No Encumbrances - IETA Provision

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IETA Emissions Trading Master Agreement

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No Encumbrances in a Nutshell

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No Encumbrances in all its glory

5.3 No Encumbrances. The Delivering Party shall Transfer to the Receiving Party the Period Traded Allowances free and clear of all liens, security interests, claims and encumbrances or any interest in or to them by any person. A breach of the Delivering Party’s obligations under this Clause 5.3 (the “No Encumbrances Obligation”) will have the following consequences:
5.3(a) this Agreement and all other Transactions agreed by the Parties under this Agreement shall continue unaffected; and
5.3(b) without prejudice to any defences available to the Delivering Party (including, but not limited to, any defences of statutes of limitation or similar), following written notice of that breach from the Receiving Party to the Delivering Party (irrespective of how long after the relevant Delivery Date such notice is provided) and subject to Clause 5.3(d) below, the Receiving Party:
5.3(b)(i) shall determine the Encumbrance Loss arising from that breach (the “Encumbrance Loss Amount”) either on the date such notice is deemed to be received or as soon as reasonably practicable thereafter; and
5.3(b)(ii) shall notify the Delivering Party of such Encumbrance Loss Amount due, including detailed support for its calculation.
The Receiving Party is not required to enter into Replacement Transactions in order to determine such Encumbrance Loss Amount.
5.3(c) By no later than the third (3rd) Banking Day after the later of (i) receipt of a valid invoice in connection with such Encumbrance Loss Amount and (ii) receipt of the abovementioned notice of such Encumbrance Loss Amount, the Delivering Party shall pay the Encumbrance Loss Amount to the Receiving Party, which amount shall bear interest in accordance with Clause 9.5 (Interest). Upon payment of the Encumbrance Loss Amount by the Delivering Party, the Parties shall have no further obligations in respect of that Transaction and that breach. The Receiving Party acknowledges that its exclusive remedies in respect of such breach are those set out in this Clause 5.3.
5.3(d) Where a breach of the No Encumbrances Obligation is caused by the Transfer of an Affected Allowance, the Delivering Party shall be liable for the Encumbrance Loss Amount if, at the date it first acquired, received or purchased such Affected Allowance it was not acting in good faith; otherwise, the Delivering Party shall only be liable for the Encumbrance Loss Amount if, and without prejudice to any other defences available to the Delivering Party (including, but not limited to, any defences of statutes of limitation or similar):
5.3(d)(i) the Receiving Party, whether or not the holder of such Affected Allowance, who is subject to a claim of the Original Affected Party, has, in order to resist or avoid any Encumbrance Loss Amount from arising, used its best endeavours to defend such a claim in respect of that Affected Allowance (including, if available, by relying on Article 40 of the Registries Regulation or any equivalent legal principle under its applicable national law) and was unsuccessful (other than for reasons of its own lack of good faith); or
5.3(d)(ii) the Receiving Party, whether or not the holder of such Affected Allowance, who acted in good faith in respect of its purchase of such Affected Allowance and who is subject to a claim of a third party (other than the Original Affected Party) in respect of that Affected Allowance, has used all reasonable endeavours to mitigate the Encumbrance Loss Amount.


See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs

Resources and Navigation

Emissions trading documentation

ISDA: EU AnatomyEU Wikitext EU Nutshell (premium) • UK AnatomyUK Wikitext (to be merged into EU Anatomy)
IETA: IETA Master AgreementIETA WikitextIETA Nutshell (premium)
EFET: EFET Allowances AppendixEFET Allowances WikitextEFET Nutshell (premium)

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Pro tip: for tons of information about EU ETS and EU financial services regulation see Michał Głowacki’s magnificent website.



The absence of encumbrances — which was a matter of concern, in the early days of the emissions trading world, while birth pangs nascent fraud still ricocheted and lapped across the carbon soup of the primordial EU Emissions Trading Scheme — is covered fulsomely, consistently — if not a little defensively — in all the emissions master trading documents.


Here is a comparison of ISDA vs IETA and, while you’re at it, comparison IETA v EFET. Oh, go on, here is the comparison of ISDA v EFET too. Don’t say I don’t spoil you.

We also have a special section about Unauthorised Transfers (being ISDA Section (d)(vii)(4), IETA Clause 5.4(d) and EFET Clause 6.3(d)) which goes into all the wailing and gnashing of teeth that goes with breaches of the No Encumbrances Obligation brought about specifically by theft.



There are times when you wonder whether the crack drafting squad™ for first conceived of this — we think it was IETA’s, but you never know — didn’t fall through some wormhole into a parallel, more paranoid, universe, when drafting their hypotheticals. What, honestly, is going on here? Take a crumb comfort from the fact that the drafting is more or less the same which ever master agreement form you are using.

What a shower. There will seldom come a time where a nutshell version of a clause would come in more handy, readers. If only you subscribed to the premium version of the JC you would have one. It is partly a case of shambolic conceptual organisation, partly ropey drafting, but this clause makes an omnishambles of a fairly straightforward concept.

You might struggle to believe it from reading the clause, but what happens is this: if Delivering Party delivers Allowances in fragrant disregard of the fact that some random has a claim on them, and Receiving Party finds out — presumably by means of an angry letter from said random — Receiving Party can send Delivering Party a notice, calculate its loss (which we suppose would be the market value of any Allowances it has to account to said angry, letter-writing random) and send an invoice. Delivering Party has three Banking Days to pay, with interest. Once paid, that’s it, everyone moves on. Though there is an odd caveat that this procedure is without prejudice to any defences Delivering Party might have, including ones based on limitation periods — which makes us think the responsible crack drafting squad™ had some morbid fear of calumnies buried deep in ancient history coming back to bite them.

Note: contractual limitation periods run from the point where the cause of action arises, not when you reasonably could know you have suffered a loss.

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  • The JC’s famous Nutshell summary of this clause
Template:Emissions No Encumbrances gen

See also