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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Travelport Ltd & Ors v WEX Inc [2020] EWHC 2670 (Comm) (12 October 2020) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2020/2670.html Cite as: [2020] EWHC 2670 (Comm) |
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BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Rolls Building Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
Case No: CL-2020-000287 |
(1) TRAVELPORT LIMITED (2) ANTHONY HYNES (3) BRYAN LEWIS (4) EDWARD CHANDLER (5) PETER GOLBY (6) PAT HALL (7) TIM LEWIS (8) SAM MENDELSOHN (9) MARIO NATOLI (10) LORI OWENS (11) MATT ARTHUR (12) ERICA MARTIN (13) ROBERT BISHOP |
Claimants |
- and |
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WEX INC |
Defendant |
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And Between |
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Case No: CL-2020-000288 |
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1) MR ADAM RHYS OLDING and 112 other Claimants (all detailed in Schedule A to the Re-Amended Particulars of Claim) |
Claimants |
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- and |
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WEX INC |
Defendant |
____________________
Sonia Tolaney Q.C., James MacDonald, Emma Jones and Andrew Lodder (instructed by Freshfields Bruckhaus Deringer LLP) for the Defendant
Hearing dates: 21, 22, 23, 24, 25, 28, 29 September 2020
Draft Judgment sent to parties: 5 October 2020
____________________
Crown Copyright ©
Mrs Justice Cockerill :
Introduction
a) Part 1: Narrative
i. The Background Facts
ii. Procedural History and the Definition of "travel payments industry"
iii. The Trial
b) Part 2: The Expert issues
i. Expert Issue 1
ii. Expert Issue 2
iii. Expert Issue 3
c) Part 3: The Main Issues
i. The Relevant Wording
ii. Commercial Purpose
iii. The Law on MAE Clauses
iv. The purpose of the transaction
v. Issue 2(2) is there a TPI (or a travel payment industry)?
vi. Other aspects of Factual Matrix
vii. Commercial Purpose - conceptual overview
viii. Conclusion on construction
d) Part 4: The Subsidiary Issues
i. Issue 4-5
ii. Issue 7
iii. Issue 10
iv. Issue 11
e) Conclusion: Answers to the Preliminary Issues
The eNett Group and Optal Groups
The "Summit" Transaction
a) A meeting on 16 September 2019, at which representatives from Optal and eNett took WEX through an Advocacy Presentation.
b) A meeting in New York on 4 October 2019, at which Optal and eNett management gave a confidential "Management Meeting" presentation.
c) A meeting between Summit and WEX management on 24 October 2019 in Melbourne at which Summit gave another Management Presentation to WEX.
d) Meetings on 5 November 2019 in New York.
The SPA
"Upon the terms and subject to the conditions set forth in this Agreement, at the closing of the transactions contemplated by this Agreement (the "Closing"), each Seller shall sell and deliver to Purchaser, and Purchaser shall purchase and acquire from each Seller the Acquired Shares held by each Seller".
"Since the date of this Agreement there shall not have been any Material Adverse Effect and no event, change, development, state of facts or effect shall have occurred that would reasonably be expected to have a Material Adverse Effect."
