Clauses 5.3.1. – 5.3.4 of the Schedule 4 EU ETS System Schedule of the International Emissions Trading Master Agreement Version 1.0 of 16 April 2012 (© International Emissions Trading Association (IETA))
With respect to Clause 5.3 (No Encumbrances), the consequences for a breach of the No Encumbrances Obligation by the Delivering Party in respect of an EU ETS Transaction shall be as set out in the sub-clauses below:
5.3.1 This Agreement and all other Transactions agreed by the Parties under this Agreement shall continue unaffected; and
5.3.2 Without prejudice to any defences available to the Delivering Party (including, but not limited to, any defences of statutes of limitation or similar), following written notice of that breach from the Receiving Party to the Delivering Party (irrespective of how long after the relevant Delivery Date such notice is provided) and subject to Clause 5.3.4 below, the Receiving Party:
(a) shall determine the Termination Currency Equivalent of the Encumbrance Loss arising from that breach (the "Encumbrance Loss Amount") either on the date such notice is deemed to be received or as soon as reasonably practicable thereafter; and
(b) shall notify the Delivering Party of such Encumbrance Loss Amount due, including detailed support for its calculation.
The Receiving Party is not required to enter into replacement Transactions in order to determine such Encumbrance Loss Amount.
5.3.3 By no later than the third (3rd) Banking Day after the later of (i) receipt of a valid invoice in connection with such Encumbrance Loss Amount and (ii) receipt of the abovementioned notice of such Encumbrance Loss Amount, the Delivering Party shall pay the Encumbrance Loss Amount to the Receiving Party, which amount shall bear interest in accordance with Clause 9.5 (Interest). Upon payment of the Encumbrance Loss Amount by the Delivering Party, the Parties shall have no further obligations in respect of that Transaction and that breach. The Receiving Party acknowledges that its exclusive remedies in respect of such breach are those set out in this Clause 5.3.
5.3.4 Where a breach of the No Encumbrances Obligation is caused by the Transfer of an Affected Allowance, the Delivering Party shall be liable for the Encumbrance Loss Amount if, at the date it first acquired, received or purchased such Affected Allowance it was not acting in good faith; otherwise, the Delivering Party shall only be liable for the Encumbrances Loss Amount if, and without prejudice to any other defences available to the Delivering Party (including, but not limited to, any defences of statutes of limitation or similar):
(a) the Receiving Party, whether or not the holder of such Affected Allowance, who is subject to a claim of the Original Affected Party, has, in order to resist or avoid any Encumbrance Loss Amount from arising, used its best endeavours to defend such a claim in respect of that Affected Allowance (including, if available, by relying on Article 37 of the Registries Regulation or any equivalent legal principle under its applicable national law) and was unsuccessful (other than for reasons of its own lack of good faith); or
(b) the Receiving Party, whether or not the holder of such Affected Allowance, who acted in good faith in respect of its purchase of such Affected Allowance and who is subject to a claim of a third party (other than the Original Affected Party) in respect of that Affected Allowance, has used all reasonable endeavours to mitigate the Encumbrance Loss Amount.