The operation of a material adverse change clause often turns on a deceptively simple question: when is a change to known facts material enough to release a party from its bargain?
The recent decision in Boardman Super Fund Pty Ltd v Home & Land Centre Pty Ltd [2026] NSWSC 433 provides a useful example of how courts approach that question in practice. The factual setting was a put and call option deed for residential lots, but the principles travel: into M&A, private credit, joint ventures, and any deal where one side has reserved a right to walk away following “material” change.
Key Takeaways
- Accepting that something is unknown is not the same as accepting the adverse outcome that later emerges from it. A party can take the risk of uncertainty without taking the risk of every consequence within it.
- “Material Change” is judged objectively. The test asks whether a reasonable counterparty in the purchaser’s position would have entered the deal had it known, and whether the change is materially prejudicial. Self-serving “I would never have signed” evidence is heavily discounted for hindsight bias.
- Motive doesn’t matter. If the contractual precondition to rescission has been satisfied, a party may exercise the rescission right regardless of its commercial motivation, absent an express good faith obligation.
- Documents passed through intermediaries are not automatically the principal’s representations. Whether the principal has authorised or endorsed the contents is a fact-specific issue.
The facts in brief
In May 2022, Boardman (the Vendor) and Home & Land Centre (the Purchaser, part of the Rawson Group) entered into a put and call option deed for 20 lots in a proposed residential subdivision at Braemar, NSW. A $600,000 security deposit had been paid the month before. Clause 5.3 of the deed gave the Purchaser a right to rescind upon a “Material Change”.
The deed annexed a Disclosure Statement that included a draft s 88B instrument, being a document used in NSW property developments to record matters that will affect the lots. On the instrument, the soil classifications for the Lots recorded “??”.
When the s 88B instrument was registered in May 2024, eight of the twenty lots came back classified “P”, meaning “problem”, with the practical implication of likely increased footing and construction costs. Following the demand from the Purchaser’s solicitors that the Vendor issue a formal Notice of Change, the Vendor did so. Then, the Purchaser served a Notice of Rescission. The Vendor refused to accept it and purported to exercise its put options, which the Purchaser refused to complete.
The court found that the notice of rescission was valid and had operated to rescind the Deed.
The uncertainty assumed is not the outcome accepted
The Vendor argued that, given the Purchaser knew there were question marks in the draft s 88B instrument, the Purchaser therefore took the risk of whatever those question marks turned out to be. Therefore, the “P” (problem) classification should not amount to material change or give rise to a right of rescission.
The court firmly rejected that conflation:
It is one thing to enter into a transaction where the soil classification is unknown… I see it as quite a different thing to conclude that the defendants would have entered into the Deed had the ultimate soil classifications actually been known at the time.
That distinction is the most useful proposition in the judgment for anyone drafting or arguing a MAC-style clause. Knowing you do not know something (ie a known-unknown) is not the same as accepting whatever turns up. This said, a party who signs in the face of an open question can still rescind when the question is answered badly, provided the contract gives them that right and the change clears the materiality bar.
For corporate drafters, the caution cuts both ways. A placeholder, or a blanket acknowledgement that information remains incomplete will not, on its own, defeat a later rescission claim where the parties had agreed to a material adverse change clause. If the parties intend acceptance of the worst-case outcome of the unknown matter, the contract should say so, typically through a carve-out from the MAC trigger, an express acceptance of specified risks, or a no-rescission provision tied to identified categories of unknown facts.
The materiality test applied
The court applied the two-limb test under the Deed, applying the objective approach to materiality established by Flight v Booth (1834) 131 ER 1160 to assess the materiality of the change: first, whether the change materially prejudiced the Purchaser (“materially” meaning disadvantaged “substantially” or “to an important extent”); and secondly, whether the Purchaser would not have entered the contract had it known of the change.
Both limbs were met. First, the court confirmed that the “P” classification carried real risks of increased construction costs. Secondly, although the court treated the CEO’s affidavit evidence as “likely to have been infected, consciously or otherwise, by hindsight reasoning”, the court looked to the contemporaneous record, and concluded that the defendants would not have entered into the Deed had the P classifications been known
For litigators, the pattern is familiar but worth restating: contemporaneous board papers, internal correspondence and approval documents will outweigh self-serving “I would never have signed” affidavits, particularly where the witness was not directly involved in day-to-day deal flow. For deal teams, the message is the same: if particular conditions or facts are material to your decision to proceed, document them contemporaneously.
Motive is irrelevant: unless the contract says otherwise
The Vendor argued, with some force, that the rescission was opportunistic. The Rawson Group had reported a $29 million loss in FY22, the housing market was softening, and the rescission notice arrived shortly after internal communications hinting at financial pressure. None of that mattered. The court’s response was:
If there was a right to rescind in the circumstances that had transpired, it was open to them to rescind it. There is no allegation that the defendants were obliged to act in good faith when deciding whether to rescind; nor would such an allegation have any obvious merit in the absence of an express obligation of good faith in the Deed.
This is the most commercially significant proposition in the judgment. A counterparty with a triggered MAC right can exercise it for any reason, including pure leverage, financing problems, or an offer next door. None of them disqualifies the rescission so long as the trigger of the rescission is met (and there is no good faith style requirement).
The implication is plain. If you want to constrain opportunistic exercise of a rescission right, you must clarify it. Options include an express good faith obligation tied to the exercise of the right, a reasonableness qualifier or specific carve-outs for changes of a particular kind. Without any of these, the right is the right, and the holder maybe able to pull out for whatever reason they like.
Representations through intermediaries
The Purchaser’s misleading and deceptive conduct claim under s 18 of the ACL was based on engineering plans (CDS Plans) provided by a referral agent acting between the Vendor’s selling agent and the Purchaser. The plans, the Purchaser argued, conveyed a misleading representation about the scope of earthworks across the site.
The claim failed since the representations could not be attributed to the Vendor. This was so because the referral agent was only an intermediary, connecting the parties, acting for a fee. While the Vendor had authorised the selling agent to provide engineering documents to potential purchasers, “mere authorisation to send” was not the same as adoption or endorsement of the content. The line between the two is fact-sensitive and turns on the principal’s knowledge of, and control over, the substance of the representation, not merely the act of transmission.
Given the possibility of principal liability for an agent’s representation and, on the other hand, the absence thereof, the parties need to think carefully about which representations they wish to become assumed in the drafting of the contract.
Closing thoughts
Boardman is a useful decision for anyone drafting, negotiating or litigating Material Change clauses. Ironbridge Legal regularly advises clients on contractual disputes, transaction risk allocation and complex commercial litigation arising from contested contractual rights.
Further Information
For further information about Material Change clauses, contractual rescission rights, and transaction risk allocation, please contact the author of this article.
