International Term Loan Agreements Flashcards
(185 cards)
1
Q
What is a Term Loan?
A
A loan wherein the borrower is entitled to keep the funds for the full duration of the facility.
2
Q
What is a Committed Loan?
A
A loan wherein the lender’s promise of funding is proactive upon agreement and his rights to terminate and demand early repayment are defined in the contract.
3
Q
What is an Uncommitted Loan?
A
A loan wherein the lender’s promise of funding is reactive upon agreement and his rights to terminate and demand early repayment are discretionary.
4
Q
Are International Term Loan Agreements (ITLAs) Committed or Uncommitted?
A
A committed loan.
5
Q
Which Legal System ought apply in an ITLA?
A
Either the one stipulated by the parties or the one most closely connected to the contract.
The Rome Convention of 1980 – Art. 3-4.
6
Q
In this context, what is the definition of Capacity?
A
A party’s ability to bind itself to all of a contract’s terms.
7
Q
In this context, what is the definition of Authority?
A
A party’s ability to approve entry into a contract.
Companies Act 2006 – §39-40.
8
Q
Contractually, what results if there is a discrepancy between an agent’s Apparent and Real Authority?
A
Such a discrepancy, e.g. an internal limitation which the agent exceeds, will have no effect on a good-faith lender who acts without notice of it.
In re Hampshire Land Co. [1896] 2 Ch. 743.
9
Q
When will a lender be taken to have acted in good faith and without notice of a discrepancy between Apparent and Real Authority?
A
When the representation made by the company to the lender would reasonably lead one to believe that there exists no such discrepancy.
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd. [1964] 2 QB 480.
10
Q
Regarding corporate representations and lender good faith, what transpires if an agent makes a representation on a firm’s behalf?
A
The firm will not be bound by such representations or agreements built thereupon, unless the agent possessed the real authority to make such representations.
First Energy Ltd. v Hungarian International Bank Ltd. [1984] 2 Lloyd’s Rep 194.
11
Q
What is defined as an Illegal Transaction?
A
“Any transaction which involves (in its formation, purpose or performance) the commission of a legal wrong… or conduct which is otherwise contrary to public policy.”
Law Commission, Illegal Transactions: The Effect of Illegality on Contracts and Trusts, Consultation Paper 154 (1999), para. 1.5.
12
Q
If performing his contractual obligations becomes unlawful for the borrower, what transpires?
A
A default, permitting termination on the lender’s part.
LMA Standard-Form Contract.
13
Q
Are there any Formalities with respect to International Term Loan Agreements?
A
No, generally speaking.
Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334.
14
Q
What is a Term Sheet?
A
A precursory outline of the material terms and conditions of a facility, with the intention that a more complete document will later follow.
15
Q
What is outlined in a Term Sheet?
A
General financial information, e.g. the facility’s nature, amount, etc., and key provisions, e.g. conditions precedent, warranties, etc.
16
Q
Are Term Sheets binding unto themselves?
A
Only insofar as they embody the fundamental elements of a contractual agreement, particularly sufficient certainty and intention to be legally-bound.
Bear Stearns Bank Plc. v Forum Global Equity Ltd. [2007] EWHC 1576.
17
Q
According to Bear Sterns v Forum, what constitutes a Sufficiently Certain term?
A
A term which is essential, rather than merely important, to the functioning of the contract.
- Bear Stearns Bank Plc. v Forum Global Equity Ltd.* [2007] EWHC 1576 [155].
- “There is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later.”*
18
Q
According to Bear Sterns v Forum, what transpires if an important, alebit unessential, term is excluded from a contract?
A
Utilizing the Business Efficacy test, it will be implied into the contract as per the Reasonableness standard.
Bear Stearns Bank Plc. v Forum Global Equity Ltd. [2007] EWHC 1576 [164].
19
Q
Is a Disclaimer sufficient to render a Term Sheet a priori non-binding?
A
Generally speaking, yes. However, if sufficient bilateral reliance can be demonstrated, then no.
Proforce Recruit Ltd. v The Rugby Group Ltd. [2006] EWCA Civ 69.
20
Q
What is the Relationship between Representations and Contractual-Bindingness?
A
Where John knows or is under the impression that Jane has no desire to be legally bound to their agreement, indeed even in the absence of such knowledge or impression, no contractual binding shall take place.
Maple Leaf Macro Volatility Master Fund v Rouvroy and Trylinski [2009] EWHC 257 [228].
21
Q
What is a Commitment Letter?
A
“A letter agreement in which a lender sets out the terms on which it is prepared to lend money to the borrower.”
Thomson Reuters.
22
Q
Are Commitment Letters binding unto themselves?
A
Only insofar as they evince an intention to be contractually and legally-bound in future under a set of sufficiently-certain essential terms.
Maple Leaf Macro Volatility Master Fund v Rouvroy and Trylinski [2009] EWHC 257 [222]; First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep; G. Scammell & Nephew Ltd v H.C. & J.G. Ouston [1941] A.C. 251.
23
Q
What is the Difference between a Committed and Indicative Commitment Letter?
A
The former constitutes a binding obligation to lend, while the latter constitues an intent to contract on a given set of terms.
Wilson Smithett & Cape (Sugar) Ltd v Bangladesh Sugar & Food Industries Corp. [1986] 1 Lloyd’s Rep. 378; Kleinwort Benson Ltd v Malaysia Mining Corp. Bhd. [1989] 1 W.L.R. 379 | & | Associated British Ports v Ferryways N.V. [2009] 1 Lloyd’s Rep. 595.
24
Q
According to Maple Leaf, what is a quintessential way of measuring intention to contract or contractual certainty?
A
Reliance upon the terms of a given agreement or conudct which evinces their countenancing.
Maple Leaf Macro Volatility Master Fund v Rouvroy and Trylinski [2009] EWHC 257 [235 & 242]; Sykes v Fine Fare [1967] 1 Lloyd’s Rep 53 at P.57; Trentham v Archital Luxfer [1993] 1 Lloyd’s Rep 25 at P.27.
25
According to *Lordsvale*, is the stipulation of Additional Payments on Breach unlawful?
Yes, insofar as the relevant provision is commercially justifiable and does not predominantly exist to deter breach of contract.