""Material Adverse Effect" means any event, change, development, state of facts or effect that, individually or in the aggregate,
(x) has had and continues to have a material adverse effect on the business, condition (financial or otherwise) or results of operations of Everest and its Subsidiaries, taken as a whole, or of Olympus and its Subsidiaries, taken as a whole, or
(y) would prevent or materially delay the consummation of the transactions contemplated by this Agreement;
provided, that, solely for purposes of clause (x), no such event, change, development, state of facts or effect resulting, arising from or in connection with any of the following matters shall be deemed, either alone or in combination, to constitute or contribute to, or be taken into account in determining whether there has been or will be, a Material Adverse Effect:
(a) the general conditions and trends in the industries or businesses in which Everest, Olympus or any of their respective Subsidiaries operates, including competition in any of the geographic or product areas in which Everest, Olympus or any of their respective Subsidiaries operates and seasonal fluctuations;
(b) general economic conditions, financial conditions or capital market conditions (including interest rates, exchange rates and credit markets);
(c) conditions resulting from the commencement, occurrence, continuation or intensification of any act of civil unrest, war (whether or not declared), terrorism or sabotage (including cyberattack), armed hostilities, military attacks or declaration of national emergency;
(d) changes (or proposed changes) in Tax, regulatory or political conditions (including as a result of the negotiations or outcome with respect to Brexit) or Law, IFRS EU or IRFS IASB (or, in each case, any authoritative interpretations thereof or the enforcement thereof);
(e) conditions resulting from any natural or manmade disasters, hurricanes, floods, tornados, pandemics, tsunamis, earthquakes, acts of God or other weather-related or natural conditions;
(f) any action taken by any Seller or by Everest or Olympus, or any Seller's or Everest's or Olympus's failure to take any action, in each case, that is required to be taken, or not taken, by this Agreement, or any action taken, or the failure to take any action, in each case that is required to be taken, or not taken, by applicable Law;
(g) the failure of Everest, Olympus or any of their respective Subsidiaries to meet any projections, forecasts or budgets for any period (provided, that the underlying causes thereof, to the extent not otherwise excluded by this definition, may be taken into account in determining whether a Material Adverse Effect has occurred; provided, further, that this clause (g) shall not be construed as implying that Everest or Olympus is making any representation or warranty hereunder with respect to any projections, forecasts or budgets);
(h) any action taken, or the failure to take action, or such other changes or events, in each case, to which Purchaser has consented in writing or the failure to take actions due to Purchaser's failure to consent thereto, to the extent such consent is required to be given pursuant to the terms of this Agreement, following the request of Everest or Olympus; or
(i) the execution, announcement, pendency or consummation of this Agreement or the transactions contemplated hereby, or the identity of Purchaser;
provided, further, that any event, change, development or effect referred to in clause (a), (b), (c) or (e) may be taken into account in determining whether there has been a Material Adverse Effect to the extent, and solely to the extent, such event, change, development, state of facts or effect has a disproportionate effect on Everest and its Subsidiaries, taken as a whole, or on Olympus and its Subsidiaries, taken as a whole, as compared to other participants in the industries in which Everest, Olympus or their respective Subsidiaries operate."
The parties have referred to sub-paragraphs (a) to (i) of this definition as the "Carve-Outs" and the second proviso as the "Carve-Out Exception".
The Announcement of the Summit Acquisition - and Subsequent Events
WEX's Notice of an MAE
Procedural History and the Definition of "travel payments industry"
"6. The travel payments industry is the industry of providers of products and services to facilitate business to business payments to participants in the travel industry.
7. A participant in the travel payments industry is to be identified by the fact that it provides business-to-business payment products and/or services that are particularly suited to meet the payment needs of participants in the travel industry and supplied to such participants."
The Trial
a) Mr Hynes' witness statement diverged regrettably in places from the contents which are to be expected of a factual witness. In a number of places he expressed his views about the issues which are a matter for the Court such as whether there is a travel payments industry. In cross- examination he was a careful witness, scrupulous to provide context where he was concerned that a question oversimplified the facts. He was however realistic in accepting points where his position was not sustainable. I entirely accept that he was an honest witness doing his best to assist the Court.
b) Mr Mills gave evidence briefly. The ambit of witness evidence he was able to give (as opposed to introducing documents) was very limited, largely confined to his evidence as to the close collaboration between Optal and eNett, to the extent that they were "joined at the hip" and the limited ambitions of the Optal non-travel offering.
c) Ms Smith's statement read as one which tried to downplay the attractions of the travel market as a reason for the transaction. However, in evidence she was a clear helpful witness who provided some valuable explanations and was frank about the attractions of the travel payments business which eNett and Optal brought with them.
d) Ms Morris was a clear polite witness. Her witness statement was also perhaps strategically slanted towards the other reasons for the acquisition, but her oral evidence gave a very balanced and clear picture of her factual knowledge. She was at times defensive in terms of questions of characterisation, however I unhesitatingly accept that she was doing her best to assist the Court.
e) Mr Dearborn was a frank and businesslike witness.
