SS M&A Litigation Outlook - Flipbook - Page 11
Travelport Ltd and others v. WEX Inc; Olding and others v. WEX Inc,
([2020] EWHC 2670 (Comm)) (English High Court, Queen’s Bench Division (Commercial Court))
Why it is important
Summary
In Travelport Ltd & Ors v WEX Inc [2020] EWHC
2670, the English High Court issued a ruling of
first impression in that court, finding that the
COVID-19 pandemic constituted a material adverse
effect (MAE) entitling an M&A buyer to back out
of its agreement to purchase a payment solutions
company for US$1.7 billion. The MAE clause at issue
included an exception for “conditions resulting from
… pandemics” having “a disproportionate effect
on [the Target], taken as a whole, as compared to
other participants in the industries in which [they]
operate.” The court referenced Delaware law in its
analysis due to limited English precedents, and
found that the term “industry” in the MAE clause
should be construed to mean the broad industry in
which the target business operated – which had not
experienced substantial adverse effects from the
pandemic – rather than the narrower industry sector
the target business operated in, which was focused
on travel and had been negatively affected by the
pandemic. The ruling reinforces that principles of
contract interpretation will guide jurisprudence
regarding MAE clauses and could lead M&A parties
to define industries with greater specificity for
purposes of MAE clauses.
In this case, the first English commercial court
dispute which was brought about by the COVID-19
pandemic, the court was asked, at a preliminary
hearing, to construe Material Adverse Effect (MAE)
provisions in a share purchase agreement (SPA).
WEX Inc, a fintech providing corporate payments
solutions, entered into an SPA to purchase 100
percent of the shares in eNett Ltd and Optal Ltd
(together, the Target) for US$1.7 billion. The
Target’s business was providing virtual payment
solutions, with 97 percent of its client base in the
travel industry.
The MAE provisions in the SPA at the center of the
dispute operated such that, if conditions resulting
from the pandemic caused a disproportionate
effect on the Target’s financial condition as
compared to other participants in the Target’s
industry, WEX was not obliged to close. WEX
alleged that an MAE had occurred due to the
COVID-19 pandemic. The sellers, being the
shareholders of the Target, alleged otherwise and
brought an action seeking specific performance.
The central question at the preliminary hearing was
which “industry” the Target should be measured
against for purposes of determining if the Target
had suffered a disproportionate impact from the
COVID-19 pandemic that could constitute an
MAE. WEX contended that the term “industry”
should be construed as referring to the businessto-business (B2B) payments industry, which is the
broad industry the Target operates in. The Sellers
contended that it was the travel payments industry
(TPI), which comprises participants who deal
in B2B payment products in the travel industry
and is effectively a sector within the broader B2B
payments industry.
provisions, this was a significant decision, which
illustrates the need for careful drafting of MAE
provisions in M&A agreements. In its ruling, the
court stated that the term “industry,” in a sense,
“helped no-one” and that “it may well be that one
result of this case is that future drafters will
do differently.”
The court found that the word “industry” should be
given its ordinary and natural meaning because in a
heavily negotiated contract the court “must assume
that all wording has been carefully scrutinized by
lawyers and is used wittingly and advisedly.” The court
also considered Delaware law, particularly Akorn Inc
v Fresenius Kabi AG, No. 2018-0300-JTL, 2018 WL
4719347 (Del. Ch. October 1, 2018), for guidance as to
the purpose of MAE provisions in M&A agreements,
which indicated that they operate to allocate market/
industry risk to the buyer, and company-specific risk,
to the seller. The court noted that foreign law was
informative rather than binding, and that the parties
were ultimately at liberty to allocate risks through an
MAE clause through the language they chose.
Given the dearth of English case law on MAE
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