Material adverse effect clauses
In another DIFC Court case in which Allen & Overy is acting for a bank against a defaulting borrower, the DIFC Court ruled that there had been an Event of Default as a result of the bank holding the reasonable opinion that there had been a Material Adverse Effect.
The interesting point about this decision was that the DIFC Court held that, despite the absence of an express contemporaneous record of the bank holding the specific opinion that there had been a Material Adverse Effect, this required opinion could be inferred from the surrounding circumstances combined with the available evidence of the bank's conduct. In reaching this decision, the DIFC Court considered and applied a decision of the Australian High Court in Pan Foods Company Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd.2
Although the loan that was being considered by the DIFC Court is governed by UAE law, the rationale and approach of the judge makes this DIFC Court judgment of interest to any bank that includes in its loan agreements an Event of Default clause which relies upon the bank holding a subjective opinion as to a Material Adverse Effect.
1. Pan Foods Company Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Limited (2000) 170 ALR 579.
This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch – email@example.com, or tel +44 20 3088 3710.