* Lordsvale Finance Plc v Bank of Zambia* [1996] 3 All.E.R.156
* "There would... seem to be no reason in principle why a contractual provision the effect... [which increases the consideration payable upon default]... should be struck down as a penalty if the increase could... be explained as commercially justifiable, provided always that its dominant purpose was not to deter the other party from breach.”*
26
According to *Cavendish*, what is the 'true test' of whether a penalty clause should stand?
Whether, as a secondary obligation, it imposes, "a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation."
## Footnote
*Cavendish Square Holding BV v Talal El Makdessi* [2015] UKSC 67 at [32].
27
According to *Cavendish*, ultimately, how should the court approach the construction of penalty clauses?
It ought to, "bear in mind that what the parties have agreed should normally be upheld," in light of such factors as bargaining power.
## Footnote
*Cavendish Square Holding BV v Talal El Makdessi* [2015] UKSC 67 at [33] citing *Philips Hong Kong Ltd v Attorney General of Hong Kong* (1993) 61 BLR 41.
28
According to *Cavendish*, how should unfairness be construed in the context of a penalty clause?
In light of whether it results in, "a significant imbalance in the parties' rights... [which is] contrary to the requirements of good faith."
## Footnote
Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67 at [105].
29
Is there a presumption of Intention to be Legally Bound?
Generally speaking, regarding term loan agreements, yes.
## Footnote
*Edwards v Skyways Ltd* [1964] 1 W.L.R. 349 -- *cf* -- *Rose & Frank Co. v J.R. Crompton & Bros Ltd* [1923] 2 K.B. 261.
30
Generally speaking, how is Interest paid on Term Loan Agreements?
According to the sums drawn down by the borrower, but this additional cost to the lender is compensated for by a commitment fee.
31
What are the Components of the Interest charged on a Draw-down?
SONIA + Margin.
32
What is Margin?
The lender's profit margin, i.e. the ratio of money received to money paid out. Ranges from 0.25%-5%.
33
For an Agent, how might the Commitment to Syndicate be escaped, or at least, mitigated?
Through appeal to Reasonableness or Best Endeavors and by including into a contract:
* Material Adverse Change (MAC) Clauses;
* Market Flex Clauses; or
* Margin Ratchet Clauses; or
* Market Disruption Clauses.
34
When will a promise to use Reasonable or Best Endeavors be binding?
When the endeavor's object is sufficiently certain.
## Footnote
*Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD* [2001] EWCA Civ 406 at [69]; *Phillips Petroleum Co. Ltd v Enron Europe Ltd* [1997] C.L.C. 329 at [343].
35
What does a Promise to use Reasonable Endeavors entail?
An obligation to act reasonably with prudence, vigor, and competence.
## Footnote
*Terrell v Mabie Todd & Co Ltd* [1952] 2 T.L.R. 574; *CEP Holdings Ltd & CEP Claddings Ltd v Steni AS* [2009] EWHC 2447 (QB) at [62]; *Phillips Petroleum Co. UK Ltd v Enron Europe Ltd* [1997] C.L.C. 329
36
What does a Promise to use Best Endeavors entail?
An obligation to, "take all those steps in [one's] power which are capable of producing the desired results," as would otherwise be done by a prudent, determined, and reasonable bank.
## Footnote
*IBM United Kingdom Ltd. v Rockware Glass Ltd.* [1980] F.S.R. 335; *Rhodia International Holdings Ltd v Huntsman International Ltd* [2007] EWHC 292.
37
Ultimately, how will a Promise to use Reasonable or Best Endeavors be distinguished?
According to the given factual and contractual background.
## Footnote
*Jolley v Carmel Ltd* [2000] 2 E.G.L.R. 154.
38
What is a Material Adverse Change (MAC) Clause?
A clause permitting the lender to withdraw in the event of any material adverse changes to the borrower's station.
39
Genearlly speaking, what does a MAC Clause substantively resemble?
“Any event or series of events, whether or not related, which might in the [reasonable] opinion of the lender, [or lenders], have a material adverse effect on the borrower's [ability to comply with its obligations under this agreement]."
40
How will a MAC Clause be construed?
With particular attention paid to its wording, given the bespoke nature of such provisions, according to the standard of reasonablness.
## Footnote
*BNP Paribas SA v Yukos Oil Co.* [2005] EWHC 1321 (Ch); *IBP Inc. v Tyson Foods Inc., and Lasso Acquisition Corp.* [2001] 789 A.2d 14.
41
In the legitimate triggering a MAC Clause, is it relevant whether the borrower is at fault?
No.
## Footnote
*Levison v Farin* [1978] 2 All E.R. 1149.
42
What may the term 'Subject to Execution of Formal Documentation' entail?
Either that:
* No contract exists absent such execution;
* The lending obligation is conditional upon such execution; or
* The present contract will be superseded upon such execution.
43
How does *Mackay v Dick* apply to 'Subject to the Execution of Formal Documentation' terms?
Where legal binding has already transpired and the lender obstructs formal documentation, this will be taken as a breach of both its documenting and lending obligations.
## Footnote
*Mackay v Dick* (1881) 6 App. Cas. 251.
44
What is a *Force Majeure* Clause?
A provision that relieves a party from strict or total performance of relevant obligations on an extraordinary event.
## Footnote
For more, see: *Tandrin Aviation Holdings Ltd. v Aero Toy Store LLC* [2010] EWHC 40 at [8]; *British Electricial Industries Ltd. v Patley Pressings Ltd.* [1953] 1 W.L.R. 280; *Brauer & Co. (G.B.) Ltd. v James Clark (Brush Materials) Ltd.* [1952] 2 All E.R. 497.
45
Upon whom rests the Burden of Proof for *Force Majeure* Clauses?
The reliant party.
## Footnote
*Avimex S.A. v Dewulf & Cie* [1979] 2 Lloyd's Rep 57.
46
What are Conditions Precedent?
The prerequisites a borrower must fulfill before either it is entitled to request funds or the lender is obligated to advance them.
47
Are Conditions Precedent necessary for the Formation of a Contract?
No. While generally they may, in this context, they simply qualify the lender's obligation to advance funds.
## Footnote
*North Sea Energy Holdings NV v Petroleum Authority of Thailand* [1997] 2 Lloyd’s Rep. 418 at [428-429].
48
To what Standard must the Conditions Precedent conform?
They must be, "in form and substance satisfactory," to the lender; an inherently subjective standard.
## Footnote
LMA, cl. 4.1.
