2024 saw the English Commercial Court have its quietest year in a decade. However, Willkie Farr & Gallagher’s (“Willkie”) London Litigation Team remained very active and a number of important High Court judgments that will be relevant to its clients were handed down. In this quarterly series, we look back at some of the decisions handed down in Q4 2024 dealing with:
- Material Adverse Change/Effect Clauses
- Enforcing US Judgments in The English Courts
- Shareholders’ Rights to Privileged Material
- Entire Agreement Clauses
- “Reasonable Endeavours” in Agreements to Agree
- Obtaining Anti-Suit Injunctions
- Sanctions Compliance and Payments in Litigation
RETHINKING MATERIALITY IN MAC/MAE CLAUSES – BM Brazil 1 Fundo De Investimento Em Participacoes Multistrategia v Sibanye BM Brazil (Pty) Ltd [2024] EWHC 2566 (Comm)
There is a dearth of English authority on MAC/MAE clauses. In this case the Court provided important guidance on the threshold of “materiality” where that phrase has not been defined in any agreement. The court also addressed the novel question of whether a change can be material not because of its own effects, but because it reveals something potentially negative about the broader business.
The dispute arose in the context of a US$1.2 billion M&A related dispute for the sale and purchase
of Brazilian mining assets. The Court that held a geotechnical event at an open pit mine did not amount to a MAC in the pending Share Purchase Agreement (“SPA”). Accordingly, the buyer was not entitled to back out from closing the transaction.
Relying heavily on US authority to interpret the MAC clause, the Court’s key findings were:
- Although there was no test applicable to all cases, materiality means “significant or substantial” and, in the context of a SPA, it is to be judged by reference to the effect of the change or event on the equity value of the In this case, a reduction in equity value of 15-20% ‘might be’ considered to be material and a reduction of 20% in equity value is material.
- MAC clauses do not apply to revelatory occurrences (i.e. an event that reveals a broader problem with the business). The focus is on the materiality and adversity features of the change or event itself since signing, rather than what has been revealed as a consequence of the event.
- The assessment of what would reasonably be expected to be material and adverse involves an evaluative judgment but there is no requirement for that process to involve assessing a range of reasonable views of what is material.
For those currently considering the meaning of an undefined MAC clause, this decisions provides a level of certainty and serves as a reminder that if parties envisage ‘material’ to have a different meaning to the thresholds set out in this case, ensuring that ‘material’ is defined clearly when agreeing terms will be critical.
WHEN A US JUDGMENT WILL NOT AUTOMATICALLY SEE RECOVERY IN ENGLAND – Motorola Solutions Inc v Hytera Communications Corp Ltd [2024] EWHC 2891 (Comm)
The international enforceability of a judgment is a critical consideration in any litigation strategy. This case serves as a timely reminder that the English Court does not automatically enforce judgments obtained in the US. Accordingly, adopting a litigation strategy with this in mind will be essential to achieving realizable success rather than a pyrrhic victory.
The claim concerned IP theft, trade secret misappropriation and copyright infringement. A US Court awarded the Claimant, amongst other remedies, compensatory and punitive damages under the Defend Trade Secrets Act (“DTSA”). The compensatory damages had been doubled to arrive at an award of punitive damages, but when the Claimant sought to enforce the damages award in England, it was faced with the issue that a foreign award for “multiple damages” is not typically enforceable under English rules. The decision arises due to a restriction on enforcement contained in s.5 of the Protection of Trading Interests Act 1980 (“PTIA”), in particular in respect of a judgment for ‘multiple damages’ under s.2(a) of the PTIA.
Although the facts arise in an IP context, this case highlights some key considerations when enforcing foreign judgments which may have an element of ‘multiple damages.’ If enforcement in the UK is anticipated, consulting English lawyers at an early stage to assess how to structure the judgment appropriately and to coordinate strategies for the most effective international asset recovery is essential.
SHAREHOLDERS’ RIGHTS TO PRIVILEGED MATERIAL CURTAILED – Aabar Holdings SÁRL v Glencore Plc [2024] EWHC 3046 (Comm)
In a pivotal judgment, the ‘Shareholder Rule’ – the principle of English law for over 135 years that a company cannot withhold legally privileged materials from its own shareholders except in instances of hostile litigation with that shareholder – was overturned.
