Key Point

When considering whether something is "material" a Court analyses the contractual term in which it is used to assess whether something significant or substantial has happened in the commercial context of the relevant parties arrangements.


Decura and UBS entered into a contract relating to the sale of banking services to UBS clients which contained the following provision:

"20.3 Each of the following will constitute an Additional Termination Event with respect to UBS: (a) UBS:  (i) ceases to carry on a material part of its UBS IB business at any time; [or  (ii) disposes of substantially all of its assets or the business which comprises UBS IB], (save, in each case, in connection with an internal reorganisation that leaves the current UBS IB business within the UBS group)  and such cessation [or disposal] has a material adverse effect on UBS IB's ability to market the Exclusive Business Services."

Shortly after the contract was concluded Decura alleged that UBS has made changes to its business – broadly speaking by reducing it activities in a range of fixed income products and services – which constituted an Additional Termination Event. The occurrence of an Additional Termination Event at an early stage triggered a payment of approximately $167 million from UBS to Decura. Decura sought a declaration that the changes made to the business of UBS constituted such an event.


The Court held that there had been no Additional Termination Event and that no payment was therefore due from UBS to Decura.

First the Court held that it must look at the context in which the issue of construction arose. Here the relevant factors were there was a long term contract, the payments triggered by an Additional Termination Event were very substantial and neither party had guaranteed any income or revenue or profit would arise as a result of these arrangements. Furthermore, there was no clear unconditional undertaking by UBS to sell or market Decura products to its clients although that was clearly contemplated by the parties at the inception of the deal. Against that background and reading other terms of the contract dealing with marketing the court thought something very significant and substantial had to happen before the payment obligation could be triggered. On the facts the Court held UBS had not "ceased" to carry on the relevant business line so Decura could not possibly establish a material part of the business lines had ceased.

The Court went on to consider whether if it was wrong on the first issue whether there would have been a material adverse effect as required by the provision. In this context the judge thought Decura had to establish UBS's ability to market the relevant products was materially impaired. Decura could not do this by showing sales had been reduced by UBS. It was ability to market that must suffer the adverse effect and this needed to be substantial or significant. The approach to construction adopted in the earlier Grupo Hotelero case (discussed in an earlier Update) was approved which entailed judging what was material at the relevant time which in this case would be the date on which Decura asserted its right to terminate and claim the payment.


Material Adverse Effect/Change provisions are a common feature of loan agreements and this case it helpful when read with the earlier Grup Hotelero case in providing a framework within which to analyse whether such an effect or change has occurred.

One of the interesting points arising from this case was the difficulty Decura had in producing evidence of the impact of internal projects at UBS which they thought affected the parties relationship. A point to bear in mind when drafting such termination provisions.

Finally, the choice of the word "cease" in the clause might not have fully reflected Decura's concern that the agreement required investment and so should not be ended early through a desire on UBS's part to pull back from certain parts of its existing business. Careful consideration of the triggers for payments and termination is a must where the consequences can be so drastic.

Decura IM Investments LLP v UBS AG, London Branch