49
Are there any Constraints on Lender Discretion regarding Conditions Precedent?
It must not be used dishonestly, for an improper purpose, capriciously or *Wednesbury* unreasonably.
## Footnote
*Paragon Finance Plc. v Nash & Staunton* [2001] EWCA Civ 1466; *Socimer International Bank Ltd (in liquidation) v Standard Bank London Ltd* [2008] EWCA Civ 116 at [66].
50
What is an Event of Default?
An event which constitutes borrower default under the agreement's given terms and entitles the lender to cancellation and acceleration.
51
Are there any Constraints on Lenders' Powers upon Default?
Virtually, no.
## Footnote
*BNP Paribas SA v Yukos Oil Co* [2005] EWHC 1321 (Ch) at [23]; *Mardorf Peach & Co Ltd v Attica Sea Carriers Corpn of Liberia, The Laconia* [1977] A.C. 850.
52
What are Borrowers' primary Remedies for Wrongful Refusal to Lend? (**DSR**)
1. **D**amages.
2. **S**pecific Performance.
3. **R**epudiation.
53
What is the Objective of Remedial Damages?
To return the claimant to the nominal position they would have enjoyed had there been no breach.
## Footnote
*The* *Manchester & Oldham Bank v Cook* (1883) 49 L.T. 674 at [678]; *Concord Trust v Law Debenture Trust Corporation Plc.* [2005] UKHL 27 at [41].
54
Why are Damages primarily Nominal in nature?
Because it is assumed that the borrower will be able to raise funds elsewhere.
## Footnote
*The* *Manchester & Oldham Bank v Cook* (1883) 49 L.T. 674 at 678.
55
What are Special Damages?
Damages which compensate the borrower's additional expenses in obtaining replacement funds.
## Footnote
*Concord Trust v Law Debenture Trust Corporation plc* [2005] UKHL 27 at [41]
56
What sort of expenses do Special Damages seek to Compensate? (**LOI**)
Expenses such as, but not limited to:
* **L**egal fees.
* More **O**nerous terms.
* Increased **I**nterest rates.
*Prehn v The Royal Bank of Liverpool* (1870) L.R. 5 Exch. 92; *Victoria Laundry (Windsor) Ltd v Newman Industries Ltd* [1949] 2 K.B. 528; *Bahamas (Inagua) Sisal Plantation v Griffin* (1897) 14 T.L.R. 139.
57
What must the Borrower demonstrate to successfully claim Damages?
That the loss claimed was both caused by the breach and not too remote.
## Footnote
*Hadley v Baxendale* (1854) 9 Exch. 341; *Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd.* [1949] 2 K.B. 528.
58
What does the Test of Remoteness comprise?
An assessment of: (a) whether the loss suffered naturally arose from a lender's breach; or (b) whether it was reasonably foreseeable by the lender given the circumstances, parties' intentions, and market norms.
## Footnote
*Hadley v Baxendale* (1854) 9 Exch. 341; *Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas)* [2008] UKHL 48 at [9].
59
Are there any Constraints on a Borrower's ability to claim Damages?
Reasonableness and parties' intention to shoulder liability for a given risk.
## Footnote
*Transfield Shipping Inc v Mercator Shipping Inc. (The Achilleas)* [2008] UKHL 48; *Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd.* [1949] 2 K.B. 528.
60
Can the Borrower claim Damages for Loss of Profit or Opportunity, i.e. Substantial Damages?
Yes, if such profits or opportunities were self-evident from the purpose of the loan.
## Footnote
*Trans Trust SPRL v Danubian Trading Co. Ltd* [1952] 2 Q.B. 297; *The Manchester & Oldham Bank v Cook* (1883) 49 L.T. 674; *Wallis Chlorine Syndicate Ltd v American Alkali Co.* Ltd [1901] T.L.R. 656.
61
Where is the Difficulty in claiming Substantial Damages?
In showing that the lender either reasonably foresaw or assumed the risk relating to the profits or opportunities in-question.
## Footnote
*Jackson v Royal Bank of Scotland Plc.* [2005] UKHL 3.
62
Can the Borrower claim Damages for Loss of Reputation?
Yes, but only insofar as they result from the borrower having issued a payment order without knowing that the lender wouldn't execute.
## Footnote
*Wilson v United Counties Bank* [1920] A.C. 102; *Kpohraror v Woolwich Building Society* [1996] 4 All E.R. 119.
63
Must the Borrower mitigate any Losses Suffered?
Yes, in as much as it is reasonably able to.
## Footnote
*Bradford Savings & Loan Ltd. v Barclays Bank Plc.* (30 Mar. 1994) unreported.
64
How does the precedent in *Blue Sky One* influence the Borrower's obligation to Mitigate Losses?
Where the borrower is party to a corporate group, and the group is sufficiently flush, it must genuinely seek and be denied internal funding as a part of its mitigatory duty in obtaining substantial damages.
## Footnote
*Blue Sky One Ltd. v Mahan Air* [2010] EWHC 631 (Comm) at [146]-[148].
65
Is Specific Performance awardable in the context of a Pure Loan?
**Never**.
## Footnote
*The South African Territories Ltd. v Wallington* [1898] A.C. 309.
66
When may Specific Performance be awarded in the context of a Loan Agreement?
When the lending facility forms an integral, but anciliary, part of a broader transaction.
## Footnote
E.g: *Wight* *v* *Haberdan Pty. Ltd* [1984] 2 N.S.W.L.R. 280 (conveyancing); *Re Schwabacher, Stern v Schwabacher, Koritschoner's Claim* (1907) 98 L.T. 127 (private share purchasing); *Printing and Numerical Registering Co. v Sampson* (1875) L.R. 19 Eq. 462 (patenting).
67
What is the typical Rationale for awarding Specific Performance in lieu of Damages?
The former is generally awarded where the latter would prove an inadequate remedy, or even in the interests of justice.
## Footnote
*Miliangos v George Frank (Textiles) Ltd* [1976] A.C. 443 at 476 & *Loan Investment Corporation of Australasia* *v Bonner* [1970] N.Z.L.R. 724 at 741-745; *Beswick v Beswick* [1968] A.C. 58.
68
When might it be appropriate to award Specific Performance in lieu of Damages?
If, for instance, the borrower is:
* **Contractually barred** from purchasing another facility.
* Unable to purchase another facility due to **Market** **Illiquidity**.
