England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/01/2015

Mr Justice Burton :

1. The claim arises out of an agreement between the Claimants ("Decura"), of which the main protagonist is Mr Vishal Gupta, and the Defendant ("UBS") called the Introduction and Outsourcing Agreement ("the Agreement"), dated 31 May 2012, by which UBS agreed, from the Effective Date (in the event 1 August 2013), to cease to develop internally, or to source from third parties (with very limited exceptions pursuant to clause 6 of the Agreement), financial products and services defined in the Agreement as Exclusive Business Services ("EBS"), and to acquire from Decura any EBS products required for UBS Investment Bank ("IB") or its clients. In general terms (i) UBS agreed to market the EBS to its clients, subject to their being developed by Decura to standards acceptable to UBS, (ii) Decura agreed (with specified exceptions) not to enter into any agreement to provide EBS products to a third party, (iii) UBS and Decura agreed to share the revenues from EBS products sold to UBS's clients, as to 50/50 in relation to the first $200 million of gross revenues for an accounting period and as to 60-40 (in favour of UBS) of any excess over that amount in such period. The EBS as defined consisted of two types of product, Managed Accounts Business ("MAB") and Algorithmic Strategies Business ("Algos"). By a contemporaneous Capital Facility Agreement UBS agreed to introduce up to $50 million capital, which was drawn down in full between September 2012 and September 2013.
2. Although the Agreement was of unlimited duration, there was provision by clause 19 for "Potential Termination Events" and by clause 20 for "Termination Events". The dispute has arisen, and arises for determination, only out of Decura's asserted right to terminate pursuant to clause 20, as of 31 July 2014, namely within one year of the Effective Date, said to trigger a substantial payment by UBS to Decura, yet to be calculated, but asserted by Decura to amount, after giving credit in respect of the monies advanced pursuant to the Capital Facility Agreement, to some $167 million. Potential Termination Events are set out in clause 19, by reference to breaches by either UBS or Decura, with provision for notices, including remedial notices, to be served: none of those are said to have arisen in this case. Termination Events are set out in clause 20: clause 20.2(a) sets out numerous familiar provisions relating to insolvency, or acts or situations analogous to insolvency, by reference to both UBS and Decura. There are then, by clause 20.2(b) and 20.3 and 20.4, provisions relating to an Additional Termination Event with regard to UBS and Decura.
3. It has been the alleged Additional Termination Event relating to UBS, set out in clause 20.3, which has been the focus of this trial. I set it out in material terms: the passage which I have put in square parenthesis and omitted from the italics is not relied upon by Decura, and the saving in round brackets does not arise:

"20.3 Each of the following will constitute an Additional Termination Event with respect to UBS:

(a) UBS:

(i) ceases to carry on a material part of its UBS IB business at any time; [or

(ii) disposes of substantially all of its assets or the business which comprises UBS IB],

(save, in each case, in connection with an internal reorganisation that leaves the current UBS IB business within the UBS group)

and such cessation [or disposal] has a material adverse effect on UBS IB's ability to market the Exclusive Business Services."

4. The companion Additional Termination Event in respect of Decura is (in material part) set out in clause 20.4:

"[Decura] ceases to carry on a material part of its business at any time or disposes of all its assets or a substantial part of its assets."

5. There are other clauses in the Agreement which are of some relevance to the dispute:

(i) By clause 5.4 "If [Decura] determines, acting in good faith, that (i) there are Clients . . . who could potentially be interested in purchasing specific products generated by [EBS], and (ii) UBS IB is not marketing such products to such Clients", then a procedure is set out whereby, after due notice, if UBS IB is unable or unwilling to market such products, then one of Mr Gupta's companies would be, notwithstanding the exclusivity provision, permitted to market such product itself.

(ii) By clause 6.5 Decura acknowledges "that there is no obligation on UBS IB to generate for the benefit of [Decura] a minimum amount of Gross Revenue from sales of the products to Clients".

(iii) By clause 8.1 UBS agrees to "perform its obligations under this Agreement in good faith and in accordance with Applicable Laws and in accordance with standards which might reasonably be expected . . . of an Elite Investment Bank [defined by reference to a number of well known investment banking groups] performing similar obligations".

