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The EFET-Master Agreement for the trade of electricity. It has been drafted by EFET and is an umbrella agreement which comprises of General Terms and Conditions on supply modalities, payment modalities, settlement risks, risks of failure, netting compensation and the term. It applies to each of the underlying transaction.

Evaluation of selected provisions:


§7.  Non-Performance due to Force Majeure

According to §7 of the EFET agreement the Definition of Force Majeure includes 3 elements:

-          An occurrence beyond the reasonable control of the Party claiming Force Majeure;

-          Which it could not reasonably have avoided or overcome;

-          Which makes it impossible for the Claiming Party to perform its delivery or acceptance obligations

The Definition includes, but is not limited to, the next occurrences:

-          Failure of communications or computer systems of the relevant Network Operator(s);

-          Suspension of delivery or acceptance or disregard of the Claiming Party’s obligations by the Network Operator(s).

In case of Force Majeure the Claiming Party shall notify the other Party as soon as possible and provide a non-binding assumption of extent and duration of Force Majeure circumstances, reasonably update this information and use all commercially reasonable efforts to mitigate the effects of the Force Majeure.

In case of fulfillment of all requirements (including notification and mitigation), the claiming party shall be released from the obligations of delivery or acceptance under the contract(s) for the term and extent of the Force Majeure.    

§7 of EFET agreement also provides for no obligations to pay damages pursuant to §8 due to Force Majeure.

Furthermore, if one Party’s obligations are released under the Force Majeure, the other Party’s obligations are also released.

Author: Maria Zhigalova

§ 8 Remedies for Failure to Deliver and Accept

The basic concept of the EFET agreement is to govern the terms and conditions concerning the delivery and acceptance of electricity. Therefore, the failure to comply with these obligations is analyzed with in some detail under §8.

According to this provision, damages are payable for seller’s failure to deliver the required amount of electricity, when such failure does not fall into the scope of Force Majeure or is not the result of the other’s party non-performance. The damages are reasonable defined as the market price minus the contract price multiplied by the undelivered quantity. The reason behind this manner of calculation lies on the fact that damages cannot be incurred when buyer is able to purchase the undelivered quantity at a price lower than the contract one. Furthermore, in the reimbursement are legitimately included incremental costs and expenses as a compensation for the extra efforts undergone by the receiving party in order to find another source of supply. It should be noted that transmission costs are referred to as indicative but not exhaustive examples of incremental costs.

The same concept of calculation applies in the case of buyer’s failure to accept the ordered quantity of electricity, under the same conditions granted to the seller. The damages are defined quite similarly as the contract price minus the market price multiplied by the non-accepted quantity plus any incremental costs that might be charged to the supplier.

All the transactions executed under this provision should be invoiced and paid according to § 13 of the EFET Agreement.

Author: Katerina Sideromenou

§ 9 Suspension of Delivery:

§ 9 of the EFET Master Agreement grants a non-defaulting party, in front of a default of any payment due under the agreement or any other fault regarding the performance assurances or the credit support documents by the other party (the defaulting party), the right to immediately cease the further deliveries of electricity and be released of its further supply obligations until it has received full payments of the amounts due or collateral guarantee of such payments.

§ 9 is clear to state that supplying obligations of the non-defaulting parties are released and not just suspended for the period that the default lasts. However, because before ceasing the supply, the non-defaulting party shall send a letter to the defaulting party notifying the default occurred and asking for its cure. The non-defaulting party can only exercise its right to stop the supply after three business days of having delivered the indicated letter to the defaulting party.

During the exercise made in class, our group discussed the possibility of ceasing the supply of energy in case of default by buyer. However, in our draft of the contract, it was agreed that the non-defaulting party had the right to immediate stop the supply as soon as the default occurred by the defaulting party. In other words, our draft of contract did not contemplate the obligation of the non-defaulting party to notify the defaulting party of such default and give him three business days to cure the default. It is clear then that the EFET Master Agreement is more beneficial for the defaulting party, and probably for the continuity of the contract, as it allows for three additional days of energy supply and the opportunity for the defaulting party to cure its default during this period without further major consequences.

