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Travelport Ltd and Others v WEX Inc [2020] EWHC 2670: The importance of specific drafting in material adverse effect clauses


On 12 October 2020, the High Court handed down a landmark judgment regarding the interpretation of a Material Adverse Effect ("MAE") clause under a Share Purchase Agreement ("SPA"). This judgment is an as-yet rare example of consideration by an English Court of the appropriate construction of MAE clauses, and of litigation specifically arising as a result of the COVID-19 pandemic.

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Case background

The dispute between the parties arose as a consequence of the COVID-19 pandemic. The case raises various points relating to the proper approach to construction of a MAE for the purposes of a SPA.

The Claimants are the shareholders of eNett International (Jersey) Limited ("eNett") and Optal Limited ("Optal") (together, the "Sellers"). The Sellers' business includes issuing virtual credit card account numbers – unique card numbers that function like a physical credit card and can be used by one business to pay another.

Optal's principal client is eNett, which accounts for approximately 98% of Optal's revenue. The vast majority of eNett's revenue arises from the provision of services to customers operating in the travel industry.

The defendant ("WEX"), is a financial technology service provider, which offers corporate payment solutions. WEX's customers are other businesses and its products are used to make business to business ("B2B") payments.  

The proceedings concerned a transaction in which WEX agreed to acquire the parent companies of eNett and Optal by way of a SPA.

Under the SPA, WEX agreed to purchase 100% of the shares in eNett and Optal for total consideration of approximately USD$1.7 billion. Section 8.2(d) of the SPA provided:

"Since the date of this Agreement there shall not have been any Material Adverse Effect and no event, change, development, state of facts or effects shall have occurred that would reasonably be expected to have a Material Adverse Effect"

"Material Adverse Effect" was defined in the SPA as:

"any event, change, development, state of facts or effect that, individually or in the aggregate,

(x) has had and continues to have a material adverse effect on the business condition (financial or otherwise) or results of operations of [the Sellers] and its subsidiaries, taken as a whole, or

(y) would prevent or materially delay the consummation of the transactions contemplated by this Agreement;

The MAE clause was subject to a carve-out provision ("Carve-Out") which provided, solely for the purposes of clause (x), that:

"no such event, change, development, state of facts or effect resulting, arising from or in connection with any of the following matters shall be deemed, either alone or in combination, to constitute or contribute to, or be taken into account in determining whether there has been or will be, a [MAE],


(e) conditions resulting from any natural or manmade disasters, hurricanes, floors, tornados, pandemics, tsunamis, earthquakes, acts of God or other weather-related or natural conditions"

The Carve-Out at sub-paragraph (e) was subject to a further exception ("Carve-Out Exception") which provided:

"(i)…any event, change, development, or effect referred to in clause … (e) may be taken into account in determining whether there has been a [MAE] to the extent, and solely to the extent, such event, change, development, state of facts or effect has a disproportionate effect on [the Sellers] and its Subsidiaries taken as a whole … as compared to other participants in the industries in which [the Sellers] or their respective Subsidiaries operate"

This contractual structure was complex. However, in summary its effect was that a pandemic would not be treated as a MAE (thereby enabling WEX to avoid its obligations under the SPA) unless it could be shown to have caused a "disproportionate effect" on either of the Sellers, as compared to other participants in the industries in which they operated.

The SPA was signed and announced to the market on 24 January 2020. On 30 January 2020, the World Health Organisation (the "WHO") declared the outbreak of a new coronavirus a public health emergency of international concern. By 11 March 2020, the WHO classified the outbreak as a pandemic. As a result of the pandemic and subsequent government responses, including 'lock-down restrictions', there was a global decrease in travel and therefore payments to and from companies in the travel industry. This resulted in a decrease in the Sellers' revenue.

On 30 April 2020, WEX advised eNett that it considered a MAE had occurred and that accordingly it was not obliged to close under the SPA. Following correspondence between the parties, on 11 May 2020, the Sellers issued proceedings seeking: (1) a declaration that there had been no MAE; and (2) an order for specific performance of WEX's obligations under the SPA.

Case issues

The primary issue between the parties was whether the COVID-19 pandemic had a "disproportionate effect" on the Sellers as compared to other participants in their "industry" such that a MAE had occurred, or was reasonably expected to occur.  If so, then WEX would not be obliged to complete the transaction under the SPA.

