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15 Jun 2021

MAC Clauses – are they required in commodity contracts?

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Travelport Limited v WEX Inc is the first reported decision of a material adverse event clause triggered by the COVID pandemic.  With the major downturn in international business following the pandemic, parties have turned their attention to material adverse change ("MAC") or material adverse event ("MAE") clauses to terminate problematic agreements.

Traditionally MAC/MAE clauses have been found in financing agreements, but they are also used extensively in SPAs for assets and businesses (as in Travelport) and are attractive clauses where there is a time lag between the agreement itself and completion. They also appear in particular long-term commodity contracts, most likely at the request of the financial institutions supporting the trades, although many spot commodity contracts also now include a form of a MAC/MAE clause. The question then posed by those dealing with commodity contracts is whether MAC/MAE clauses are really required, and if they are, should they come with a "handle with care!" health-warning?

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