Contracting for Forest Carbon : Elements of a Model ... - Forest Trends

More documents

Recommendations

Info

(d) A failure to deliver payment when due.9.2 Successive failures to deliver VERs asprovided in clause 2.1 for three consecutiveyears is an additional Event of Default on thepart of the Seller Representative.9.3 Successive failures to accept delivery ofVERs as provided in clause 2.1 for threeconsecutive years is an additional Event ofDefault on the part of the Buyer.In contrast with the simple language in thesample agreement at 9.1(a), bankruptcy defaultprovisions are often very long, complicated, andheavily negotiated. The complexity is to prevententities that are reorganizing, merging, or beingpurchased from evading contractual obligations.Detailed bankruptcy provisions are likely to berequired in the forest carbon context as themarket matures and expands and small,independent carbon brokers (forest carbonbuyers, often) may be acquired by largercommercial entities.In terms of simple failure to perform under theagreement, any failure by the buyer to pay isgenerally treated as a default (though a shortgrace period may be provided), where a failureby the seller to deliver one or more installmentsdoes not generally rise to that level. Compareclause 8.1 to clause 9.1(d) in the sampleagreement.RemediesIt is important to define an event of defaultprecisely, because if an event of default occurs,contractual remedies become available to thenon-defaulting party. However, a “cure period”may be provided for the defaulting party to fixthe problem without triggering the remediesprovision.Contractual remedies may be the only recourseavailable, or the non-breaching party may alsobe able to seek recovery in a court of law. Theagreement may also provide for differentremedies, depending on the severity orwillfulness of the breach, or other circumstances.If in-kind payments are used in the form ofequipment, then the parties might considerrepossession as a remedy for default by thesellers’ representative. However, care should betaken before imposing monetary damages orrepossession on small-scale and communitybasedsellers, for whom they could bedevastating.Box 12. Sample Remedies ClauseArticle 10. Remedies.10.1 Default Notice. If either party becomesaware that an Event of Default has occurred onthe part of the other party, it shall promptlynotify the other party in writing of the Event ofDefault (the “Default Notice”).10.2 Cure Period. Unless an Event of Defaultis due to material breach of a representation, isintentional, or is the result of gross negligence,the defaulting party may cure the Event ofDefault within five Banking Days of delivery ofthe Default Notice, thereby precluding theavailability of remedies under this clause.10.3 Remedies. In the case of an Event ofDefault by the Seller Representative:(a) The Buyer is limited to the remediesexpressly provided in this agreement.(b) The Buyer may terminate thisagreement and, if the Event of Default isintentional or due to gross negligence on thepart of the Seller Representative, the SellerRepresentative shall return advance payments, ifany were made, and shall pay U.S. $in liquidated damages not later than 10Banking Days after the Seller Representativereceives the Default Notice.10.4 In the case of an Event of Default bythe Buyer:Contracting for Forest Carbon | 16
(a) The Seller Representative is limited tothe remedies expressly provided in thisagreement.(b) The Seller Representative mayterminate this agreement and, if the Event ofDefault or due to gross negligence on the part ofthe Buyer, the Buyer shall pay U.S. $in liquidated damages not later than 10Banking Days after the Buyer receives theDefault Notice.Dispute SettlementIn order to facilitate conflict resolution, theparties should define procedures for settlingdisputes under the purchase agreement, such ashow a certain term or phrase should beinterpreted or what the rights andresponsibilities of parties are under specificcircumstances.Most disputes are likely to be resolvedinformally, which the sample agreementformalizes in clause 11.1 (Box 15). Informaldiscussion is the least cost alternative for disputeresolution.Box 13. Sample Dispute Resolution ClauseArticle 11. Dispute Resolution.11.1 Informal Discussion. In the event adispute arises under, out of, or relating to theinterpretation, application, or performance ofthis agreement, the parties shall first attempt toresolve the dispute by discussion andnegotiation.11.2 Choice of Law. This agreement isgoverned by, and is to be construed inaccordance with, the laws of the United Statesand the State of New York, as applicable.Though the sample agreement does not do so,the agreement may allow or require mediationand/or arbitration if the parties fail to resolve thedispute by informal discussion. Both mediationand arbitration are forms of “alternative disputeresolution,” (ADR) because they provide analternative to resolving disputes in court. Inmediation, the parties submit their dispute to athird party that tries to help them find acompromise solution. In arbitration, one ormore persons – the arbitrators or arbitraltribunal – will evaluate the dispute and come toa decision, while remaining removed from thediscussion and settlement process between theparties.In mediation, the parties are bound to seek amutually-agreeable solution, although they arenot generally bound to an outcome. Inarbitration, the parties agree to present thematter to an arbitrator instead of going to court.The parties may or may not be bound tocomply with the outcome of arbitration, butagreements often provide for non-bindingmediation and binding arbitration.Binding arbitration under agreed protocols canprovide certainty in neutral forum forinternational parties. The Permanent Court ofArbitration is often used in internationalpurchase agreements, although other forms ofarbitration exists. Arbitration is non-public andcan be made confidential, which manycommercial entities prefer.Arbitration procedures can be varied to suit theneeds of the parties. For example:• Using “bracketed arbitration,” the partiesagree in advance to the range of values thatmay be awarded, e.g. where liability is notdisputed.• In “baseball arbitration,” the arbitrator mustrule for the party that has the mostreasonable position and may not split thedifference or decide on a compromiseposition.Other variations exist. In general, the outcomeof binding arbitration may not be challenged inContracting for Forest Carbon | 17
Page 1 and 2: Contracting for Forest Carbon:Eleme
Page 3: Contracting for Forest Carbon:Eleme
Page 6: AcknowledgmentsA joint project betw
Page 10 and 11: Legal costs make up a significant,
Page 12 and 13: individual or entity - a sellers’
Page 14 and 15: prior, and informed consent by all
Page 16 and 17: 3.5 Payment Mechanics. On or before
Page 18 and 19: in the agreement (see Box 11 - Defa
Page 20 and 21: qualified to perform validation and
Page 22 and 23: wrong from a regulatory perspective
Page 26 and 27: a court of law, but is binding on t
Page 28 and 29: (6) to time is to Eastern Standard
Page 30 and 31: Wrapping Up: Signaturesand AnnexesS
Page 33 and 34: Works CitedCERSPA Initiative. Certi

Contracting for Forest Carbon : Elements of a Model ... - Forest Trends

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?