A company can assert privilege against a shareholder, not just in circumstances where that shareholder is an adverse party.
The Court determined that the Shareholder Rule’s legal foundations are flawed. First, the notion that a company cannot assert privilege against its own shareholders because those shareholders have a ‘proprietary interest’ in the privileged materials was held to contradict the English legal principle that a company has a separate legal personality, distinct from its shareholders. Secondly, when considering the argument that shareholders should share ‘joint interest privilege,’ the Court concluded that whether a company and its shareholder share a ‘joint interest’ should not be presumed and will depend on the circumstances of the case.
The decision strengthens the ability of companies to freely engage with legal advisors and keep confidential legal advice out of the reach of shareholders. On the other hand, it dilutes shareholders’ rights to collect valuable insights into a company’s legal position, and could make it more difficult for shareholders to hold directors to account for breaches of corporate law.
However, the debate as to whether the Shareholder Rule has a place in English law is not over. Whilst Aabar Holdings’ application for permission to appeal directly to the UK Supreme Court was refused on 7 February 2025, the Privy Council is due to reconsider the important issue in March 2025 in Jardine Strategic Holdings and another v Oasis Investments II Master Fund Ltd and Ors JCPC/2024/0077.
WHAT DOES YOUR ENTIRE AGREEMENT CLAUSE COVER? – Capgemini UK Plc v Dassault Systemes UK Ltd [2024] EWHC 2728 (Comm)
If an entire agreement clause is intended to ensure that the agreement supersedes an earlier contract, Capgemini illustrates the importance of spelling this out explicitly.
This case concerned an entire agreement clause in a settlement agreement (“SA”) designed to resolve disputes that had arisen under an earlier prime contractor agreement (“PCA”). Both agreements related to a project for the creation and provision of logistics planning technology. The issue was whether the entire agreement clause in the SA had the effect of extinguishing the PCA.
In dismissing the application for summary judgment the Court found that such clauses more commonly take effect as extinguishing an alleged collateral agreement rather than an admittedly binding previous contract. This is especially so where the parties had previously agreed something in the PCA that was not covered in the SA.
With another judgment, in December 2024, in the case of JMW Solicitors LLP & Others v Injury Lawyers 4U & Others [2024] EWHC 3103 (Ch) reaching a different conclusion, the practical takeaway is to be clear as to which agreements are being superseded when agreeing an entire agreement clause. Conversely if you wish to argue that an entire agreement is not entirely effective then there remains scope to do so.
REASONABLE ENDEAVOURS WILL NOT SAVE AN AGREEMENT TO AGREE – Salem & Anor v Salem & Ors [2024] EWHC 3311 (Ch)
An agreement to agree, which is typically unenforceable because it lacks certainty, will not become a binding contract by the insertion of the words “reasonable endeavours”.
In this case, the Court considered a clause in a settlement deed which resolved litigation between the parties concerning their respective interests in a number of UK properties and a large trading business in West Africa (the “African Business”), and provided for a two- stage process by which the parties were to attempt to divide the African Business. The first stage was referred to as the ‘Conciliation Process.’ The second stage provided that: “If the Conciliation Process does not result in an agreed division of the African Business…then, unless an extension is agreed by the Parties in writing, by 1 February 2017 the Parties agree to use reasonable endeavours to agree a binding process for an expert determination to value and divide the African Business”. The Conciliation Process failed and the parties did not seek to agree a process for an expert determination.
The Court dismissed the application to enforce the second stage, because it was held to be too “aspirational” and “tentative”. There was “no meaningful yardstick” against which the parties’ behaviour could be assessed nor any real limit on the parties’ freedom of action. They could do whatever they wanted in their own interest, provided they did not mislead each other. This problem was magnified by the second stage requiring agreement of all 10 parties of the settlement deed.
The crucial consideration, much like the reasoning in Walford v Miles [1992] 2 AC 128 in not enforcing agreements to negotiate, is certainty and whether there are objective criteria by which the court can determine whether one proposal or another ought to have been accepted, or whether the parties have provided that criteria in an otherwise binding agreement. Absent this criteria, parties should be aware that a commitment to use reasonable endeavours to try and reach an agreement may well be considered meaningless and unenforceable.
