Grupo Hotelo Urvasco SA V Carey Value Added SL (formerly Losan Hotels World Value added I SL) & ANR [2013] EWHC 1039 (comm):

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Material adverse change (MAC) clauses are common, often heavily negotiated and, also, rarely interpreted by the courts.  However, this is just what was required by the courts as part of this case.  This case concerned a dispute between the plaintiff (GH) and defendant (Carey) that arose when the defendant purported to exercise its right under a loan agreement to withhold funding.  It did so in reliance on  the MAC clause in the loan agreement.

Financial Condition

The MAC clause in the Carey loan agreement contained a representation that there had been ""no material adverse change in [the] financial condition (consolidated if applicable)" of GH.  Carey contended that the clause should be interpreted broadly to cover "all aspects of the company's finances".  GH argued that this was too broad and the consideration of a company’s financial condition should begin with an assessment of its financial statements provided pursuant to obligations set out in the loan agreement at the relevant date.  The court preferred the borrowers’ approach and held that their narrower interpretation of the company’s relevant financial information was correct.


Another key aspect of this case was whether a lender's knowledge of the financial position of the borrower company (or group) could affect the materiality of any change in its financial position.  Carey were aware that GH were seeking additional loan monies from them due to financial difficulties and a funding gap.  GH argued that it was self-evident that where a state of affairs was subsisting at the time that the loan agreement was entered into, it could not constitute a material adverse change if it also subsisted at the time of drawdown.  The court agreed with this interpretation looking, with approval, at U.S. precedent where the purpose of the MAC clause was to protect "the [lender] from the occurrence of unknown events that substantially threatened the overall earnings potential of the [borrower] in a durationally significant manner".

The court's decision on this point rested on the importance of the word "significant".  Blair J. noted that, should this not be the case, a lender would otherwise be able to call a default or suspend lending when it was not fully justified, thus forcing a borrower into insolvency.


The court's interpretation of the MAC clause followed two key lines:

  1. A narrow interpretation of the obligations; and
  2. Prior knowledge and disclosure is significant in determining the materiality of a change in financial position.

Ultimately, Carey failed to establish an event of default on the basis of a misrepresentation in relation to the MAC clause.  However, the court held that there had been other events of default and Carey consequently succeeded in its claim to recover sums already advanced under its loan agreements with the GH group of companies.