a) In relation to Issue 2(2), to what extent do each of Optal, eNett and their subsidiaries provide B2B payment products and/or services that are particularly suited to meet the payment needs of participants in the travel industry?
b) In relation to Issue 3-4 who are the participants operating in:
i. The "travel payments industry" as defined by the Sellers in Response 7 to their Response to Request for Further Information dated 12 June 2020;
ii. The "payments industry and/or B2B payments industry"?
c) In relation to Issue 4, it is practicable to:
i. Compare the effect of events, changes, developments, states of facts or effects on the eNett Group (as a whole) or the Optal Group (as a whole) against the effect on that part of the business(es) of the other participants identified under Issue 3(1) that participate in the "travel payments industry"?
ii. Compare the effect of events, changes, developments, states of facts or effects on the eNett Group (as a whole) or the Optal Group (as a whole) against the effect on other participants in the "payments industry and/or B2B payments industry" identified under Issue 3(2)?
a) For the Sellers, Mr Pascal Burg, a payments industry specialist with much experience of travel payments and Dr Mike Cragg, formerly a professor of Economics at (inter alia) Columbia University and now Chairman of an economics consulting group.
b) For WEX, Mr Gary Davies, a Fellow of the Institute of Chartered Accountants and specialist in financial and economic analysis of companies and industries and Mr Patrick Moran, a payments industry specialist who was formerly employed by Travelport's predecessor.
Expert Issue 1
Expert Issue 2
" I think that you could have taken the payment industry structure, broadly speaking , and taken meaningful groupings of different types of firms within that overall structure to try to have a representative sample that would be stratified by the groupings that you've identified as being, , important."
Introduction
"It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning."
"any event, change, development, state of facts or effect that, individually or in the aggregate,
(x) has had and continues to have a material adverse effect on the business, condition (financial or otherwise) or results of operations of [the eNett Group], taken as a whole, or of [the Optal Group], taken as a whole or
(y) would prevent or materially delay the consummation of the transactions contemplated by this Agreement".
" provided that, solely for purposes of clause (x), no such event, change, development, state of facts or effect resulting, arising from or in connection with any of the following matters shall be deemed, either alone or in combination, to constitute or contribute to, or be taken into account in determining whether there has been or will be, a Material Adverse Effect:
a) the general conditions and trends in the industries or businesses in which [eNett], [Optal] or any of their respective Subsidiaries operates, including competition in any of the geographic or product areas in which [eNett], [Optal] or any of their respective Subsidiaries operates
b) general economic conditions, financial conditions or capital market conditions (including interest rates, exchange rates and credit markets);
c) conditions resulting from the commencement, occurrence, continuation or intensification of any act of civil unrest, war (whether or not declared), terrorism or sabotage (including cyberattack), armed hostilities, military attacks or declaration of national emergency;
d) changes (or proposed changes) in Tax, regulatory or political conditions (including as a result of the negotiations or outcome with respect to Brexit) or Law, IFRS EU or IFRS IASB (or, in each case, any authoritative interpretations thereof or the enforcement thereof);
e) conditions resulting from any natural or manmade disasters, hurricanes, floods, tornados, pandemics, tsunamis, earthquakes, acts of God or other weather-related or natural conditions "
"provided, further that any event, change, development or effect referred to in clause (a), (b), (c) or (e) may be taken into account in determining whether there has been a Material Adverse Effect to the extent, and solely to the extent, such event, change, development, state of facts or effect has a disproportionate effect on [the eNett Group], taken as a whole, or on [the Optal Group], taken as a whole, as compared to participants in the industries in which [eNett], [Optal] or their respective Subsidiaries operate."
The argument on the wording _ Construction Stage 1
a. WEX contends that the ordinary and natural meaning of the words favours its construction in particular by reference to the comparison to "industries" rather than any other term, the non-use of "businesses" in this context and the difficulties of the repeated phrase "as a whole" for the Sellers' approach.
b. The Sellers contend that the evidence supported TPI as the natural and ordinary meaning of the wording in this context, in particular by reference to the need for a comparison and supported by what they suggest are problems with WEX's approach when it comes to "industries" in the plural.
