Given this vital importance, most readers would be surprised at how many times a so-called “take or pay” contract is actually not written as such, as the business result is much less desirable than what the seller and his lenders intended to do. This mistake is not limited to inexperienced negotiators and their advice. In a recent infrastructure project with a cost of capital in over $1 billion, the parties surprisingly found that the so-called take or pay contract was not really the same, although it was described as such in the proponents` project information memorandum and signed by project lenders and a highly respected project finance firm. In another example, a buyer succeeded, in the context of a long-term gas sales contract, in reducing his “take or pay” commitment by a decrease in market demand, which, despite the “take or pay” nomenclature, essentially transformed the contract into a “needs contract” (hereinafter referred to in more detail). Using only the phrase “take or pay” in an agreement does not necessarily do so. However, at least in the oil and gas context, courts tend to interpret “Take or Pay” contracts as a means of providing alternative services; a gas buyer can either buy the gas or pay a deficit. In other words, the courts find that as long as the buyer buys the gas or pays for the defect, there is no infringement and therefore there is no lump sum damages, since the payment of the deficit is not a remedy, but another means of performance. The Oklahoma Supreme Court explained this presentation in Roye Realty &Developing, Inc. v. Arkla, Inc., 1993 OK 99, 863 p.2d 1150.
In this case, Arkla, a gas buyer, argued that the non-payment provision in a “Take or Pay” contract was in fact a lump sum provision for damages. The Oklahoma Supreme Court rejected Arkla`s claim and said: This note begins with a summary of a “typical” take-or-pay structure. It then examines the range of positions that may exist with respect to fm relief for OTC or payment liabilities before assessing how these positions have been tested in the current environment. Finally, future trends in this regard are predicted (and mitigation options are proposed for which buyers cannot achieve the desired level of FM discharge). Another key element of a take or payment clause is that the amount of TOP is not determined, but is adapted to the events that occur during the year. As a general rule, the quantity of TOP is reduced by quantities that: (a) the seller does not supply on delivery; (b) were rejected because they did not meet the quality specifications; and (c) that the buyer could not take due to a case of force majeure. These standard deductions reflect the fundamental principles that a buyer does not have to pay for goods that could not be delivered. the obligation to take or pay only applies to products that meet the required specifications (or that the buyer accepts, even if they do not comply with the specifications); and that force majeure should contribute to the total release of part of its obligations under force majeure. . . .