Decura IM Investments LLP & Ors v UBS AG, London Branch

A contractual termination clause referring to cessation of a material part of a business requires identification of a specific part of that business, assessed objectively and in the context of the agreement. A reduction in products, clients, sales or personnel does not necessarily amount to cessation of a part of the business. Materiality is assessed when the termination notice is served and temporary changes do not suffice. A material adverse effect on contractual marketing ability must be actual, objectively assessed, and caused by the relevant change. The party seeking termination bears the burden of proof.

The claim concerned an Introduction and Outsourcing Agreement under which UBS agreed to acquire and market financial products developed by Decura. Decura contended that UBS’s Project Accelerate restructuring constituted an Additional Termination Event under clause 20.3(a).

The issues were whether “material” meant substantial or significant; whether UBS had ceased to carry on a material part of its Investment Bank business; and whether any such cessation had materially adversely affected UBS’s ability to market Decura’s products. Decura sought a declaration that it had been entitled to terminate the Agreement.

1. Construction of “material”. The word meant substantial or significant in the context of the Agreement. Materiality was objective and had to be assessed at the date of the termination notice. The contractual and commercial context, including the Agreement’s unlimited duration, termination consequences, absence of guaranteed revenue and other termination provisions, was relevant. Temporary changes would not suffice.
2. No cessation of a part of the business. Project Accelerate substantially reduced the number of products traded, sales, clients and personnel in the FICC/FRC business. It did not, however, identify a specific part of UBS Investment Bank which had ceased. UBS had not closed its fixed-income business, and continued to provide fixed-income services. The court rejected construing “material part” as “material proportion”, since that would produce an uncertain and uncommercial percentage-based inquiry.
3. No material adverse effect on marketing ability. Even if Issue 2 had been decided for Decura, the evidence did not establish an actual significant or material impairment of UBS’s ability to market the products. The assessment concerned ability to market, not merely sales of other products. The proposed sales team remained qualified and capable, and the relevant marketing arrangements had either been available or resolved before the notice.
4. The Out of Scope Document concerned the FRC only and did not prevent the Equities Division from marketing the products. The “pan IB” argument therefore failed. Decura failed to prove Issues 2 and 3, and judgment was entered for UBS.