The unprecedented situation that the coronavirus pandemic has delivered to global commerce has impacted on a variety of contractual issues related to non-contentious day-to-day transactions.  The exchange of contracts marks the formalisation of an agreement between parties and launches what is hoped to be a prosperous venture. However, in uncertain times circumstances change between the moment of signature and the moment of delivery and subsequently many are left to ponder whether their business can execute their end of the contract.

Whether you are a business struggling to chart a path in murky waters and unwilling to overcommit yourself, or whether you are an enterprise unsure whether a venture is sensible, contractual clauses can form pivot points in your dealings.   Material Adverse Change clauses (MAC) clauses can be crucial and will usually be the subject of detailed negotiation between the parties. They are often wide in scope and often may be drafted in vague terms but in the current situation, such clauses could have far greater significance than seen previously.

A new regime left by a landmark case between WEX Inc -v- Travelport Limited and others, centred around the withdrawal of a company acquisition due to its much lower value as a result of financial difficulties faced due to the impact of the coronavirus pandemic. What resulted was a deal struck at a significantly reduced purchase price of the company as a result of the use of a MAC clause. 

The new precedent established by the purchasing company emphasised that the circumstances surrounding the share purchase agreement were no longer the same as at the moment the parties entered into their initial negotiations. As such, the shift in the encapsulating environment around the companies as well as the evident financial difficulties faced by the selling company created a deal that would have signified a tremendous overpayment.

In the current challenging climate it may be prudent to consider how such a scenario may impact the extended commercial environment, it is reasonable to surmise that court has a particular regard for external economics in the scope of assessing legal contracts. The lawyers in Giambrone's corporate and commercial team recognise that share purchase agreements represent a foundational manner in which M&A transactions occur, nevertheless, if one extends the principle established by the case one can extrapolate that courts read MAE clauses with an open view as to the circumstances affecting a contract and the impact the completion of the contract would have if it were to be fully carried out under its existing conditions.

To this regard, the insertion of a wide-ranging robust MAC clause is certainly something to consider in the establishment of contracts moving forward.  Giambrone's commercial lawyers also consider it is worth bearing in mind that, in relation to transactions entered into after the arrival of the coronavirus pandemic, it may be significantly harder to invoke a MAC clause that could be seen to be related to the changes to the current climate.  To invoke a MAC clause it will be necessary to show that there has been a material change that was unknown at the time they entered into the agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.