* **Time-constrained** due to pre-existing contractual obligations.
69
What is Repudiation (Anticipatory Breach)?
A breach whereupon the aggrieved party may choose to end the primary obligations whilst maintaining any accrued rights. Anciliary obligations may yet survive.
## Footnote
*Johnson v Agnew* [1980] A.C. 367 at 396; *Yasuda Fire & Marine Insurance Co. of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd* [1995] Q.B. 174.
70
After Frustration on Grounds of Illegality, what recourse do Lenders have against Borrowers?
Following Frustration, all sums paid priorly by the lender to the borrowe are recoverable from him.
Law Reform (Frustrated Contracts) Act 1943 -- §1(2).
71
How does a Borrower Drawdown their funds?
Through the issuance of a **Utilization Request**.
72
Is the Borrower contractually obligated to Drawdown funds?
No.
## Footnote
LMA, Cl. 5.1
73
Is the Lender obliged to advance funds upon receit of a Utilization Request?
Yes.
## Footnote
LMA, Cl. 5.4.
74
What transpires if the Borrower refuses to accept funds after issuing a Utilization Request?
The lender will have an action in damages for losses.
## Footnote
*Rogers v Challis* (1859) 27 Beav. 175.
75
Why are Declarations of Purpose a staple in ITLAs?
They perform two functions, namely:
* Prevent lenders from knowingly funding illegal activites, which would void the contract; and
* Restrict borrowers to pre-approved activities, thus hedging against credit and operational risk.
76
How are Declarations of Purpose construed?
Objectively.
## Footnote
*Sumitomo Bank Ltd v Banque Bruxelles Lambert SA* [1997] 1 Lloyd's Rep 487 at 515.
77
What will a Borrower be liable for if they deceive the Lender with a false purpose?
Fraudulent Misrepresentation.
## Footnote
*Edgington v Fitzmaurice* (1885) 29 Ch D 459.
78
If funds are used for an Improper Purpose, what is the Lender's best means of recourse?
Applicatin for the enforcement of a Quistclose Trust.
79
When will a Quistclose Trust arise?
In the presence of an intention to establish a trust, as evinced by stipulation of the funds' exclusive use for a clear and specific purpose, i.e. the trust's object.
## Footnote
*Re Global Finance Group Pty Ltd and Global Mortgage Investments Pty Ltd, ex p. Reed and Herbert* [2002] WASC 63 at [167] and *Cooper v PRG Powerhouse Ltd* [2008] EWHC 498 (Ch).
80
Why is a Constructed Trust a superior means of recourse to Damages?
Damages, as a personal claim against the borrower, pit the lender against other creditors, whereas a constructed trust renders him proprietor of the outstanding sum as a beneficiary.
## Footnote
*Gibert v Gonard* (1884) 54 LJ Ch 439.
81
Regarding the Quistclose Trust, what are the most relevant Enforcement Mechanisms?
Freezing Orders and Tracing.
## Footnote
*Zhong v Wang* [2006] NZCA 242 at [100]-[102]; *Lehman Brothers International (Europe) v CRC Credit Fund* [2009] EWHC 3228 (Ch).
82
When does a Quistclose Trust terminate?
When the funds are either properly applied or returned to the Lender.
## Footnote
*Twinsectra Ltd. v Yardley* [2002] 2 AC 164 at 187 and 193.
83
What transpires if the Borrower transfers the funds held on trust to a Third Party?
Unless the party is a *bona fide* purchaser-for-value who was unaware of the trust, they will become a trustee of the Lender.
## Footnote
*Barclays Bank Ltd. v Quistclose Investments Ltd.* [1968] UKHL 4.
84
What transpires if the Borrower transfers the funds held on trust to a Third Party who then disperses them?
Unless the party is a bona fide purchaser-for-value who was unaware of the trust, they will become a constructive trustee of the Lender and be held liable for failing to perserve the trust assets.
## Footnote
*BCCI v Akindele* [2001] Ch 437; *Uzinterimpex JSC v Standard Bank plc* [2008] EWCA Civ 819.
85
What transpires if a Third Party, whilst receiving no money, Dishonestly aids a Borrower in Breaching its equitable obligations?
It may be held as a constructive trustee of the Lender, and thus, liable for preservatin of the trust assets.
## Footnote
*Royal Brunei Airlines* v *Tan* [1995] 2 AC 378; *Twinsectra Ltd* v *Yardley* [2002] 2 AC 164; *Barlow Clowes International* v *Eurotrust International* (2005) UKPC 37; *Abou-Rahmah* v *Abacha* [2006] EWCA Civ 1492; *Jones* v *Churcher* [2009] EWHC 722 (QB).
86
What is a Representation?
A **statement of fact** made **at or prior** to the formation of the contract which intends to **induce** its recipient to contract.
## Footnote
*Edgington v Fitzmaurice* (1885) 29 Ch D 459.
87
What is a Warranty?
A **promise** with similar effect to a representation, but one that **forms a contractual term**.
* Idemitsu Kosan Co. Ltd. v Sumitomo Corp.* [2016] EWHC 1909.
* “When a seller, by the terms of the contract under which he sells, ‘warrants’ something about the subject matter sold, he is making a contractual promise. Nothing less. But also I think (and all things being equal) nothing more.” [14]*
88
In the context of Term Loan Agreements, how are Warranties and Representations understood?
In practice, they are grouped to constitute statements **made by** the borrower which the lender **takes to be true** at the **formation** of the contract.
89
What is the Fundamental Distinction between a Warranty and a Representation?
A warranty is a statement of fact made by a **contract**, whereas a representation is a statement of fact made by a **party**.
## Footnote
*Idemitsu Kosan Co. Ltd. v Sumitomo Corp.* [2016] EWHC 1909
90
On what Grounds are Warranties and Representations Distinguished?
* **Time:** Warranties, as contractual entities, necessarily come into existence *post-execution*, whereas Representations can only be made *prior to or at the time* of contracting.
* **Laterality:** Warranties are *bilateral* exercises in defining the terms of an agreement, whereas Representations are *unilateral* assertions of facts and reliances as truth thereupon.
* Sycamore Bidco Ltd. v Breslin* [2012] EWHC 343; *Idemitsu Kosan Co. Ltd. v Sumitomo Corp.* [2016] EWHC 1909:
* "The normal case in misrepresentation involves the making of a representation, and as a result the entering into of the contract. That does not work where the only representation is said to be in the contract itself.” [203(vi)]*
91
How does *Sycamore Bidco Ltd. v Breslin* Distinguish between Warranties and Representations?