Author: Marco Ureña-Pérez

§ 10 Term and Termination Rights:

§ 10 of the EFET Master Agreement addresses the term of operation of the Agreement. There are two instances in which the Agreement can be terminated: an Ordinary Termination where either the Agreement expires due to a pre-determined date being reached as specified in the Election Sheet, or where one party gives 30 days written notice and both parties fulfil all obligations created or existing under the Agreement prior to the date of termination (§10 section 2); and a Termination for Material Reason (§10 section 3). Material reasons are defined under the Agreement (§10 section 5) to include:

  • Non-Performance - where one party fails to make a payment, to deliver a Performance Assurance, or perform any other material obligation that is not cured within a set time frame
  • Cross Default and Acceleration - relating to payment defaults
  • Winding Up/Insolvency/Attachment - a variety of insolvency scenarios are provided for
  • Failure to Deliver or Accept - including compliance with obligations under Individual Contracts
  • Force Majeure - failure to serve the Agreement in the event of extraordinary, detrimental events
  • Representation or Warranty - where incorrect or misleading claims are made by either party

When entering into the Agreement, the parties must elect whether automatic termination should apply. This overrides the need for parties to provide notice in the event that a material reason occurs and can therefore have particular ramifications in the event of a liquidation, where timing can be key. In other cases, §10 section 3 specifies important procedural details for executing an Early Termination due to the application of a material reason, including notification, specification of a termination date, and payment of a termination amount.

It is considered that §10 of the EFET Master Agreement seeks to provide some certainty in the event of the termination of an Agreement, and provides for a carefully developed, exhaustive range of circumstances that could lead to the need for termination, which individually negotiated contracts may overlook.

Author: Joseph Crichton

§ 12 Limitation of Liability

Under § 12 section 2 of the EFET Master agreement a party is not liable to the other party for any damages – except e.g. in respect of remedies for failure to deliver and accept – incurred by the other party except where such damages are due to gross negligence, intentional default or fraud of a party. This means vice versa that a Party is always liable for the failure of delivery or acceptance whether the Party acted with slight or gross negligence, intentional default or fraud.

Concerning the draft we negotiated individually during class, this provision is easier to handle and therefore preferable.

In the individually negotiated draft, we discussed to incorporate a provision for the compensation of damages for the failure of delivery or acceptance only in case of gross negligence, intentional default or fraud of a party.

Additionally, § 12 section 4 of the EFET Master agreement clearly states that nothing excludes the liability for:

  • intentional default,
  • fraud or
  • any actions which endangers the fundamental legal or contractual rights of a Party.

In our individually negotiated contract, we did not think about a sole provision concerning the limitation of any kind of liability in case of “severe default” or “fraud”.  

As compensation of damages might be claimed for any kind of “misbehavior” or reason, such a provision is nice to incorporate in order to avoid any misunderstanding or misinterpretation of the agreement in this respect.

The same applies to § 12 section 3 (a) of the EFET master agreement as it clarifies that the liability under the agreement for consequential damages are not indefinite but limited to intentional default, fraud or actions which endangers the fundamental legal or contractual rights of a Party.

Author: Anna Meuthen


§ 15 - Floating Prices and Fallback Procedure for Market Disruption

The §15 of the master agreement EFET deals with the calculation procedure for floating prices, also establishing fallback procedures for the event of market disruption.

For this purpose, it specifies that if a contract price is based on an index, exchange or any kind of variable reference price, its amount shall be determined on the settlement date at the settlement price as specified in the individual contract, accordingly to the calculation method and considering the calculation date (which is the date specified in the individual contract to determinate the settlement price for the specific delivery). The Calculation Agent, which unless otherwise specified is the seller (§15.5), shall provide prompt notice of the settlement price to the buyer.

In case of market disruption, the calculation agent shall determine an alternative price to which the relevant individual contract shall be settled (the "Alternative Settlement Price"), accordingly to the applicable fallback Mechanism set at §15.3.

