Hogan Lovells Publications | Quarterly Corporate and M&A Decisions Update | February 2021
2020 Q4 Decisions Update
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))
Summary
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 a 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 business-to-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.
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 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.”
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