TOGETHER WITH

Table of Contents

• EDITOR’S RAMBLE 🗣

• FEATURED REPORT 📰

• TOGETHER WITH SEMAFOR GULF* 🤝

• IN OTHER NEWS 🗞

• AROUND THE WEB 🌐

• STUFF THAT MIGHT HELP YOU 👌

EDITOR’S RAMBLE 🗣

This week I was reading about the SQE pass rates.

In 2022 the LPC pass rates were around 58% (and they stayed pretty steady during the pandemic).

But last week, the SQE pass rate for July 2024 hit a record low of just 44%.

That’s a big drop.

Why is it just so much lower now? Let me know what you think.

- Idin 

FEATURED REPORT 📰

😬 Backing out of a $1.2 billion deal (material adverse clauses explained)

What's going on here?

The High Court of England and Wales has ruled that mining company Sibanye-Stillwater must pay damages for unlawfully ending a $1.2 billion deal with private equity firm Appian Capital.

The win for Appian Capital has been called the biggest ‘material adverse event’ case to have been tried in the English courts.

What was the transaction?

Appian Capital is a private equity firm that invests in metals, mining, and infrastructure. It owned two Brazilian mining companies:

1. Atlantic Nickel, which ran the Santa Rita nickel mine in Bahia, Brazil, and

2. Serrote Participações, which operated the Serrote copper and gold mine in Alagoas, Brazil.

In 2020, Appian Capital decided to sell both of these.

Sibanye-Stillwater (a South African mining company) made an offer of $1 billion in cash plus a 5% royalty on the total revenue from the mines — and Appian Capital agreed.

Separate sale and purchase agreements were worked out for each business.

Now, this part’s important – both deals were signed in October 2021 (meaning the parties legally committed to the transaction) but weren’t meant to complete until a few months later (when ownership is transferred and payments are made).

The reason this distinction between signing and completing is important is because one of the agreements — the one for Atlantic Nickel — contained a ‘Material Adverse Effect’ clause.

What is a ‘Material Adverse Effect’ clause?

A ‘Material Adverse Effect’ (MAE) clause is like an escape door in a contract.

Imagine you're buying a house, and before you complete the purchase, you discover something huge that changes everything — like the foundation is cracking. Now, you might not want the house anymore.

In a corporate deal, the MAE clause gives the parties (in this case, you, the house buyer) the right to back out of the deal if something majorly negative happens to the business (like cracked foundation in the house example).

What constitutes ‘something major’ is agreed by the parties in the contract.

So, what happened in this case?

The contract: The MAE clause in the contract allowed either party to cancel the sale if a significant negative event happened between the signing date (26 October 2021) and the closing date (7 January 2022).

The term "Material Adverse Effect" was defined as any change, event, or effect that could seriously harm the business, finances, operations, or assets of the companies.

But there were some exceptions to this, meaning some events wouldn’t count as Material Adverse Effects. Things like:

• Global, national, or regional economic, political, market, or social conditions

• Epidemics, pandemics, or disease outbreaks

• War, civil unrest, or acts of terrorism

• Natural or man-made disasters

What actually happened: On 9 November 2021, two weeks after the sale agreements were signed, a geotechnical event happened at the Santa Rita nickel mine in Brazil.

A section of the slope leading into the mining pit, measuring around 150,000 cubic meters, shifted by two meters.

The buyer, Sibanye-Stillwater, tried to cancel their purchase of Atlantic Nickel, claiming the incident constituted a Material Adverse Effect (as defined in the contract).

But Appian Capital disagreed and took Sibanye-Stillwater to court over it.

What did the Court decide?

General position in English courts: There isn't much case law in England on what qualifies as a material adverse effect. So, it really depends on what’s in the contract, the specific facts of each case and whether the incident's impact is significant enough.

High Court’s decision: In a 78-page judgment the High Court ruled that the geotechnical event at the Santa Rita Mine did not qualify as a Material Adverse Effect, as its negative impact wasn't significant enough. This meant Sibanye-Stillwater couldn’t back out of the deal.

The Court’s decision was based on some key points:

• The collapse didn’t cause any ore loss.

• The collapse was relatively minor (only about 5% of the average volume for similar incidents.

• The cost to fix the collapse was under $20 million, way below 5% of Atlantic Nickel’s purchase price.

Because the event didn’t meet the threshold for a Material Adverse Effect, Sibanye-Stillwater had breached the sale agreement by trying to cancel based on that clause.

What’s happening now? Appian Capital is trying to recover the losses they suffered from the wrongful termination — there’s a court hearing to establish those damages taking place in November 2025.

In that, Sibanye-Stillwater will try to argue that Appian Capital could have sold the companies to another buyer for a similar price, and therefore it doesn’t owe damages.

Which law firms were involved?

Kirkland & Ellis represented Appian Capital in the case (supported by barristers Andrew Green KC, Andrew Scott KC, and Gayatri Sarathy from Blackstone Chambers).

Sibanye-Stillwater was represented by Clifford Chance’s mining group. This team specialises in advising mining companies on matters like fundraising, project development and dispute resolution (like this case).

TOGETHER WITH SEMAFOR GULF* 🤝

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IN OTHER NEWS 🗞

• 🎓 Liverpool University has teamed up with six law firms to offer a new LLB degree with real-world experience. Students on the "Law with a Year in Industry" program will get the chance to spend a year working at one of the firms' Liverpool offices. The participating law firms include Brabners, DWF, Hill Dickinson, In-House Legal Solutions, Taylor Wessing, and Weightmans. This hands-on experience takes place between the second and final year of the degree, giving students a chance to build their Qualifying Work Experience.
  

• 📈 GSK’s shares jumped 3.2% after the company reached a $2.2 billion settlement over its heartburn medicine, Zantac. The UK pharma giant had been dealing with lawsuits since 2019, when a lab found high levels of a possible cancer-causing substance in Zantac’s active ingredient, ranitidine. Last week, GSK announced it had settled with 10 complainant firms, covering around 80,000 people. This resolves 93% of the claims against the company in US state courts.
  

• 💷 The Chancellor is thinking about raising capital gains tax (CGT) to 39%, according to the Guardian. This is because it needs cash to fund public services. Currently, CGT is 20% and brings in £15 billion a year, but that’s less than 2% of total tax revenue. The uncertainty has already led some UK execs to sell shares ahead of the October 30 Budget.
  

• 💼 Davis Polk has set a new record for trainee pay in London, bumping first-year salaries to £65,000 and second-years to £70,000. This makes it the highest-paying law firm for trainees in the City. The firm, which hires five trainees a year, pays newly qualified solicitors £170,000. Davis Polk has also been expanding in London, recently bringing in partners from Paul Hastings and A&O Shearman.

AROUND THE WEB 🌐

• 💻️ Useless: This is the biggest website in the world

• 🛋️ Nothing: Use this website to do absolutely nothing (it’s oddly peaceful)

• 📖 Interesting: 200 new words and definitions were added to the Merriam-Webster dictionary, including “touch grass” and “nepo baby”.

Credit: r/internetisbeautiful

STUFF THAT MIGHT HELP YOU 👌

• 📹️ Free application help: If you're applying to commercial law firms, check out my YouTube channel for actionable tips and an insight into the lifestyle of a commercial lawyer in London.