PREVENTING FOREIGN PROCEEDINGS WITH AN ANTI-SUIT INJUNCTION – Renaissance Securities (Cyprus) Ltd v ILLC Chlodwig Enterprises [2024] EWHC 2843 (Comm)
The use of anti-suit injunctions (“ASIs”) as an effective tool to hold a contracting party to its dispute resolution agreement has increased in the English courts, particularly post-Brexit as a result of the sanctions imposed on Russia after its invasion of Ukraine. It is more attractive for Russian counterparties to have their disputes dealt with by the Russian courts rather than the contractually agreed forum where sanctions will apply.
We continue to assist clients preparing ASIs in 2025, particularly in light of the Supreme Court’s decision in UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30 which was a clear example of the English Court’s willingness to uphold arbitration agreements through the issue of ASIs and prohibit foreign proceedings brought in direct contravention of them.
However, in Renaissance Securities the Court provided a reminder that there are limits to the use of ASIs. The Court did not extend injunctive relief where the effect of that relief would bind third parties to arbitration agreements.
In an earlier hearing in April 2024, the Court was prepared to grant mandatory ASIs which required the defendants to withdraw proceedings in Russia in breach of a London-seated arbitration clause where the prohibitory anti-suit relief in place was insufficient and there was strong and clear evidence of breach. There was also a risk the Russian court would apply its own law which allowed arbitration and jurisdiction provisions to be ignored in cases affected by sanctions.
But in November 2024, the Court refused to amend the ASI to extend injunctive relief to claims against third parties. In dismissing application requiring the defendants to withdraw tortious claims issued by them in the Russian courts against the Claimant’s Russian entities (“RREs”), the Court held the Claimant had to show a high degree of probability that the arbitration agreement had the effect of capturing third- party claims. The Court found that Renaissance had failed to establish either that the RREs were bound by the relevant arbitration agreement or that, on its proper construction, that agreement required the tortious claims to be arbitrated. The fact the RREs had provided letters consenting to arbitration was irrelevant to the proper construction of the arbitration clauses.
The case confirms that the availability of an ASI in the context of third parties will depend on the construction of the arbitration agreement and the Court will not shy away from the risk of forum fragmentation if this is necessary given the parties’ agreement.
WHEN SANCTIONS COMPLIANCE COMPETES WITH FAIR TRIAL CONSIDERATIONS – O v C
The Court has underscored its commitment to supporting arbitration by ordering a payment into court pending the outcome of an arbitration despite potential breach of US sanctions. In doing so, the Court navigated the complexities of international sanctions, and outlined the principles it will apply in deciding whether to order a party to do something that is contrary to a foreign law where the purpose of the order is to ensure a fair trial or arbitration.
The Claimant shipowners (the “Owners”) and the Respondents (the “Charterers”) entered into a charterparty regarding a vessel carrying a cargo of naphtha. The cargo remained on the vessel for 20 months because, shortly after loading, the US OFAC added the Charterers to its List of Specially Designated Nationals and Blocked Persons. The Owners sought to terminate the charterparty and sell the cargo. The Charterers brought arbitration proceedings seeking damages against the Owners for the conversion of their cargo. The Owners argued they were entitled to terminate the charterparty because of US Sanctions and sought interim relief under s.44 of the Arbitration Act 1996 for the sale of cargo and for the proceeds to be paid into a blocked US account in accordance with the licence granted by OFAC. Instead, the Owners had to make a payment into Court.
The Court adopted a nuanced approach for when a party is required to do something that is (or may be) contrary to a foreign law. The onus will be on the party invoking the foreign law to show that there is a real risk of prosecution, as opposed to merely a fanciful risk. If there is a real risk, the court will then balance that risk against the importance of the order sought. Here, there evidence showed no real risk of prosecution or, if anything, a low risk and that was outweighed by the importance of the order.
Companies doing business across different jurisdictions must therefore balance compliance with international sanctions and fulfilling contractual obligations. This ruling highlights that minimal risks of breaching sanctions will not prevent the Court from supporting arbitration and upholding commercial agreements. The need to assess the prosecution risks is therefore essential to any analysis.
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