Insight: Take or Pay? - to take or not to pay, that is the question.

June 2008
Saul Daniel

DOWNLOAD PDF: Take or Pay? - to take or not to pay, that is the question.

The recent case of M&J Polymers Ltd. v Imerys Minerals Ltd. (the "Polymers Case") is the first English case to have explicitly considered the question of whether a take-or-pay clause could fall foul of the English law rule which prohibits contractual penalties.

In addressing this question the Polymers Case raises some interesting questions as to the enforceability of take-or-pay clauses and the extent to which sellers should be comfortable with the take-or-pay commitment.

This article addresses the following key questions:

• Can take-or-pay clauses be considered as contractual penalties?
• What is the English law rule against penalties?
• Would a failure to pay a minimum payment under a supply contract constitute a debt?
• What principles should be considered when preparing a take-or pay provision?
• What are the implications of this case for the energy sector?