"A. I would say when you look at -- when I see the word "industry" versus "market" being used in an economics paper, for instance, the author typically is taking industry to mean a -- you know, a catch-all phrase for many entities that might be involved in a supply chain and a market is more specific narrowing of that. That's in an economics paper. Obviously in the common vernacular it's -- as I say, I think it's used interchangeably
the concept of "industry" is not well defined, but it is looking at a broader -- I think it's looking at a broader definition."
a) At [335] the judge notes that the Delaware Chancery Court is the leading forum for corporate merger litigation, and that as at 2010 Professor Schwarz in an article in the UCLA Law Review stated that there was no consistent interpretation of MAC clauses, and that the Delaware court had never found an MAC to have occurred;
b) At [339] he considered the range of possible drafting options in MAC clauses, and that in practice the terms of the clause are likely to receive attention in the course of negotiations;
c) At [360] he cited IBP Inc v Tyson Foods Inc 789 A2d 14 (Del Ch 2001) 65, where the Delaware Court of Chancery construed the "material adverse effect" clause in the relevant agreement " as best read as a backstop protecting the acquirer from the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durationally significant manner".
d) At [364] he concluded as follows, in what must be taken as the leading statement of principle in the English authorities:
"In summary, authority supports the following conclusions. The interpretation of a "material adverse change" clause depends on the terms of the clause construed according to well established principles. In the present case, the clause is in simple form, the borrower representing that there has been no material adverse change in its financial condition since the date of the loan agreement. Under such terms, the assessment of the financial condition of the borrower should normally begin with its financial information at the relevant times, and a lender seeking to demonstrate a MAC should show an adverse change over the period in question by reference to that information. However the enquiry is not necessarily limited to the financial information if there is other compelling evidence. The adverse change will be material if it significantly affects the borrower's ability to repay the loan in question. However, a lender cannot trigger such a clause on the basis of circumstances of which it was aware at the time of the agreement. Finally, it is up to the lender to prove the breach"
"In any M&A transaction, a significant deterioration in the selling company's business between signing and closing may threaten the fundamentals of the deal. "Merger agreements typically address this problem through complex and highly-negotiated 'material adverse change' or 'MAC' clauses, which provide that, if a party has suffered a MAC within the meaning of the agreement, the counterparty can costlessly cancel the deal.
Despite the attention that contracting parties give to these provisions, MAE clauses typically do not define what is "material." Commentators have argued that parties find it efficient to leave the term undefined because the resulting uncertainty generates productive opportunities for renegotiation
Rather than devoting resources to defining more specific tests for materiality, the current practice is for parties to negotiate exceptions and exclusions from exceptions that allocate categories of MAE risk. "The typical MAE clause allocates general market or industry risk to the buyer, and company-specific risks to the seller."[Fn531] From a drafting perspective, the MAE provision accomplishes this by placing the general risk of an MAE on the seller, then using exceptions to reallocate specific categories of risk to the buyer. Exclusions from the exceptions therefore return risks to the seller. A standard exclusion from the buyer's acceptance of general market or industry risk returns the risk to the seller when the seller's business is uniquely affected. To accomplish the reallocation, the relevant exceptions are "qualified by a concept of disproportionate effect." "For example, a buyer might revise the carve-out relating to industry conditions to exclude changes that disproportionately affect the target as compared to other companies in the industries in which such target operates.""
"Zhou, supra, at 173; accord Choi & Triantis, supra, at 867 ("The principal purpose of carve outs from the definition of material adverse events or changes seems to be to remove systemic or industry risk from the MAC condition, as well as risks that are known by both parties at the time of the agreement."). "A possible rationale" for this allocation "is that the seller should not have to bear general and possibly undiversifiable risk that it cannot control and the buyer would likely be subject to no matter its investment." Davidoff & Baiardi, supra, at 15; see also Gilson & Schwartz, supra, at 339 (arguing that "an efficient acquisition agreement will impose endogenous risk on the seller and exogenous risk on the buyer"). As with any general statement, exceptions exist, and "different agreements will select different exogenous risks to shift to the counterparty, and in stock-for-stock and cash-and-stock deals, parties may shift different exogenous risks to each other." Miller, supra, at 2070."
