Material Adverse Effects – When Can A Buyer Withdraw From A Share Purchase Agreement?

Material adverse effects clauses have come under the spotlight in a Commercial Court case that considered whether the defendants were entitled to withdraw from the purchase of a Brazilian nickel mine on the basis of a geotechnical event that affected the site between exchange and completion. The case has given valuable guidance on how courts should construe material adverse effect termination clauses in share purchase agreements, and emphasised the high threshold for establishing an entitlement to withdraw.

What are material adverse effect clauses?

Alongside indemnities, warranties and representations, material adverse change (MAC) or material adverse effect (MAE) clauses are one of a range of mechanisms commonly used to allocate risk in a share purchase agreement (SPA) where there is a split exchange and completion. They are also seen in a wide range of other commercial agreements. In the context of a SPA, they give the buyer protection against the possible