to Settlement Disruption Event. The JC’s nice like that.

The differences are to account for the architecture and nomenclature of the different master agreements, though the IETA has a conflict clause favouring Suspension Event over Force Majeure/Settlement Disruption Event, which the EFET does not.

7.2 Suspension of Delivery and Acceptance Obligations

Note the similarity between 7.2, as it relates to Force Majeure, and 7.4(b) as it relates to Suspension Events. The difference being that (1) as long as it persists the affected Party must try its best to alleviate a Force Majeure, but is not so required for the Suspension Event, and (2) once the Force Majeure lifts, the Parties must resume their obligations within two Business Days, but if it is a Suspension Event, they have a more leisurely time frame of ten Business Days, at least, before they have to get on with it.

7.4 Settlement of Allowance Transaction Prevented by Force Majeure

It is interesting to compare, across all three of the emissions trading documentation suites, the differences and similarities when it comes to resolving an unquenchable Force Majeure.

• Notification: All are the same: either party can notify a Force Majeure. If the affected party is the one who calls it — but, curiously, not if it isn’t, which sets up some odd incentives, but hey — it must use reasonable endeavours to overcome a situation that is, by definition, beyond its control.
• Longstop date: all have variations of a longstop of no later than 9 Delivery Business Days after the scheduled Delivery Date, or earlier should a Reconciliation Deadline intervene. ISDA and EFET also throw in an End of Phase Reconciliation Deadline. Which is nice.
• Consequences of hitting the longstop: All of the agreements opt for the “then I woke up and it was all a dream” method of closeout — Force Majeure Termination Payment, at least as an option. They allow the alternative option for a Payment on Termination: ISDA goes for an Early Termination Date as if an Illegality Termination Event, with no Waiting Period, had occurred. EFET and IETA both try to reconstruct something like the termination methodology of a 1992 ISDA, descending into all that ugliness of “Market Quotation” and “Loss”.

7.5 Suspension Event

The definition of Suspension Event is more or less the same in all three emissions trading documentation regimes. Compare:
ISDA: Suspension Event
IETA: Suspension Event
EFET: Suspension Event
As an extra treat, here are some deltaviews:
IETA vs EFET: comparison
ISDA vs IETA: comparison