The following fallback mechanisms to define the Alternative Settlement Price (further just ASP) shall be used in order of succession:

(a) Fallback Reference Price: the ASP shall be determinated  based upon the price for the first Alternate Commodity Reference Price specified in the individual contract. If no Alternate Commodity has been agreed on, the next applicable Fallback Mechanism shall apply;

(b) Negotiated Fallback: Each party shall promptly negotiate in good faith to agree with the other on an ASP or a method for its determination). If no agreement is reached until the 5th business day after the settlement date, the next Fallback mechanism shall apply;

(c) Dealer Fallback: On or after six (6) business days following the first calculation date on which the market disruption event occurred or existed, the parties shall promptly and jointly agree upon three independent leading participants in the relevant market ("dealers") selected in good faith among participants of the highest credit standing. Each dealer shall determinate the ASP taking into consideration the latest available quotation for the relevant commodity reference price and any other information that in good faith is deemed relevant. The final ASP shall be the arithmetic mean of the three amounts determined by each dealer, in which case the calculation shall be binding and conclusive in the absence of manifest error.

§15.4 defines the concept of Market Disruption Event, which shall be considered the unavailability of the commodity price information for the definition of the individual contract floating price, which may consist in the following events:

(a) the failure of any relevant price source to announce or publish information necessary for determining the commodity reference price;

(b) the temporary or permanent objective unavailability of any relevant commodity reference price;

(c) a temporary or permanent closing of the price source of any relevant commodity reference price;

(d) the discontinuance or suspension of, or the imposition of a material limitation on, trading in any relevant futures contract or commodity offered by the relevant exchange for the commodity reference price;

(e) the occurrence since the date such Individual Contract was entered into of a material change in the details of the composition of or specifications for any relevant commodity or commodity reference price (i) which are entered into or incorporated in any relevant futures contract or offered by the relevant exchange or (ii) which are used by any other relevant institution for determining the commodity reference price in compiling the price information necessary for determining such floating price; or

(f) the occurrence since the commencement of the relevant individual contract of a material change in the method of calculation used for any relevant commodity reference price to determine the price information necessary for determining such floating price.

Author: Eduardo Caruso Cunha



§ 17 Perofrmance Assurance

During the lifetime  of the EFET agreement, the financial situation of the parties will fluctuate. In case the financial position of one party substantially deteriorates, also known as a material adverse change1 , the other party should be able to act swiftly and require performance assurance.2 This assurance usually has the form of further credit support.

Paragraph 17 (1) provides two elements that must be fulfilled in order for a performance assurance to be required.

These Elements consist of:

1)  The Belief, in good faith, from the requesting party that a Material Adverse Change has occured and

2) The Written Form (Notice) requiring the performance assurance.

Paragraph 17 (1) also encompasses the means, which the requested party can fulfill its obligations of performance assurance.

It can do so:

a) by providing a Letter of Credit to the other party or

b) by paying Cash or

c) by providing any other Security (including a bank or parent guarantee), in a form and amount reasonably acceptable to the requesting party.

Moreover after the receipt of the written notice, the other party shall within three (3) Business Days provide to the requesting party the performance assurance required.

Paragraph 17 (2) lists the incidents of a Material Adverse Change. MAC shall have occurred if the conditions of one or more of the following events has occurred and is continuing insofar as such event is specified as applying to a party in the Election Sheet:

a) Credit Rating

b) Credit Rating of a Credit Support Provider that is a Bank

c) Financial Covenants 

d) Decline in Tangible Net Worth

e) Expiry of Performance Assurance or Credit Support Document

f) Failure of Performance Assurance or Credit Support Document

g) Failure of Control and Profit Transfer Agreement

h) Impaired Ability to Perform

i) Amalgamation/Merger.

Material Adverse Changes can be divided into two variants: a subjective and an objective variant.

A subjective material adverse change takes into account the situation whereby a party (or its credit support providor) suffer a material adverse change which affects its ability to perform its financial obligations in the reasonable opinion of the other party.

An objective material adverse change is that event and the situation after it that trigger the inability of a party (or its credit support providor) to perform its financial obligations.