* **Technicality:** Warranties and Representations were distinctly and capitally referenced in the given contract.
* **Purpose:** Irrespective of common subject matter, certain clauses were intended as either Warranties or Representations.
*Sycamore Bidco Ltd. v Breslin* [2012] EWHC 343.
92
Can a Warranty give rise to a Claim of Misrepresentation?
No, as a warranty is taken to be a **bilateral contractual**'representation' as opposed to a traditional **unilateral party-based** representation.
* Idemitsu Kosan Co. Ltd. v Sumitomo Corp.* [2016] EWHC 1909
* “...If Sumitomo made a statement to Idemitsu, calculated to induce Idemitsu to enter into the SPA... that statement would have been in law a representation, actionable if false... because the matters thus stated would have been matters of past or present fact, as opposed to, for example, statements of opinion or as to the future.” [16]*
93
Does the Provision and Execution of an Agreement constitute a Representation?
No, as it does not constitute a set of statement of facts, but rather, "the **agreed means** by which the parties together **choose** to define," their agreement.
## Footnote
*Idemitsu Kosan Co. Ltd. v Sumitomo Corp.* [2016] EWHC 1909.
94
What are the Traditional Remedies for Misrepresentation?
Where fraudulent or negligent, both damages **and** rescission. Where negligent or innocent, rescission **or** damages in lieu of rescission at the court's discretion.
## Footnote
Misrepresentation Act 1967 -- §2(1) and §2(2).
95
What is the Traditional Remedy for Breach of Warranty?
**Damages** or **Repudiation**.
## Footnote
*Sycamore Bidco Ltd. v Breslin & Anor* [2012] EWHC 3443 (Ch).
96
Are the Traditional Remedies useful to a Lender, and if not, Why?
**No**. In case of breach, the Lender's primary goal is to escape the obligation to lend, i.e. loss prevention as opposed to loss mitigation, in addition to termination and acceleration of the facility.
McKnight, Paterson, and Zakrazewski, The law of International Finance, 2nd Ed., P. 169.
*"What the lender needs, and what a well drafted agreement should provide, is the right to refuse to make advances to the borrower if the terms of the clause... have been breached or if such a breach is likely to occur."*
97
How, then, is the Breach of a Warranty or Representation treated in a Term Loan Agreement?
Constituting an Event of Default, it enables the Lender to **terminate** and **accelerate** the facility.
## Footnote
LMA Standard Form -- Cl. 4.2, 23.4, 23.12, and 23.13.
98
What are the Commercial Effects of the Representations contained within the LMA Standard-Form Agreement? (**SST**)
* **Security:** Give the Lender an *initial* and *continuing* sense of security regarding risk, both before and after full drawdown.
* **Status Quo:** Place onto the Borrower an *initial* and *continuing* obligation to maintain a contractually-prescribed status quo.
* **Troubleshoot:** Allow either party to voice and address potential difficulties ahead, particularly those which cannot be accurately and definitvely supported under the strict wording of such clauses.
99
What are the Legal Effects of the Representations contained within the LMA Standard-Form Agreement? (**HEMP-R**)
* **Hedge** against legal risks, e.g. unenforceability or illegality.
* **Establish** issues of tax and jurisdictional governance.
* **Minimize** litigatory risk.
* **Pledge** the Borrower to truth on other aspects of the contract, e.g. MACs, EODs, provision of financial and accounting statements.
* **Rank** the Lender against other creditors.
100
How does the Lender guarantee the Veracity of a Representation once it has been Made?
By stipulating that it be **repeatedly authenticated** by the Borrower.
## Footnote
For examples, see: Clauses 4.2.a.i; 4.2.b; 19.14; and 25.5.
101
Can Silence constitute a Misleading Statement?
**No**, as there are **no general obligations** of disclosure in commercial transactions.
## Footnote
*Lloyd’s Bank Plc. v Egremont* [1990] 2 F.L.R. 351.
102
The word 'Material' is often included in Representation clauses. What does it refer to?
Any knowledge which, if known, would **affect the mind** of the Lender, irrespective of the knowledge of the statement's maker.
*Traill v Baring* (1864) 4 D.J. & S. 318 at 326; *Gordon v Street* [1899] 2 Q.B. 641; *Museprime Properties Ltd. v Adhill Properties Ltd.* [1990] 2 E.G.L.R. 196.
103
Do Representations which, at the time of execution, are false but later become true constitute a Breach?
**Yes**. All representations must **necessarily be true upon execution**, and some must continue to be thereafter.
104
Can the Pari Passu Clause (19.12) be interpreted as a Reference to Payment Preference as well as Rank?
**No**. It refers **exclusively** to creditor **ranking**.
## Footnote
*Kensington International Ltd v Republic of the Congo* (16 April 2003, unreported); *Encyclopedia of Banking Law*, Para.3283.
105
What is a Shadow Director?
"A person in accordance with whose directions or **instructions** the directors of the company are **accustomed to act**."
## Footnote
Companies Act 2006 -- §251(1); *Secretary of State for Trade and Industry v Deverell* [2001] Ch. 340 at 354, *per* Morritt, L.J..
106
Why is being branded a Shadow Director highly troublesome for Lenders?
They must then **assume the duties** and liabilities of an ordinary director, i.e. **safeguarding creditors' interests** in case of insolvency.
107
How does a Lender become a Shadow Director?
By **objectively** having **actively** and **effectually** **influenced** the corporate affairs of the Borrower from a **managerial** or **governance** persepctive.
## Footnote
*HM Revenue and Customs v Holland* [2010] UKSC 51.
108
For the purposes of Disclosure, when is a Company deemed to be In Possession of Knowledge?
Generally speaking, if knowledge comes into a **Director's** possession, it comes into the **Company's** possession.
## Footnote
*Jafari-Fini v Skillglass Ltd* [2007] EWCA Civ 261 at [98].
109
What are Covenants and Undertakings?
Those **obligations** relating to what the Borrower **will** and **will not** do throughout the duration of the facility.
110
For a Lender, what is the Function of Covenants and Undertakings? (**I-AM**)
* **Insurance** that Borrower's economic, commercial, and legal state won't deterioriate (or will improve).
