Caution: Where Canada Departs From Delaware On MAE Clauses And Ordinary Course Covenants

Overview

The past two years have seen numerous bulletins on Canada's two monumental M&A decisions arising from the COVID-19 pandemic. Unfortunately, however, much of this analysis is substantially undermined by an incorrect or incomplete understanding of Delaware law by Canadian legal commentators. We cut through this noise to highlight the key departures by the Fairstone and Cineplex cases from Delaware law on material adverse effect ("MAE") clauses and the ordinary course covenants requiring caution by U.S. counsel in cross-border deals.

Given the notoriety of the decisions cited (Canadian and American), we keep our treatment brief.

Departures regarding MAE Clauses

Fairstone departs from Delaware MAE clause case law in four important and interrelated areas.¹ Furthermore, and quite unhelpfully, Fairstone is silent regarding both the fact that it is making these departures as well as its rationale for doing so.