Template:M summ IETA Force Majeure and 13
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Definition
As per the overview, Force Majeure is substantially the same idea as “Settlement Disruption Event” in the ISDA EU Emissions Annex.
It is an event that, in each format:
- Is beyond the “affected party’s” reasonable control (having taking “all reasonable steps” to control it)
- Renders the delivery impossible to perform, acknowledging that this might be a problem at either end
- It excludes simply not having enough Allowances in your account, even if that is a result of some failure by a responsible official agency to issue Allowances in your account (as part of your annual allocation) or to replace stale allowances with fresh ones
- The hierarchy of Events of Default, Suspension Events and Force Majeure/Settlement Disruption Events is also the same.
Traumnovelle
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”.