"provided further, however, that any effect, change, event or occurrence referred to in clause (A) or clauses (B)(3) or (4) may be taken into account in determining whether there has been, or would reasonably be expected to be, a Material Adverse Effect to the extent such effect, change, event or occurrence has a disproportionate adverse affect [sic] on the Company and its Subsidiaries, taken as a whole, as compared to other participants in the industry in which the Company and its Subsidiaries operate "
"Consistent with standard practice in the M&A industry, the plain language of the Merger Agreement's definition of a Material Adverse Effect generally allocates the risk of endogenous, business-specific events to Akorn [the seller] and exogenous, systematic risks to Fresenius [the buyer]."
"The primary driver of Akorn's dismal performance was unexpected new market entrants who competed with Akorn's three top productsephedrine, clobetasol, and lidocaine. Akorn also unexpectedly lost a key contract to sell progesterone. These were problems specific to Akorn based on its product mix. Although Akorn has tried to transform its business-specific problems into "industry headwinds" by describing them at a greater level of generality, the problems were endogenous risks specific to Akorn's business."
The purpose of the transaction
"this combination creates the foremost B2B payments leader in the global travel marketplace
Importantly, this transaction combines leaders in the travel payment industry with highly complementary geographic footprints."
"at a strategic level when we're considering assets, we're looking at asset categories of does it provide scale, does it increase your geographic mix and does it product extend for us. And what we liked about this was it actually hit on all three, we were really excited about that. It's rare for us to find something that hits across all three of those categories."
Issue 2(2) is there a TPI, (or a travel payments industry)?
a) An eNett presentation dated December 2015 which referred to a "travel payments industry growth opportunity".
b) An article by Mr Hynes dated June 2017 talking of "our journey to shake up the travel payments industry".
c) An article by Jim Pratt, WEX Senior Vice President Global Sales and Marketing dated 1 March 2017: "As the U.S. travel payments industry continues to advance, emerging geographies are taking a slightly different approach."
d) The invitation of July 2017, to the "WEX Travel Lead User Group meeting" at which over two days "a diverse group of travel industry experts" would "share their unique perspectives that will shape the future of the travel payments industry".
e) Travelport Press Release dated 10 December 2018: "Frank Baker, Co-Founder of Siris Capital, added 'Travelport is redefining the travel payments industry through eNett, a disruptive and fast-growing leader in secure, virtual travel payments .'"
f) The WEX M&A Call Transcript dated 24 January 2020, statement of Ms Smith: "this transaction combines leaders in the travel payment industry with highly complementary geographic footprints."
g) The WEX Investor Presentation dated 24 January 2020: "Compelling strategic acquisition that adds capabilities and scale to Wex and strengthens its position in the Travel Payments industry".
h) An article by Anant Patel, the Vice President of WEX's EMEA and APAC corporate payments division dated 24 June 2020: "At a time where circumstances are often uncertain and irrational, such as in the travel payments industry "
i) An interview with Greg Sassone, WEX's Senior Vice President for Business and Partner Growth, dated 10 July 2020: "we have you know for probably twenty years now have had a really big focus on the travel payments industry kind of as a vertical right so we work with all of the large online travel agencies and help embed payment where they have to pay their suppliers. That's a segment industry where we've been very focused."
j) The LinkedIn page of Jim Pratt: "Jim had the privilege of assembling diverse minds and cutting edge technologies to revolutionize the travel payments industry."
a) I conclude that there is no TPI as defined;
b) I conclude that the evidence base is also insufficient to establish the existence of a broader "travel payments industry";
c) I conclude that the term "travel payments industry" is one which is used informally, but that its meaning may vary contextually. This reflects the conclusion to which I have come above as to the existence of a market in travel payments products and services and the much broader spectrum of entities operating in different portions of that market;
d) I also conclude that this market is a dynamic one which is far from being fully developed.
