Travelport Ltd & Ors v WEX Inc

Material adverse effect clauses are construed by ordinary principles of contractual construction. A carve-out exception comparing the target with participants in the relevant “industries” is not necessarily confined to firm-specific risks or a narrowly defined market. The relevant industry depends on the contract’s language, the objective commercial purpose and the admissible factual matrix.

Where a clause distinguishes between retrospective and prospective material adverse effects, its carve-out exception may apply only to the former if that is the clear contractual language. Overlapping carve-outs may operate independently. A party asserting an exception bears the burden of proving its application where the contractual structure and general principles so require.

The claimants were sellers of eNett and Optal. They sought declarations that no material adverse effect had occurred under a share purchase agreement with WEX Inc and sought specific performance of WEX’s obligation to close the transaction.

The agreement contained carve-outs for specified systemic events, including pandemics, subject to an exception where the event had a disproportionate effect on the target groups compared with participants in the industries in which they operated. The parties agreed preliminary issues concerning the relevant industry, comparison group, burden of proof, prospective effects and overlapping carve-outs. The central questions concerned the proper construction and operation of those provisions.

1. Construction. The court applied ordinary principles of contractual construction. The wording, commercial purpose and admissible factual matrix had to be considered together. No special rule requiring narrow construction of material adverse effect clauses or contra proferentem applied.
2. Relevant industry. The target groups operated in the payments industry and the B2B payments industry. The relevant industry for the clause was the B2B payments industry. There was no “travel payments industry” as defined by the claimants, nor sufficient evidence of an established broader travel payments industry. “Travel payments industry” was an informal and context-sensitive shorthand for a market, vertical or space.
3. Comparison and practicability. It was neither realistic nor necessary to identify every participant in a large and developing industry. A representative pool could be assembled for interim and final comparison exercises. The exercise was not rendered impracticable merely because it required sampling, expert evidence or adjustments.
4. Prospective effects. When determining whether an event was reasonably expected to have a material adverse effect under section 8.2(d) of the SPA, the carve-out exception did not apply. The wording distinguished the retrospective and prospective limbs, and there was a commercially credible reason for requiring actual facts before making a disproportionate-effect assessment.
5. Burden of proof. WEX bore the burden of proving whether and to what extent an effect within the pandemic carve-out fell within the carve-out exception. The sellers bore the burden of establishing whether and to what extent an effect fell within the law and regulatory-condition carve-out.
6. Overlapping carve-outs. An event could fall within more than one carve-out. However, if the relevant effect arose from or was connected with changes in regulatory or political conditions or law within carve-out (d), it could not be brought within the carve-out exception merely because it also arose from pandemic conditions within carve-out (e). The specific proviso in carve-out (g) reinforced that conclusion.
7. The preliminary issues were answered accordingly. The judgment determined construction and burden-of-proof issues; it did not finally determine whether a material adverse effect had occurred.