Paragraph 17of the EFET Master Agreement provides for a wide array of options, creating a good balance between both subjective and objective material adverse changes, whereby counterparties can cater for their own specific situation and needs.3  

Author: Flegkas Konstantinos


§ 19 Assignment

EFET-Master Agreement, facilitating the conduct awareness, prescribes personal performance of commitments by contracting parties. Thus, it contains a prohibition for contracting Party to assign its rights and obligations to a third Party unless the other Party gives a prior written consent.

To prevent abusive behavior of the other Party para. 19 section 1  points out that such consent shall not be unreasonably delayed, refused or withheld. 

Nevertheless, from the author’s point of view, above mentioned provision seems to be unclear and vague. Applying this rule some problematic questions may arise:

  1. What has to be considered as “unreasonable”  delay/refusal/ withheld;
  2. What are possible grounds, i.g., to refuse the assignment of rights and obligations;
  3. If assigning Party has to present arguments for its assignment; and so on.

Section 2 of para. 19 can be specified as applying in Election Sheet. In this case each Party is entitled to assign its rights and obligations without a prior written consent of the other Party.  Conditions to be fulfilled:

  1. Rights and obligations are assigned to an Affiliate;
  2. The affiliate has to have an equal or greater creditworthiness;
  3. The assigning Party has notified of the assignment, and the notice has been received by the other Party (the Assignment becomes effective only after that!).

Author: Ekaterina Baskova


§ 20 Confidentiality

According to § 20 of the EFET Master Agreement, neither Party shall disclose the terms of an Individual Contract (“Confidential Information”) to a third party. In order to reap the benefits from efforts to improve their contractual position, the relative contents need to remain private.

This general statement, however, is limited in scope by different exclusions from the notion of Confidential Information. It shall not include information which:

(a)    is disclosed with the other Party’s prior written consent;

(b)   is disclosed by a Party to the Network Operator, its directors, employees, Affiliates, agents, professional advisers, bank or other financing institution, rating agency or intended assignee;

(c)    is disclosed to comply with any applicable law, regulation, or rule of any exchange, system operator or regulatory body, or in connection with any court or regulatory proceeding;

(d)   is in or lawfully comes into the public domain other than by a breach of this §20 or

(e)    is disclosed to price reporting agencies or for the calculation of an index provided that such disclosure shall not include the identity of the other Party.

These exclusions mitigate the general rule, whereas the Parties do not have more advantages to keep the relevant terms of the contract secret.

Nevertheless, the Parties shall take reasonable steps to keep information confidential, in their mutual interest.

Paragraph 20 provides also for a temporal limitation of the Party's obligation in respect of an Individual Contract: it shall expire one year after expiration of such Individual Contract.

Author: Marta Gervasio


§ 22 Governing Law and Arbitration

The EFET Master Agreement for electricity and natural gas has become the predominant market standard for physically settled wholesale energy transactions in continental Europe.

Many of the EFET provisions are inspired by German or English law. Under para. 22 section 1of the EFET Master Agreement for electricity, the governing law is the substantive law of the Federal Republic of Germany. However, the parties are free to make amendments and choose a foreign law as applicable law, by way of the EFET Election Sheet. The Election Sheet is a form consisting of a number of pages in which the parties establish how the Master Agreement shall apply to them.

It is true though that  legal issues concerning specifically the EFET Agreement have not be raised before the courts so far. Existing case law developed more or less remote from energy trading and is not related to a Master Agreement. Energy traders are rather reluctant to start any litigation as it involves a lot of time away from the core  business and might lead to bad publicity.

According to para. 22 section 2 of the EFET Master Agreement, if a dispute arises it shall be referred for resolution to the German Institution of Arbitration (DIS) and decided under its rules by three arbitrators. Further, the arbitration shall be conducted in the language specified in the Election Sheet. Once again, there is no restriction regarding arbitration and enforcement of foreign/local arbitral awards is possible, since the parties make the amendments relevant  in the Election Sheet.

For mainly economic reasons, parties often prefer to settle a dispute in a friendly manner instead of addressing to the ordinary courts or the court of arbitration. Besides, a judgment will be rendered leaving one of the parties in the unpleasant ‘losing’ position and it may take a long time until all remedies are exhausted.

Author: Chrysoula Alexiou



The EFET-Master Agreement is avaiblabe: (accessed: 8th February 2013)


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