In order to determine that question, the Court first had to identify the "industry" in which the Sellers operated, so that it could then consider whether the COVID-19 pandemic had disproportionately affected their financial performance as compared to others in that industry.  

The Sellers argued that they operated in an industry called the "travel payments industry", which they defined as follows:

"…[an] industry of providers of products and services to facilitate [B2B] payments to participants in the travel industry. A participant in the travel payments industry is to be identified by the fact that it providers [B2B] payment products and/or services that are particularly suited to meet the payment needs of participants in the travel industry and supplied to such participants"

WEX argued that no such "travel payments industry" existed, and that it was more appropriate to measure the Sellers' financial performance against the payments industry or the B2B payments industry. This distinction was fundamental: restrictions imposed as a result of the COVID-19 pandemic have plainly had a significant effect on all businesses connected with the travel industry.  As a result, if the business of the Sellers were compared to other participants in any "travel payments industry", then the effect of the pandemic would not be "disproportionate"; by contrast, any effect would be disproportionate when compared to other participants in the (much broader) payments industry or B2B payment industry. 

The Sellers contended that the MAE clause should be construed in light of its objectively determined "commercial purpose", namely to insulate WEX from "firm-specific" risks (which may give rise to a MAE) but not from broader "systemic risks" (which may not).  By contrast, WEX argued that the MAE clause had a broader ambit, and was intended to insulate WEX from risk pertaining to the broader market in which the Sellers operated, rather than "firm-specific" risk alone.


The Court found that the evidence was insufficient to establish the existence of a broader travel payments industry, and observed that the definition proposed by the Sellers appeared to have materialised for the purposes of the litigation.  Instead, it accepted the argument of WEX that the Sellers operated in the payments industry and B2B payments industry.  Although eNett's offering was particularly suited to the travel industry, it was not uniquely suited to that industry, and part of the value ascribed to the business derived from its potential for expansion into other markets.

The Court also rejected the Sellers' argument that the commercial purpose of the MAE clause was to insulate WEX from "firm-specific" risk only, rather than any systemic risk arising from the market in which it primarily operated.  The Court found that there was no reason to assume that the MAE clause was limited in that way.  Instead, it appeared to allocate systemic risk between the parties on a commercial basis that had been agreed by the parties, and there was no reason to confine its operation to business-specific risks.  

In reaching that conclusion, the Court had regard to the relatively limited English authorities relating to the construction of MAE clauses1, as well as the more developed body of US case law2 and legal commentary on the subject.  Those authorities did not give rise to any broad rule to the effect that MAE clauses seek to leave a seller with only "firm-specific" risks; instead, each MAE clause must be construed on its particular terms and having regard to the specific circumstances in which it was agreed.

As a result, the Court concluded that the effect of the COVID-19 pandemic on the Sellers' business must be determined by reference to the broader payments or B2B payments industry, rather than the narrower travel payments industry.


This decision provides helpful guidance to the approach that English Courts will take to the construction of MAE clauses. Importantly, it confirms that English Courts will pay close attention to the strict wording of MAE clauses in order to determine the proper allocation of risk between the parties. The Courts will not assume that the parties' intention was to insulate purchasers only from firm-specific risk if the language of the MAE clause indicates otherwise. Each agreement must be construed on its terms. 

This judgment also provides some insight into the proper construction of MAE clauses that require a comparison to be made between the effect of an event on the business for sale and a control group. There is nothing to prevent a MAE clause from providing that only a "firm-specific" event will trigger a MAE clause, and that an event affecting the broader market within which that company operates will not be sufficient. However, if that is intention, then the parties should clearly specify the control group against which the impact on the business for sale can be measured.   

Judicial consideration of MAE clauses has to date been rare in this jurisdiction, and this decision will therefore serve as a useful addition to the limited case law on this topic. As the effects of the COVID-19 pandemic continue to unfold, it can be expected that similar disputes will increasingly come before the Courts, and this area of law will continue to develop.


1  Grupo Hotelero Urvasco v Carey Value Added [2013] EWHC 1039.

2  Akorn Inc. v Fresenius Kabi AG No 2018-0300-JTL, 2018 WL 4719347 (Del. Ch. October 1, 2018).

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