* **Accessability** to Information regarding the Borrower; and
* **Monitoring** the Borrower therewith.
111
How is the Breach of a Covenant or Undertaking treated in a Term Loan Agreement?
Constituting an Event of Default, it enables the Lender to **terminate** and **accelerate** the facility.
## Footnote
LMA Standard Form: Cl. 4.2, 23.2, and 23.3.
112
What is an Information Undertaking?
A contractual obligation on the Borrower to provide information to the Lender as specified.
113
What is an Information Undertaking?
A contractual obligation on the Borrower to provide information to the Lender as specified.
114
What do Information Undertakings typically pertain to? (**FA-RCM**)
Such things as:
* **F**inancial and **A**ccounting Statements.
* **R**egulatory compliance.
* **C**orporate governance.
* **M**onitoring.
115
What is a Financial Covenant?
A covenant which seeks to, "**monitor**, **regulate**, and **preserve** the financial and economic position of the borrower," and/or its group.
116
What is the Purpose of Financial Covenants?
To oblige the Borrower to either maintain or improve its financial and economic state.
117
Subject to their Main Purpose, what are the Derivative Effects of Financial Covenants?
* Afford the Lender an **exit strategy**.
* **Discipline** the Borrower's management.
* **Obviate** the Lender's need to further **assert control**.
118
Why are Stringent Financial Covenants favorable for a Lender?
They **assure** him that, if followed, the Borrower will **likely** meet its repayment obligations. Moreover, if breached, they **alert** the Lender to the Borrower's potential incapacity to repay.
119
What are the Weaknesses of Financial Covenants?
* Are **backwards-looking** and **slow** to reveal noncompliance.
* Accountancy is a **variable** set of practices.
* Are drafted with going-concerns and not **insolvency** in mind.
120
How are Financial Covenants tailored to a given Agreement?
With reference to the **natural risk** of the Borrower's business and his **financial statements**, which would include annual, bi-annual, quarterly, and monthly accounts.
121
Under a Maintenance Regime, how is the Observation of Financial Covenants ensured by the Lender?
By **obligating** the Borrower provide **certificates** demonstrating as much on a regular basis.
122
Under an Inucrrence Regime, how is the Observation of Financial Covenants ensured by the Lender?
By **obligating** the Borrower provide **certificates** demonstrating as much under specified circumstances, e.g. debt incurrence or dividend payout.
123
Generally, what do Financial Covenants stipulate?
Either the maintenance or amelioration of:
* Leverage.
* Net Worth, i.e. Net Assets - Net Liabilities.
* Cash Flow.
* Net Asset Value (NAV).
* Working Capital (WC).
* Capital Expenditure (CapEx).
* Securities.
* Leverage : NAV.
* Total Consolidated Borrowings : Net Worth.
* Current Assets : Current Liabilities.
* Interest : Earnings.
* Interest : Profits before Interest and Tax (PBIT).
124
With respect to Leverage as a Financial Covenant, how are Debt and Earnings defined?
Debt is drafted to include, "**all** of the ways in which debt or credit may be **raised** and **remain** **outstanding**. Earnings is drafted as **EBITDA**.
125
What is a Cure Right with resepct to a Financial Covenant?
A clause which permits the Borrower to **remedy** a breach **before** the Lender considers it an **Event of Default**.
126
Aside from Information and Finance, what else may Covenants and Undertakings pertain to?
Either **Maintenance** of the Borrower's business or the Lender's Creditor **Ranking**.
127
What is a Maintenance of Business Undertaking?
A pledge on the Borrower to **refrain** from varying the **nature** of its business as it was undertaken at the facility's **execution**.
128
Why are Maintenance of Business Undertakings favorable for a Lender?
They limit his exposure to credit, operational, and market risk.
129
How do Lenders protect their Ranking as Creditors?
By drafting that their **unsecured** claim ranks ***Pari Passu*** alongside other creditors, or that their **secured** claim ranks **above** other creditors.
130
What is a Negative Pledge?
A clause **proibiting** the Borrower from **granting security** **outright**, or in a way that subordinates the Lender's **priority**, over any assets to a Third Party, or from **unauthorizedly disposing** of an asset.
131
How is Security defined in the Context of a Negative Pledge?
A **proprietary right in an asset** exercisable by the Lender against the Borrower pursuant to the discharging of his debt.
* Bristol Airport Plc. v Powdrill [1990] Ch 744 at 760.
* “Security is created where a person (the creditor) obtains rights exercisable against some property in which the debtor has an interest in order to enforce the discharge of the debtor’s obligation to the creditor.”*
132
What are the Commercial Purposes of Negative Pledges and Anti-Asset Disposal Clauses?
* **Increase** the Lender's chance of **repayment**;
* **Limit** the Borrower's ability to **deflate** creditors' asset cushion;
* **Prevent** the **Subordination** of unsecured debt;
* **Safeguard Proprietary Interests** in securities;
* **Indirectly Warn** against the Borrower's potential **financial** **difficulties**.
* **Preempt** Third-Party **obstructions** to loan **restructurings**.
* **Avoid** the **transaction costs** of ranking **overlapping** **proprietary** **rights**.
133
Breaching a Negative Pledge constitutes an Event of Default. Why could Executing it prove counterproductive to the Lender?
The Lender's rights would be against the Borrower **alone**, meaning the **now-secured** Third Party would **still maintain** a proprietary interest over the disposed-of asset.
134
In case of Breach of a Negative Pledge, what Remedies might prove of real use to Lender?
* An **injunction** against the **Borrower**, if the Breach is **foreseen**.
* An **injunction** against the **Third-Party** subject to the Tort of Inducing or Procuring a Breach of Contract, if the breach is **unforeseen**.
* A **Springing Security Clause**.
* **Specific Performance**, if wording suggests **equitable** interest or mere equity.
135
What is Problematic about Injunctions as a Remedy?
They require **preemptive action** and are **discretionarily** **awarded**, typically when damages would prove insufficient or inappropriate.
136
How is the Tort of Inducing or Procuring a Breach of Contract established?
1. Evince a **breach of contract** between the Lender and Borrower.
2. Evince that the Third-Party **knowingly** induced this Breach.°
3. Evince that the Third-Party **foremost intended to procure** this Breach.
## Footnote
*OBG v Allan* [2007] UKHL 21.
