Cosette v Mayne Pharma: what the Court of Appeal’s decision means for MAC clauses in public M&A

The decision of the NSW Court of Appeal in Cosette Pharmaceuticals, Inc v Mayne Pharma Group Limited [2026] NSWCA 215 will disappoint those hoping for further guidance on how material adverse change (MAC) clauses should be interpreted. The Court’s decision to dismiss Cosette’s appeal was more a reflection on how the case was framed at first instance rather than an analysis of the MAC clause itself.

Cosette originally sought to terminate the scheme implementation deed (SID) under which it had agreed to acquire Mayne Pharma in response to circumstances which Cosette alleged amounted to a MAC. MAC clauses are rarely invoked in public markets deals in Australia. When they do come into play, they are generally used as leverage to reprice, rather than to exit a deal. The Mayne Pharma case was therefore a rare opportunity to see a MAC tested in a live environment.

At first instance Black J found that Cosette could not rely on the MAC clause to terminate the SID. Our analysis of that decision is within our article, Material adverse change clauses – When buyer’s remorse is not enough: What you need to know after the Mayne Pharma court decision. Cosette appealed the decision (notwithstanding that the SID was eventually terminated for other reasons) in an effort to reverse the costs ordered against them at first instance.

The Appeal Court’s decision

The NSW Court of Appeal agreed with Black J and held that Cosette could not terminate the SID.  The reasons are specific to the case:

1. First, the court agreed with Black J’s narrow reading of Cosette’s pleadings as they related to its allegation that Mayne’s forecasts had no reasonable basis and were therefore misleading. The argument advanced by Cosette through its pleadings was that the forecast amounted to a representation that Mayne expected that FY25 EBITDA “would be” $69.8 million. On appeal, Cosette sought to clarify that the claim should be read as suggesting that the representation was that Mayne expected that FY25 EBITDA would be “in the order” of $69.8 million. The court held Cosette to the narrower interpretation of their pleading and concluded (logically on that basis) that Mayne had never made such a precise representation. As a result, the Court did not need to consider whether the forecast had a reasonable basis.
2. Second, and most relevant to MAC enthusiasts, the court found that Cosette had not shown that the circumstances of which they complained met the financial threshold for a MAC, as it was defined in the SID. Specifically, the court noted that Cosette’s calculations of the financial impacts of those circumstances left out any consideration of any countervailing cost savings that might be generated by those same circumstances. Both side’s experts agreed that any savings arising from those circumstances would be a relevant factor in calculating the EBITDA impact. Cosette could only reach a figure that triggered the MAC if the operational savings were ignored. That was fatal to Cosette’s case. This meant the Court did not address more substantive issues, such as how the counterfactual should be structured (i.e. as against what base a diminution in EBITDA is to be assessed).
3. Finally, the Court agreed with Black J that Cosette’s actions after it became aware of the circumstances of which they complained were inconsistent with termination and amounted to an election to proceed with the scheme. Those actions included providing evidence at the first court hearing and agreeing to a technical amendment to the SID which (among other things) noted that the SID “is and continues to be in full force and effect”.

Key takeaways

1. MAC clauses remain difficult to enforce.
2. It’s worth spending time in the drafting to make the methodology for calculating the MAC trigger clear. Consider defining the counterfactual against which any negative financial impact is to be measured.
3. A revenue based trigger might be easier to assess than an EBITDA trigger.
4. Don’t sit on your rights during a transaction or the choice may be taken away from you.

Ultimately, Cosette is a reminder that a MAC clause is only as good as its drafting and the speed with which a party acts on it. Anyone negotiating or managing a scheme implementation deed should clarify how the trigger is measured upfront and take advice early if events arise that might give rise to a termination right.

For more information, please contact Justin Fox, Brett Heading, Benny Sham or Peter Williams.