Alexander Edwards acts for clients in connection with finance, commercial and corporate matters, specialising in real estate debt finance, including senior and mezzanine loans, bridging finance as well as restructuring existing loan facilities. In addition, Alex’s construction law expertise allows him to provide a comprehensive service to his clients on development finance transactions, dealing with both the finance and construction elements. Alex also advises on all forms of contentious and non-contentious insolvency situations, mergers and acquisitions, corporate and commercial contracts, and corporate governance issues. Rosling King LLP is a London-based law firm specialising in serving the needs of financial institutions, corporates and individuals. Contact Alexander Edwards Rosling King LLP Email: alexander.edwards@rkllp.com Tel: 020 7246 8061 www.rkllp.com allegation of breach of the MAC warranty called for a comparison between the same thing (the Company’s prospects) on different dates (31 December 2017 and October 2018). It did not, however, call for a comparison between different things (“the expectation that a reasonable buyer would have had” and the “actual” position) on the same date. The High Court had therefore erred in attaching such great weight to the expectations that a reasonable buyer would have had and had failed to look at what the Company’s “prospects” were at the two relevant stages. 3. Wrong assessment period: The period selected for the consideration of Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) was questioned by the Court of Appeal because the word “prospects” looks to the future, i.e. it takes into account what might happen after the relevant date. The High Court, however, focused on EBITDA for 2018 albeit more than nine months of that year had already passed by the time the SPA was concluded. 4. Wrong reference data: The High Court erroneously equated “prospects” with EBITDA. The Court of Appeal recognised that the meaning attributed to “prospects” may naturally differ according to the contractual context, but generally suggests “chances or opportunities for success” and does not simply refer to EBITDA. Had the parties intended for “prospects” to equate to EBITDA, they would (or should have) adopted that term in the SPA. Practical Considerations To reiterate, the Court of Appeal judgment does not set any new law; however, it provides useful guidance on how the Court will interpret MAC clauses. Ultimately, the best way to avoid uncertainty and, possibly, costly and protracted litigation proceedings, is to ensure that any MAC clause is drafted clearly and unambiguously, with sufficient detail in respect to the particular transaction. “adverse”. Consequently, there had been a MAC. Court of Appeal The Court of Appeal stated that the High Court had applied the wrong test for determining whether there had been a change in the Company’s prospects. The Court of Appeal’s rationale for finding against the Buyer and upholding the appeal was as follows: 1. Wrong date: The correct approach would have been to assess the Company’s forecasts and prospects as at 31 December 2017 (i.e. the Accounts Date) and to compare this with the Company’s position as at the date of the SPA in October 2018. The High Court assessed the “actual” position in October 2018 but contrasted that with the “expectation which a reasonable buyer would have had” (as opposed to the position on 31 December 2017). 2. Wrong comparison: There were issues with the comparison. The SPECIAL FEATURE 29
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