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Business & Operational Risks, Remedies and Defensive Tactics For Consortium Participants Faced With Pre-Discovery Default

Robert Attai, 2015 International Mining and Oil & Gas Law, Development, and Investment

VI. Practice Tips; Alternative Approaches

In some projects JOA participants should not rely on the standard JOA's contractual remedies without first considering carefully how they might apply to their project. For example in some situations if the purpose of JOA remedies is to discourage a Party from calling another in Default, and to encourage the negotiation of mutually agreeable alternatives, then some of the available remedies are well suited to the goal. The remedies described above (other than the foreclosure option) increase the non-defaulting parties' Participating Interests and the attendant financial obligations. Consequently the balance of power in terms of negotiating leverage may shift in favor of the Defaulting Party because the non-defaulting parties must bear the Defaulting Party's share of the consortium's financial obligations at a time when they may not be able to afford to do so.

Due Diligence

Each party to a JOA should conduct due diligence on the other parties to determine creditworthiness, capitalization and sources of future capital. Ideally each party would conduct a thorough review of the other parties' financial wherewithal before agreeing to be jointly and severally liable to the sovereign and before entering into the complex financial and operational relationship created by the JOA. Unfortunately for reasons relating to ti