COVID-19: Has it had a Material Adverse Effect?

November 25, 2020
Modern Office

Sadly but unsurprisingly, the COVID-19 outbreak has been having a major negative impact on many businesses and, in the case of Travelport Ltd v Wex Inc[1], the High Court considered the construction of a material adverse change clause in a share purchase agreement in light of the effects of the pandemic.


  • In January 2020, Wex (the buyer) and Travelport (the seller) entered into a share purchase agreement (SPA) for the sale and purchase of two target groups, eNett International (Jersey) Limited and Optal Limited and their respective subsidiaries, for a total purchase price of approximately US$1.7 billion.
  • The Optal group’s business included issuing virtual credit card account numbers that could be used by one business to pay another.  Accounting for around 98% of the Optal group’s revenues was the business from its key client, the eNett group, whose main business was providing B2B payment services to customers operating in the travel industry.
  • A condition of completion was that, since the date of the SPA, no material adverse effect had occurred, and no other change or development had occurred that would reasonably be expected to have a material adverse effect.  However, conditions resulting from a pandemic would not be considered to have a material adverse effect unless they had “a disproportionate effect on [the target groups], taken as a whole, as compared to other participants in the industries in which [they] operate“.
  • The imposition by many countries of travel restrictions due to the worsening of the spread of the coronavirus led to a global decrease in travel and therefore payments to and from companies within the travel industry.  Naturally, the revenues of eNett and Optal saw a decrease and Wex claimed that, since a material adverse change within the meaning of the SPA had occurred, it was not obliged to complete the purchase of the target groups.
  • In its argument, Wex contended that, although the definition of Material Adverse Effect in the SPA included a carve-out for pandemics, the carve-out did not apply as there had been a disproportionate effect on the target groups as compared to other participants in the payments industry and B2B payments industry in which they operate.  Wex  rejected Travelport’s assertion that the appropriate comparator was the more narrowly drawn “travel payments industry”, arguing that there is no such industry.


The High Court favoured Wex’s construction of the material adverse change clause, stating that the word ‘industry’ was a broader term than others that might have been used (such as market, sector or competitors) and noting that, although the agreement had been heavily negotiated, the parties had failed to define the term.  That being the case, in its natural and ordinary meaning, ‘industry’ captured a group of participants in a broad sphere of economic activity and that the evidence failed to establish that there was a distinct travel payments industry. 

Once again, the courts remind us that care ought to be taken when drafting agreements; if a term is not specifically defined in the contract, the natural and ordinary meaning is likely to be construed.  “…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.[2]

[1] [2020] EWHC 2670 (Comm)

[2] Mrs Justice Cockerill DBE

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