Other aspects of Factual Matrix
a. There is an established and widely recognised payments industry (and an established subset of that, the B2B payments industry);
b. Both eNett and Optal operate in the payments and B2B payments industries;
c. Each corporate Group is a payments company. Each respectively provides B2B payments products which facilitate the making of payments by companies to other companies;
d. Because they provide payments services, the eNett Group and the Optal Group are regulated as payments companies by payments regulation;
e. Optal invariably describes itself in its formal company filings, including to its regulators and in its statutory accounts, as a B2B payments company. The statutory filings (also available to both parties) also describe eNett as a B2B payments company;
f. Both companies consistently described themselves as B2B payments companies in their sales pitches and client presentation materials together with, importantly, in materials provided to potential purchasers including WEX;
g. In their contemporaneous documents, WEX, Optal and eNett identified each other and other companies from a wide range of players in the payments and B2B payments industry as peers, competitors or comparable companies. Those identified include: the payments companies Amex, Mastercard, Ixaris, Fleetcor, AirPlus, Amadeus, Wirecard, CSI and various commercial banks, most commonly Barclays, BNP Paribas, Citi and US Bank.
h. The parties' lawyers (shortly after the sale of Optal and eNett to WEX) jointly described eNett and Optal in the FTC document, as participants in the B2B payments industry. This was the agreed basis on which the parties decided to describe their activities to the US FTC. This identified all of the above companies (save for Mastercard, Fleetcor and BNP Paribas) as "Competitors with virtual offering currently active in the travel vertical". Other B2B payments companies were identified as capable of repositioning an existing virtual offering to focus on travel or having the ability to develop a virtual offering.
Commercial purpose conceptual overview
a) Section 3.1(a): "[eNett] is duly qualified, registered or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties and/or assets owned, leased or operated by it or the nature of its business makes such qualification, registration or licensing necessary "
b) Section 3.1(b): "Section 3.1(b) of the [eNett] Disclosure Schedule contains a complete and accurate list, as of the date of this Agreement, of each Subsidiary of [eNett] "
c) Section 3.5(a): "Each of [eNett] and its Subsidiaries is in possession of all material Regulatory Licenses "
d) Section 3.7: "Except as and to the extent set forth in the unaudited consolidated balance sheet of [eNett] and its Subsidiaries as of September 30, 2019, including any notes thereto (the "Everest Balance Sheet"), neither [eNett] nor any of its Subsidiaries has any Liabilities of a nature required by IFRS IASB to be disclosed "
e) Section 3.11: "[eNett] and its Subsidiaries have good and marketable title to, or other valid right to use, free and clear of any Liens (other than Permitted Liens), all of the material assets, property and rights that it owns."
"Since September 30, 2019 through the date of this Agreement:
(a) the [eNett] Business has been conducted in all material respects in the ordinary course of business;
(b) there has not been a Material Adverse Effect; and
(c) neither [eNett] nor any of its Subsidiaries has taken any action that, if taken during the period from the date of this Agreement through the Closing Date without Purchaser's consent, would constitute a breach of Section 7.1(b)(i), Section 7.1(b)(ii), Section 7.1(b)(iv), Section 7.1(b)(v), Section 7.1(b)(vi), Section 7.1(b)(vii), Section 7.1(b)(viii), Section 7.1(b)(ix), Section 7.1(b)(x), Section 7.1(b)(xi), Section 7.1(b)(xii), Section 7.1(b)(xiii), or, solely as it relates to the foregoing subsections of Section 7.1(b), Section 7.1(b)(xv)."
"Disproportionality Exclusions are rarely specific about the control group and typically refer only to companies operating in the same industries or companies operating in both the same industries and same geographical regions as the seller. Hence, if a court has to apply a Disproportionality Exclusion, it will have to determine which companies are to be included in the control group. Needless to say, litigation-driven expert testimony from the parties is not likely to be very helpful to the court in determining which companies belong in the control group. Perhaps for this reason, in Akorn v. Fresenius the Court of Chancery looked to the sets of companies the parties' investment bankers used, at the time they were rendering their fairness opinions prior to signing, in the comparable companies analyses."