°° Knowledge is judged subjectively. Morever, while actual knowledge is the gold standard, reckless indifference and gross negligence may suffice. Respectively, see (*Merkur Island v Laughton* [1983] 2 AC 570 at 591) and (*Swiss Bank v Lloyds Bank* [1979] Ch 548).
137
For an Unsecured Lender, what is Problematic about the Tort of Inducing or Procuring a Breach of Contract?
It **only** awards **damages**, rather than nullify the Third Party's proprietary interest or grant the Lender security.
138
What is a Springing Security Clause?
A clause which **obligates** the Borrower to **create an equivalent security** in favor of the Lender in case of breach.
139
What are the Limits of a Springing Security Clause?
* **Registration** must comply with Part 25 CA 2006.
* Borrower must be **free from other Negative Pledges**.
* May be vulnerable to the **Avoidance Provisions** of the IA 1986.
* May be unsupported by sufficiently valuable **Consideration**.
140
What is the Simplest Form of a Negative Pledge?
“The borrower will not create or permit to subsist any security over any of its assets.”
## Footnote
LMA Standard Form -- Cl. 22.3(a).
141
What is the Potential Danger of drafting a very Strict Negative Pledge?
**Hindering** the Borrower's ability to **engage in commerce**, thus making him **less profitable**, and increasing the Lender's **likelihood** of being deemed a **Shadow Director**.
142
In drafting a Negative Pledge, what is the Distinction between a True Negative Pledge and an Affirmative Negative Pledge?
The **former** obligates the Borrower to grant the Lender **equal or** **rateable** security over an asset **before** it is charged, whereas the latter places this same obligation **after** the charge is made.
143
In drafting a Negative Pledge, how is it ensured that a Clause covers an agreement to grant security in the Future?
By including the words '**will not create**'.
144
What is a Quasi-Security?
Any **agreement** which mimics the economic effect of a true security and **raises a later creditor's priority above the Lender**.
145
In drafting a Negative Pledge, what do the words 'or having a similar effect' refer to?
**Quasi-Securities**.
146
What is Problematic about the phrase 'or having a similar effect to'?
It's **vague**, and thus potentially **difficult to precisely enforce**.
147
In drafting a Negative Pledge, how else may the issue of Quasi-Securities be approached?
By **barring** **transactions** whose **primary** **aim** is to **finance** the **acquisition** of an asset or to **raise financial indebtedness**, referencing specifics as necessary.
## Footnote
LMA Standard Form -- Cl. 22.3(b).
*In truth*, *quasi-securities are likely best dealt with under Anti-Asset Disposal Clauses*.
148
Given that a Lender cannot directly pursure a Borrower's corporate group for breach of a Negative Pledge, how does it protect itself?
By **tying** the Borrower's **performance** of the negative pledge **to the corporate group**.
## Footnote
LMA Standard Form -- Cl. 22.3.
149
What is a 'Carve-Out'?
A clause which **permits** the **contravention** of an **obligation** under an outlined set of **conditions**.
150
What is an Automatic Security Negative Pledge (ASNP)?
A negative pledge whose breach automatically creates security over the material asset, or one of equivalent value, wherein the Lender ranks equally or above the later Creditor.
151
Functionally speaking, what are the Problems with an ASNP?
* Date of creation determines **priority**. The Lender gains security **only after** breach, and will thus be **pre-dated** by the Creditor.
* There must be a mechanism to **identify** the **relevant assets**.
* There arguably must be **fresh consideration**, e.g waiving the right to deny future drawdowns or act on the event of default.\*
\**Alliance Bank v Broom* (1864); *Clegg v Bromley* [1912] 3 K.B. 474 -- *cf* -- *The Asiatic Enterprises (Pte) Ltd v United Overseas Investment Bank Ltd* [2000] 1 SLR 300.
152
Does a Negative Pledge give rise to an Equitable Interest in an asset?
* It gives rise to a **charge** that will be **enforceable** on **future assets** even if **unidentified**; however,
* Any **present** charges are **not recognized** to create **future** charges, and all charges will **rank behind** the new **security** à la **timing**.
See: *Tailby v Official Receiver* (1888) 13 App. Cas. 523; *Smith v Bridgend County Borough Council* [2002] 1 A.C. 336 at 357
153
What is a Floating Charge?
"[A Charge] presently affecting all the items expressed to be included in it, but not specifically affecting any item till the happening of the event which causes the security to crystallize as regards all the items."
## Footnote
*Evans v Rival Granite Quarries Ltd.* [1910] 2 K.B. 979 at 1000.
154
Does a Negative Pledge create a Floating Charge?
**No**. It creates, "a charge expressed to come into existence on a specified future event and then to attach to assets then owned by the company."
## Footnote
*Smith v Bridgend County Borough Council* [2002] 1 A.C. 336 at 357.
155
Does the Charge created by an ASNP have to Registered?
**Yes**, within **21 Days**.
## Footnote
Companies Act 2006 -- §870.
156
What is the Commercial Purpose of the Events of Default clause?
To afford the Lender an **exit route** out of the facility, namely by giving it immediate recourse to **acceleration**, whilst also **maintaining** any of the Borrower's outstanding obligations.
157
What is Acceleration?
The act of **cancelling a facility** and **demanding its repayment in full**, regardless of its scheduled maturity.
158
What is a Remedies Cumulative Clause?
A clause which states that acceleration, as a remedy, is provided for **in addition to all other remedies** enjoyed under contract law.
159
For the Borrower, is Equitable Relief reliable in case of Default and Acceleration by the Lender?
**No**. The **certainty** and **predictability** of clauses between **commercial parties negotiating at arm’s length** must be upheld.
## Footnote
*The Brimnes* [1975] QB 929; *The Laconia* [1977] 1 A11 ER 545; *The Chikuma* [1981] 1 A11 ER 652.
160
Must a Lender act reasonably in its Discretion to Accelerate?
**No**. Neither actual loss suffered by the Lender nor motive are material considerations in this context.
## Footnote
*BNP Paribas v Yukos* [2005] EWHC 1321 (Ch), at [23]; Ç*ukurova Finance International Ltd. v Alfa Telecom Turkey Ltd.* [2013] UKPC 2, at [78].
161
Must a Lender act in Good Faith in its Discretion to Accelerate?
**No**. The court **will not imply** any such term into the contract.
## Footnote
*Sucden Financial Ltd. v Fluxo-Cane Overseas Ltd & Anor* [2010] EWHC 2133 (Comm), at [50]; *Mid Essex Hospital v Compass* [2013] EWCA Civ 200, at [83]–[92].
