The Material Adverse Change Clause (MAC) in Mergers and Acquisitions (M&A) contracts serves as a mechanism to protect parties, especially the buyer, from material adverse changes that could reduce the value of an M&A. This is a regulation that is often used by parties involved in M&A transactions, especially transactions where one party is a foreign investor/organization. However, in case the parties to the transaction are entirely Vietnamese individuals and organizations and the contract does not contain this MAC clause, do the parties have the right to request the Court to settle when there are unfavorable changes for one party? The Cassation Decision No. 13/2024/KDTM-GDT of the Supreme People's Court (SPC) dated June 11, 2024 (Decision No. 13) [1]has almost answeredthis question and at the same time provided an important perspective on how Vietnamese courts refer to and apply the law when the M&A contract between the parties does not exist a MAC clause.
Source: Electronic People's Court News
1. MAC provisions and equivalent mechanisms in Vietnamese law
MACs are significant or significant changes or events that may negatively affect the outcome of an agreement or transaction between the parties in an M&A. Significant changes or events may arise after the conclusion of the agreement. It can be so detrimental that the impact is considered long-lasting, and the terms on which the agreement is recorded in the signed contract are no longer considered correct[2].
The MAC clause is a common clause in M&A contracts in Vietnam as well as internationally. This clause allows a party (usually the buyer) to request an adjustment of the contract, an extension of the performance period, or termination of the contract if an event or circumstance occurs that causes a serious adverse impact on the value of the subject of the contract, such as the value of the shares, assets, or related projects.
In Vietnamese law, the MAC clause is not directly stipulated in legal documents such as the Commercial Law 2005 or the Enterprise Law 2020. However, Article 420 of the Civil Code 2015 provides a similar mechanism, allowing the parties to amend or terminate the contract when the circumstances of the performance of the contract change fundamentally when the event occurs and fully meets the following conditions:
Firstly, the circumstances fundamentally changed due to objective causes that occurred after the conclusion of the contract;
Secondly, at the time of entering into the contract, the parties cannot anticipate the circumstances of the fundamental change;
Thirdly, the fundamental change in circumstances is so great that if the parties knew in advance, the contract would not have been concluded or concluded but with completely different contents;
Fourthly, the continued performance of the contract without changing the content of the contract will cause serious damage to one party;
Finally, the affected party has applied all necessary measures within its permissibility, in accordance with the nature of the contract, which cannot prevent or minimize the impact on the interests of the other party.
From these analyses, it can be seen that there are many similarities between the MAC and the provisions on fundamentally changing circumstances of Vietnamese law, as both regulations are (i) To protect the parties from unexpected risks, ensure fairness when the situation changes unexpectedly; (ii) The event requirement must have a material (material/substantial) impact on the value, activity or obligation and is unpredictable at the time of signing the contract; (iii) The event has a long-term impact, has a significant impact, not just a temporary fluctuation; (iv) There is a flexible mechanism that allows cancellation, renegotiation or adjustment of the contract to handle a situation of serious adverse change for a party.
2. Practical application:
In order to clarify the issue raised by the author, the author would like to mention a specific case; at the same time, state evaluations and comments to clarify the research issue.
Content of the case: Share transfer contract
On August 21, 2019, Mr. Dao Cong H, a shareholder owning 2,926,000 ordinary shares of Hoa Binh Ham N Joint Stock Company, signed a contract to transfer all these shares to Hung T Company with a total value of 117,040,000,000 VND (equivalent to 40,000 VND/share, 04 times the par value of 10,000 VND/share of Hoa Binh Ham N [3]Joint Stock Company). The share value is highly valued based on the expectation of benefits from the Bai V Port Complex Project - Phu Quoc Harbor City, managed and operated by Hoa Binh Ham N Company.
The contract stipulates that Hung T Company will pay in 04 installments, with the total amount remaining after the deposit (8,750,000,000 VND) is 108,290,000,000 VND. Hung T Company has completed the first two payments (a total of 54,145,000,000 VND) and received the transfer of 1,463,000 shares (equivalent to 3.5% of the charter capital of Hoa Binh Ham N Company). However, Hung T Company did not continue to pay the remaining two installments (a total of 54,145,000,000 VND) on the grounds that the circumstances changed fundamentally related to the project.