" where there is this pandemic, and management essentially run the company, idiosyncratically, in a way which increases the adverse effect of the pandemic in a way that's not suffered by other companies, and examples might be the way it deals with staff, if it lays people off, the approach to furloughing; those are just as an example, or it could be the effect on the company of Covid itself, the effect on management or staff of the illness, all of these are idiosyncratic firm-specific events which are covered "
""Material Adverse Effect" means
any event, change, development, state of facts or effect [1] that, individually or in the aggregate
(x) has had and continues to have a material adverse effect [2] on the business, condition (financial or otherwise) or results of operations of [the eNett Group or the Optal Group]
provided, that, solely for purposes of clause (x), no such event, change, development, state of facts or effect [3]
resulting, arising from or in connection with any of the following matters [4]
shall be deemed, either alone or in combination, to constitute or contribute to, or be taken into account in determining whether there has been or will be, a Material Adverse Effect [5]:
[Carve-Outs (a) to (g)] [6]"
a) The identification of an "event, change, development state of facts or effect" (referred to only as an "event" below for convenience) (Phrase [1]) that "has had and continues to have a material adverse effect" (Phrase [2]).
b) Then, asking whether "such event" (Phrase [3]) results or arises "from or in connection with any of the following matters" (Phrase [4]), namely Carve-Outs (a) to (g) (Phrase [6]).
c) If the event identified in Phrase 1 does arise in connection with any of the matters listed in (a) to (g), then it may not "be taken into account" (Phrase [5]).
"(g) the failure of Everest, Olympus or any of their respective Subsidiaries to meet any projections, forecasts or budgets for any period (provided, that the underlying causes thereof, to the extent not otherwise excluded by this definition, may be taken into account in determining whether a Material Adverse Effect has occurred [ ])"
a) First, the terms of Carve-Out (g) expressly contemplate that matters within (g) might have underlying causes that are events arising from or in connection with matters within the scope of another Carve-Out (a situation that appears impossible on WEX's construction).
b) Secondly, the proviso specific to Carve-Out (g) is the only place where the parties have agreed to qualify a Carve-Out by reference to other non-excluded causes. It would seem to follow that in all other circumstances, underlying causes are of no relevance to whether a Carve-Out is engaged and whether an event may be taken into account.
"It is simply impossible to divorce anxiety derived from the attacks themselves from anxiety derived from the stark warnings issued in the immediate aftermath thereof. In relative terms very few people will have had any knowledge of the attacks apart from what they learned of them from media reporting ... Dr Gibbs for the purpose of his analysis treated media attention to, by which in context he meant coverage of, the attacks as part and parcel of the attacks themselves. In assessing causal impact he lumped in media coverage of the warnings with the warnings themselves. He accepted that it would have been a difficult assignment to consider 9/11 divorced from the media coverage of 9/11 - "tricky empirically but not [logically] impossible." However I think that the logic which compelled that conclusion similarly compels the conclusion that it is impossible to divorce the effect of the warnings from the effect of the events which they so swiftly followed. Furthermore I am not sure that I understood Dr Gibbs' reference to difficulty of an empirical nature since he did not base his conclusions upon the results of experimental studies, other than in the most general sense ... I am also I am afraid unable to regard the attribution of relative causal effect in percentage terms as anything other than arbitrary."
Conclusion: Answers to the Preliminary Issues
a) Issue 1: WEX bears the burden of proving whether and to what extent any effect within sub-section (e) of the Carve-Outs falls within the scope of the Carve-Out Exception.
b) Issue 2: The Optal and eNett Groups (and on any basis, the Optal Group) operate in the payments industry and the B2B payments industry. For the purpose of the definition of the MAE clause the relevant industry is the B2B payments industry. There is no TPI as defined, nor is there a "travel payments industry" as opposed to a travel payments market/vertical/space.
c) Issue 3:
i. All the industries posited are vibrant and relatively fast moving. The B2B payments industry and the payments industry are also industries with very many participants. It is neither realistic nor necessary for the Court to identify every single participant in any of these industries. The following conclusions are preliminary conclusions based on the evidence available at the time of this trial.
ii. Were there a TPI as defined it would include the participants identified by the Sellers in their pleading, plus (at least) IATA and Citi.
