21 October 2020

The English High Court in Travelport Limited v WEX Inc [2020] EWHC 2670 (Comm) (“Travelport Limited”) recently handed down a decision regarding the interpretation of a material adverse change / material adverse effect (“MAE”) clause. Such a clause usually allows a buyer to walk away from an agreed acquisition of a company if the target company’s business, assets or profits suffer a material adverse change between a specified date (usually at the point a contractual commitment to purchase the target company has been created) and completion of the transaction.

In Travelport Limited, the defendant purchaser had entered into a share purchase agreement (“SPA”) with the claimant sellers to purchase the entire shareholding in two companies, eNett and Optal Limited. The sellers were the shareholders in eNett and Optal, and the value of the transaction was over US$1 billion.

The purchaser subsequently sought to invoke the MAE clause in the SPA to avoid closing the transaction, and the key issue was whether the occurrence of the Covid-19 pandemic engaged the MAE provision. The MAE clause provided that, “since the date of this Agreement there shall not have been any Material Adverse Effect and no event, change, development, state of facts or effect shall have occurred that would reasonably be expected to have a Material Adverse Effect.” It also contained a specific carve-out relating to “conditions resulting from … pandemics” (“Carve-Out”); and a carve-out exception where the adverse event had “a disproportionate effect on [the eNett or Optal Groups], taken as a whole, as compared to other participants in the industries in which [they] operate” (“Carve-Out Exception”). This meant that if the conditions resulting from the pandemic caused a disproportionate effect on either of the eNett or Optal Groups, each taken as a whole, as compared to other participants in the industries in which either of eNett or Optal (or their respective subsidiaries) operates, such conditions fall within the Carve-Out Exception.

As one of the preliminary issues, the court considered whether the financial condition of the seller should be measured against the narrow travel payment industry or the broader payments industry in general. These preliminary issues were heard on an expedited trial basis as the transaction was subject to an “outside date” of 25 October 2020, two business days after which (i.e. on 27 October 2020) the debt commitment letter agreed between the purchaser and the Bank of America (and certain affiliates and other lenders) as a guarantee of the purchaser’s ability to fund and close the acquisition, would lapse.

In its decision, the court applied conventional principles of contractual construction, and considered the relevant background which had bearing on the parties’ objective understanding of the terms in the SPA. It was held that the impact of the pandemic on the eNett and Optal Groups should be assessed against the broader payments market as there was no such thing as a “travel payments industry”. The court further noted that the parties had chosen to peg the reference to disproportionality in the Carve-Out Exception to “industries” as the comparator, and not “markets”, “sectors” or “competitors”, which would comprise a smaller and identifiable pool.


The case of Travelport Limited demonstrates the importance of parties specifying the reference point(s) against which the “impact”, in an MAE clause, should be assessed. As the court observed:

… the parties could have but did not specify what industries they meant. It may well be that one result of this case is that future drafters will do differently”.

Moreover, this decision also confirms the contractual allocation of risk in MAE clauses. In general, the risk of an MAE is placed on the sellers, and exceptions to an MAE clause are then used to reallocate specific categories of risks to the buyer. It follows that exclusions from the exceptions therefore return risks back to the seller.

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains knowhow and materials on legal and regulatory aspects of the Covid-19 crisis.

In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at covid19taskforce@allenandgledhill.com.


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