162
Why are the terms 'Continuing' or 'Ongoing' such important qualifiers when referencing Events of Default in Acceleration Clauses?
Because of how they may be defined:
* If done so widely, then a Borrower may unilaterally remedy a breach and nullify the clause.
* If done so narrowly, then a Borrower will formally require a waiver to fully remedy the breach and nullify the clause.
163
What is virtually the only Limitation on the Lender's discretion to trigger the MAC Clause?
**Good faith** and **Reasonableness**. An event need not **objectively** have an adverse effect, but the Lender must **honestly** and **rationally** believe that it does.
## Footnote
*Grupo Hotelero Urvasco SA v Carey Value Added SL* [2013] EWHC 1039 (Comm), at [344]
164
What is the Advantage of an Objectively-formulated, as opposed to Subjectively-formulated, MAC Clause?
The former allows the Lender to rely on information **discovered subsequent** to activating the clause, while the latter **limits** such reliance to information available at the **material time**.
165
What is the Objective of the MAC Clause in an International Term Loan Agreement?
To **defend the Lender against known uncertainties** by permitting him to either:
* "**Accelerate** the loan **without any cost or penalty** or..."
* "...**Renegotiate the agreement**," in case of unforeseen events that undermine the conditions which underpin the Lender's decision to lend.
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [40]
166
What is the Fundamental Problem with MAC Clauses?
**Ambiguity** of **construction**, and thus, **application**.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [40].
167
Why is Ambiguity in a MAC Clause potentially Dangerous?
They may be used to **abruptly terminate now-unprofitable agreements** during times of **high** **volatility**, thus **costing** both Borrowers and the global economy **severely**.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [41].
168
How does Narine propose that MAC Clause should be used?
"To renegotiate [an] agreement,following the occurrence of events *ex post* that do not reflect the *ex ante* objective of the parties," i.e. the decision to lend.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [41].
169
What is a Market MAC Clause, as defined by Narine?
A variant which **specifically guards against market risk** and its impingement on the viability of the loan.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [42].
170
What is a Business MAC Clause?
A variant which guards against **company-specific adverse effects**.
## Footnote
Narine Lalafaryan -- Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives [57].
171
According to Zakrzewski, what are the Three Essential Elements of a MAC Clause?
"There has to be a **change or effect**, which **must be adverse**, and the adverse change or effect **must be material**."
## Footnote
Rafal Zakrzewski, *Material Adverse Change and Material Adverse Effect Provisions: Construction and Application* [346].
172
Other than as an Event of Default, how can a MAC Clause be utilized?
Either as a:
* **Condition Precedent**, acting as an ***ex ante* safeguard** against any **uncertanties**.
* **Representation** **and** **Warranty**, acting as an ***ex post* safeguard** against **adverse selection** or **moral hazard**.
* **Representation and Warranty**, acting as a **qualifier**.
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [45].
173
What is the Benefit in using MAC as a Representation and Warranty?
It acts as a, "**monitoring**, **restricting**, **incentivising**, and **disciplining**," **device**, whilst permitting the Borrower, "to operate in the ordinary course of its business."
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [45-46].
174
Aside from its Remedial Functions, what are MAC's Governance Functions?
* **Ameliorate information asymmetries** by sorting Borrowers into different categories.
* **Signal** the Borrower's **credit quality** *ex ante*.
* **Monitor**, **restrict**, and **discipline** **Borrower opportunism** *ex post*.
* **Incentivize Lender/Borrower bonding** through **information**-**sharing** functions *ex post*.
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [48].
175
According to Narine, why are Market MAC or Business MAC Clauses useful distinctions to make?
It practically **compartmentalizes** the **risks** which MAC seeks to guard against whilst allowing for the **individual refinement** of their **scopes** and **thresholds**.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [57].
176
According to Narine, what is the Conceptual Difference between the Foreseeability Test and the Knowledge of Risk Test?
**Forseeability** is fundamentally a **higher threshold**.
If a Lender is aware of a Borrower's financial difficulties, but knows not if they will become insolvent:
* He possesses **no actual knowledge** of the risk of insolvency, and **thus cannot foresee** it; but
* He certainly **possesses knolwedge** of it.
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [65].
177
Where does the Burden of Proof for MAC Clauses lie?
With the **invoking party**.
## Footnote
See: *Grupo Hotelero Urvasco SA v Carey Value Added SL* [2013] EWHC 1039.
178
Why is the term 'Material' Problematic to Define?
Its self-referential nature makes it very difficult to doctrinally impose a singular definition upon it.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [72].
179
According to *Akorn*, in what way can leaving the term 'Material' undefined be advantageous?
Its **inherent uncertainty** may provide **opportunities for renegotiation** down the line, thus **increasing efficiency**.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [72].
180
According to *Boston Scientific*, are the terms 'Material' and 'Material Adverse Effect' fungible?
**No**. While they may be **influenced** by the **same factors**, they **pertain to different things**.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [73].
181
According to *Akorn* and *Boston Scientific*, what should a Material Adverse Change pertain to?
A change which, "**substantially threaten[s]** the **overall** **earnings potential** of the target in a durationally-significant manner... [as] viewed from the **longer-term perspective** of a **reasonable** acquirer."
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [73].
182
Is the US standard of Material Adverse Change in line with the UK standard?
Yes, which so states that MACs must be, "material in a **substantial way** to the borrower’s **ability to perform the transaction** in question," in a **non-temporary** manner.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [73], citing *Grupo*.
183
Regarding Temporality, how may the M&A caselaw for MACs mistranslate when applied to Debt Finance?
Loan transactions typically possess a **relatively longer timeframe**, and hence may **imply** a **different meaning of non-temporary**.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [73].
184
According to the *Akorn* and *Boston Scientific*, how is the Magnitude of a Material Adverse Change evaluated?
On an **case-by-case basis**, with reference to the given facts. This approach is **mirrored in the UK caselaw**.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [73].
185
How is Frustration distinct from MAC?
The **former** applies to **unkown unkowns**, whereas the **latter** applies to **known unkowns** that are beyond the parties' control.
## Footnote
Narine Lalafaryan -- *Material Adverse Change Uncertainty | Costing A Fortune If Not Corporate Lives* [78].