iii. Were there a "travel payments industry" it would include at least the participants identified by Mr Davies in Appendix GD-1.8 of his first report who also appear in Appendix 1 to WEX's closing.
iv. Participants in the B2B payments industry include those identified by Mr Davies in Appendix GD-1.7 of his first report.
v. Participants in the payments industry include those identified by Mr Davies in Appendix GD-1.5 of his first report.
d) Issue 4: There is no "travel payments industry" and it is not an industry contemplated by the SPA, but if there was, the appropriate comparison would be between the effect of an MAE on each of the eNett and Optal Groups, taken as a whole, and its effect on the business of the relevant comparators which operate in the "travel payments industry".
e) Issue 5: This issue does not arise.
f) Issue 7: When determining whether an event, change, development, state of facts or effect is "reasonably ... expected" to have a Material Adverse Effect within Section 8.2(d) of the SPA, the Carve-Out Exception is not applicable.
g) Issue 10: Insofar as Issue 10 is relevant in the light of the answer to Issue 11, the burden of proof is on the Sellers to establish whether and to what extent an effect falls within clause (d) of the Carve-Out.
h) Issue 11: The Carve-Out Exception does not apply irrespective of whether the events, changes, developments or effects also fall within sub-section (d) of the Carve-Outs.
APPENDIX 1 - THE PRELIMINARY ISSUES
(1) Issue 1: Which party bears the burden of proof in respect of the question of whether and to what extent any effect within sub-section (e) of the Carve-Outs falls within the scope of the Carve-Out Exception?
(2) Issue 2: For the purposes of the definition of Material Adverse Effect, what is the industry or what are the industries in which each of eNett, Optal or their respective Subsidiaries (as defined in the SPA) operate? This involves the following sub-issues:
(1) Do eNett, Optal or their respective subsidiaries operate in:
(a) The "travel payments industry"; and/or
(b) The "payments industry and/or B2B payments industry"?
(2) Is there a "travel payments industry" and, if so, are participants in that industry to be identified by the fact that they provide business-to-business payment products and/or services that are particularly suited to meet the payment needs of participants in the travel industry and supplied to such participants?
(3) Issue 3: Without prejudice to the parties' positions as to the relevance or materiality of any enquiry on this issue or the appropriate extent of any enquiry, who are the other participants in each of the industries in which Optal, eNett or their respective subsidiaries operate? This involves the following sub-issues:
(1) If the answer to Issue 2(1) is the "travel payments industry", who are the other participants in that industry?
(2) If the answer to Issue 2(1) above is "the payments industry and/or the B2B payments industry", who are the other participants in those industries?
(4) Issue 4: If and insofar as eNett, Optal or their respective Subsidiaries operate in the "travel payments industry", are they to be compared to the business(es) of a person identified in answer to Issue 3(1) which operate(s) in the "travel payments industry", or all the business(es) of such person (including any businesses operating outside the "travel payments industry")?
(5) Issue 5: If and insofar as the eNett Group or the Optal Group operates in more than one industry, how is the comparison between participants in those industries and the eNett Group, taken as a whole, or the Optal Group, taken as a whole, to be conducted?
(6) Issue 7: When determining whether an event, change, development, state of facts or effect is "reasonably ... expected" to have a Material Adverse Effect within clause 8.2(d) of the SPA, is the Carve-Out Exception applicable?
(7) Issue 10: Which party bears the burden of proof in respect of the question of whether and to what extent any effect falls within or outwith sub-section (d) of the Carve-Outs?
(8) Issue 11: Insofar as any alleged change in regulatory or political conditions or Law (as defined in the SPA) (or, in each case, any authoritative interpretations thereof or the enforcement thereof) was itself caused by, arose from or in connection with the SARS-CoV-2 pandemic or the conditions resulting therefrom:
(1) Will the effect fall only within sub-section (e) of the Carve-Outs, and not within sub-section (d) of the Carve-Outs; or
(2) Does the Carve-Out Exception apply irrespective of whether the events, changes, developments or effects also fall within sub-section (d) of the Carve-Outs?