At the trials, the plaintiff - Mr. H argued that the share transfer contract was an independent transaction, regardless of the status of the Bai V Port Project. Hung T Company breached the contract when it failed to pay the other two installments and was subject to a late payment penalty (0.05%/day) and late payment interest (0.05%/day) according to Article 5 of the contract. with a total amount of up to VND 85,551,325,000 (including principal, penalty, and interest). On the contrary, the defendant - Hung T Company argued that the share transfer price was 04 times higher than the par value determined based on the right to manage and operate Bai V Port of Hoa Binh Ham N Company, according to the legal decisions at the time of signing the contract (Decision No. 138/QD-SGTVT dated 23/10/2017 and Decision No. 9879/QD-UBND dated 30/10/2017). By the time of the 3rd payment (25/5/2020), the competent authority has stopped handing over Bai V Port to Hoa Binh Ham N Company, reducing the project value and share value. Hung T Company considers this to be a fundamentally changed circumstance according to Article 420 of the Civil Code 2015. Hung T Company requested to adjust the remaining transfer price by 50% (equivalent to 27,072,500,000 VND), extend the payment period by 60 months, or terminate the contract.
Decisions of first-instance and appellate courts
The court of first instance[4] decided to accept all of Mr. Dao Cong H's requests, forcing Hung T Company to pay VND 78,650,433,256, including principal (VND 54,145,000,000), fines for violations (VND 4,331,600,000, equivalent to 8% of the remaining contract value according to Article 301 of the Commercial Law), and late payment interest (VND 20,173,883,256 according to Article 306 of the Commercial Law). At the same time, rejected the counterclaim of Hung T Company, arguing that the object of the contract is shares, not related to the Bai V Port Project.
Similarly, the Court of Appeal[5] decided to uphold the first-instance judgment, not accepting the appeal of Hung T Company and the protest of the People's Procuracy of Ho Chi Minh City.
SPC's opinion in the Cassation Decision
In Decision No. 13, the SPC Judges' Council determined that at the time of signing the share transfer contract, the right to manage and operate Bai V Port of Hoa Binh Ham N Company was an important factor affecting the value of shares. The transfer price is 04 times higher than the face value, reflecting the expectation of benefits from the project. The fact that the competent authority stopped the delivery of Bai V Port to Hoa Binh Ham N Company at the time of payment of the 3rd installment is a fundamentally changed circumstance, reducing the value of the project and shares, causing potential damage to Hung T Company. of Hung T Company on the application of Article 420 of the Civil Code 2015 is an incorrect judgment on the nature of the case. The SPC emphasized that the value of shares does not only depend on the par value but also on the potential value of the project that Hoa Binh Ham N Company is implementing. Therefore, the SPC Judges' Council accepted the appeal of the Chief Justice of the SPC and annulled the first-instance and appellate judgments of the lower courts, and assigned the dossier to the People's Court of Ho Chi Minh City for retrial according to first-instance procedures. In addition, the SPC Judges' Council requires a full evaluation of the evidence to determine: (i) Whether the extent of the changed circumstances is sufficient to be considered "basic" under Article 420 of the 2015 Civil Code; (ii) Actual or potential damages suffered by Hung T Company; (iii) Whether to terminate the contract, adjust the transfer price, or extend the payment period.
3. Implications of the Cassation Decision for the MAC Provisions
Decision No.13 brings some important lessons and precedents on how to apply the MAC clause in share purchase and sale contracts in Vietnam. The first is the recognition by the SPC Judges' Council that the value of shares in the transfer contract depends not only on the face value but also on the potential value of the projects or assets involved. The suspension of delivery of Bai V Port is considered a factor directly affecting the contract value, even if the contract object is shares. This emphasizes that the fundamentally changing circumstances regulation can be applied not only to the direct subject of the contract but also to the indirect factors that affect the value of the contract. In addition, the SPC Judges' Council requested the first-instance Court to re-evaluate the evidence to determine the extent of the change in circumstances and the actual damage. This reflects the prudent approach of the Vietnamese Courts, which requires the parties to clearly demonstrate that the changing circumstances meet the criteria of Article 420 of the Civil Code, including "fundamental" and "serious" damages. Because the phrase "basic" in this clause is understood to mean the core, fundamental, or underlying things of a problem. Therefore, the fundamental change here is that it must be a change event that damages the image in a large way, the importance of the interests of the parties is one of the most important factors to determine whether the event is a fundamentally changing circumstance or not. In addition to the basic factor, the adjudicating body also considers whether the damage causedby this fundamental change causes serious damage (including the scope of damage and the amount of damage) in fact. As can be seen in Clause 3, Article 420 of the Civil Code clearly stipulates that the Court, once determining the event as a fundamentally changing circumstance and considering the solution, may only decide on the modification of the contract in case the termination of the contract will cause damage greater than the costs of performing the contract if it is possible amend. Secondly, although the share transfer contract does not contain a MAC clause, based on the request of the involved parties, the SPC Judges' Council has agreed to apply Article 420 of the Civil Code as a special mechanism to protect the interests of an affected party. This suggests that even if the contract does not specifically provide for the MAC, the Court may still consider claims related to changing circumstances based on the general legal provisions. Practice shows that MAC is more specific and is often applied in M&A transactions, while fundamentally changing circumstances have a wider scope of application. Therefore, the provision of fundamentally changing circumstances may apply instead of the MAC clause in some specific cases, especially when the MAC is not agreed upon by the parties or the agreement is unclear. In addition, the case resolution options that can be applied to MAC cases are often more diverse and broader, depending on the agreement of the parties involved in the transaction. Meanwhile , Clause 3, Article 420 of the Civil Code only allows the parties to choose one of two applicable options: (1) Termination of the contract or (2) Amendment of the contract if the amendment of the contract causes less damage than the termination of the solution.
