Similarly, if the language in the MAC clause specifically encompasses force majeure events, pandemics, outright impact on the market, and the economic condition, the chances for the party to rely on the MAC clause would be very high. In the same way, the knowledge of the parties about the event while entering into the agreement would play a great role in determining the applicability of the MAC clause. For example, if, at the time of signing the contract, the parties were of aware of any adverse event that might defeat the entire purpose of the transaction or if that event was reasonably foreseeable, then, unless that situation worsens to an enormous extent, it would be difficult for the parties to invoke MAC clause successfully. Therefore, a lot of factors determine the application of the MAC clause and it would not be justified of one to straightaway state that Covid-19 has triggered MAC or not. The results would vary from case to case and the extent of its application would be totally within the discretion of the court.

THE ROAD AHEAD

The Covid-19 pandemic has placed a renewed focus on MAC clauses and its significance in commercial contracts. Given the intricacies involved in the application of the MAC clause, Courts have been conservative while viewing and interpreting MAC clauses and generally do not allow parties to avail it as their way out of any transaction. Besides this, it is the party who seeks to invoke the MAC clause has the burden to prove its occurrence.[iii] This entails the contracts to be well written and drafted covering all possible deal protection mechanisms to save parties from any unforeseeable and adverse events happening in the future.

The current pandemic has given the parties an opportunity to introspect and devise a more robust and secure mechanism to protect themselves against any unpredictable circumstances, i.e. to have a more effective MAE clause, and in order to do that, there are a few things that need to be taken care of before one incorporates a MAC clause in any agreement. The first one is due diligence. Conducting thorough due diligence is considered as one of the key factors for the success of any business transaction. In terms of M&A, it is imperative for the buyer to familiarize himself with the values and risks associated with a transaction and find out any shortcoming or deal diluter which might be impacted and get worse in any unexpected event and then, in the end, consider getting that included in the MAC clause as a specific event.

The second one is negotiation. As is evident, the inclusion of a MAC clause in a contract shifts the burden of any unpredictable adverse event from the buyer to the seller. In this case, the broader the terms of the contract, the more vulnerable is the seller, and therefore, he would want the MAC clause to be as narrow as possible, whereas, the buyer would want the exact opposite. This is when negotiation comes into the picture to structure the deal in a way that addresses every kind of potential issues and share the risks of any business downturn at the same time. The third one is exploring insurance policies aimed at alleviating losses flowing from the loss of productivity or such other business interruption policies. Businesses should also consider developing effective risk management policies and business continuance plans.[iv]

CONCLUSION

The inclusion of the MAC clause in a contract facilitates the contractual exit for a party without actually breaching that contract. Given the restrictive application of the MAC clauses by the courts, invoking it is easier said than done and brings its own set of challenges. Though invoking a MAC clause may seem a facile option on paper, but, in practicality, it is difficult to materialize it considering the evidentiary burden and the overall cost of proving it. But, this clause definitely acts as a tool for the buyer to leverage the seller into renegotiating the terms of the agreement. Understanding the current economic realities and evaluating the protracted litigation process and the costs and reputational damage associated with the claim, generally, even the sellers are inclined towards renegotiating the terms of the contracts, which reaffirms that, especially for buyers, in the M&A context, MAC clauses will continue to be an efficacious contractual weapon.