The SPC Judges' Council agreed to consider the application of the provision of Fundamental Changing Circumstances in this case as a clear and significant progress for enterprises to seek an alternative when the MAC clause is not stipulated or is not clearly stipulated in the share purchase and sale contract between the parties in the assignment M&A translation in Vietnam. Moreover, this will also be an indication and precedent for lower courts tocarefully consider the litigant's request for the application of fundamentally changing circumstances not only in ordinary commercial transactions but even in M&A transactions. where the parties often use MAC terms to resolve cases.
4. Some suggestions for parties involved in M&A transactions
Decision No. 13 provides some important lessons for businesses and even lawyers when advising on M&A transactions, especially when drafting and executing share purchase and sale agreements for businesses.
4.1 For enterprises conducting transactions
Clearly stipulate MAC terms. Parties should include in contracts, especially contracts for the sale of shares/equity contributions in M&A transactions, specific provisions on events that are considered to be materially adverse changes, such as legal changes, loss of asset management, etc. or deterioration in project value. This helps to minimize disputes and provides a clear agreement basis for the Court when resolving the case. In addition, in corporate M&A, the e-riskassessment before signing the contract. The buyer needs to thoroughly examine the factors affecting the value of the shares , such as the legal status of the project or related assets, in order to anticipate risks of changing circumstances.
Keep relevant documents and evidences. The parties need to keep sufficient documents, minutes, and documents related to the contract to prove the change in circumstances or damages in the event of a dispute. This is an important factor for businesses on both sides to effectively prove or refute the other's claim and convince the court to make a ruling in favor of their business.
4.2 For dispute settlement agencies
We believe that, when there is any request of the involved parties for the application of the provisions on fundamental change clauses, the Court should consider it, especially when there is a precedent from the Cassation Decision from the Council of Judges of the Supreme People's Court on this matter. The fact that the Courts are adamantin applying the provisions of civil law to commercial contracts such as Article 420 of the Civil Code is something that should be encouraged so that a new regulation such as the provision on fundamentally changing circumstances will be applied more and more widely in Vietnam in addition to specific regulations such as MAC. In addition, the SPC can fully consider making this Decision No. 13 a Precedent and apply it in the near future.
It can be seen that the Cassation Decision No. 13/2024/KDTM-GDT of the SPC Judges Council is an important precedent with the agreement to consider and apply the provisions on fundamentally changing circumstances related to the Bai V Port Project, the SPC has emphasized that the value of the contract not only depends on the direct subject (shares) but also is affected from indirect factors (projects, related assets). The decision is not only meaningful in guiding the dispute resolution of the courts, but also provides a valuable lesson for businesses and even lawyers when drafting and executing share purchase and sale contracts for their clients. In the context of increasingly complex commercial transactions, understanding and applying the MAC clause and the clause of fundamentally changing circumstances and applying it to the actual transaction in Vietnam will help the parties protect their rights and minimize legal risks when participating executing complex M&A transactions.
Lawyer Nguyen Van Phuc
HM&P Law Firm
[2] https://corporatefinanceinstitute.com/resources/valuation/material-adverse-change-mac/, accessed on 19/06/2025.
[3] The par value is stipulated by Hoa Binh Ham N Joint Stock Company in the company's charter.
[4] Judgment No. 1777/2022/KDTM-ST dated 28/9/2022 of the People's Court of Ho Chi Minh City
[5] Judgment No. 83/2023/KDTM-PT dated 24/7/2023 of the High People's Court in Ho Chi Minh City