(iv) By clause 9.1(b) Decura agreed to "ensure that a critical mass of marketers who are [Decura] Personnel spend sufficient time on UBS IB's premises . . . to assist UBS IB Sales" [defined in clause 47.7 as "all employees, agents and consultants of, or engaged by, UBS IB in connection with the marketing and distribution of financial products to Clients (and other potential investors)"] in originating Client demand for [EBS].

(v) By clauses 11.1(a) and (d) UBS IB agreed to "market the [EBS] to its Clients, subject to such [EBS] being developed to standards acceptable to UBS IB (acting in good faith)" and "to promote the EBS . . . on a good faith basis and as if these were internal UBS services or products," without discrimination.

6. UBS on 30 October 2012 made a public announcement of a strategy referred to as "Project Accelerate". The issue before the Court is whether there were changes made to UBS IB as a result of Project Accelerate such as to constitute an Additional Termination Event within clause 20.3(a) of the Agreement. Decura has not terminated the Agreement, but asserts an entitlement to have terminated by a notice dated 31 July 2014, and seeks a declaration in that regard. By reference to clause 20.3(a) the questions for my determination are:

(i) What is the effect and meaning of the word material in both places in which it appears in that clause? (Issue 1)

(ii) Did Project Accelerate have the effect that UBS ceased to carry on a material part of its business? (Issue 2)

(iii) If there was such cessation of a material part of its business, did that have a material adverse effect on UBS's ability to market the EBS? (Issue 3)

The parties have been ably represented by counsel, Rhodri Davies QC and Andrew Fulton for Decura and Richard Handyside QC and James Duffy for UBS.

7. As to Issue 1, although in his skeleton argument (at paragraph 36) Mr Davies referred to the words of Owen J in Attrill & Ors v Dresdner Kleinwort Ltd [2012] EWHC 1189 (QB), at paragraph 244, that the word "material" in the clause he was considering "must mean a deviation of substance, i.e. more than de minimis", he did not, and in my judgment rightly, place any real reliance upon any reference to the Latin, but (at Day 1, page 36 of the transcript) he said:

". . . in our submission there is no great difficulty in what that clause means. "Material" has its normal meaning of something which is real, substantial, significant, not de minimis, something which would affect the way in which you look at something but not necessarily decisively."

Although he took the latter words from the insurance field and the decision of Pan Atlantic Insurance Company Ltd v Pine Top Insurance
Company [1995] 1 AC 501, he rightly accepted in his closing submissions that for his purposes he would equate material with substantial or significant. He said this in the context of consideration by both parties of the helpful analysis of similar words by Blair J in Grupo Hotelero Urvasco SA v Carey Value Added [2013] EWHC 1039 (Comm), to which I shall return. Both parties refer to the reference by Blair J at 357 to a change which "significantly affects [a party's] ability to perform its obligations". He submits that if material is to be construed as substantial or significant, then on any basis Decura still succeeds, both by reference to UBS having ceased to carry on a material (significant/substantial) part of its business and in terms of such cessation having had a material (significant/substantial) adverse effect on UBS's ability to market the EBS. Mr Handyside however submits that, material (significant/substantial) must be construed in the context of the Agreement and in this case, by reference to a "very high threshold", as I shall discuss below, in particular by reference to the absence of any obligation on UBS to generate a minimum amount of gross revenue (clause 6.5) and to the context of the other Termination Events and Additional Termination Events, so that, within the matrix of this Agreement, and taking into account the words of Blair J, the Court should construe material as having the effect of very significant or substantial.

8. It was in relation to Issues 2 and 3, upon both of which Decura must succeed, that there was the largest concentration both in respect of submissions and evidence. As for Issue 2, there was a dispute as to whether any part of the UBS IB business could be identified and in addition there was much concentration upon the nature and effect of Project Accelerate. So far as Issue 3 is concerned, in which I must reach a conclusion as to whether, if there was a relevant cessation, it had (not was likely to have), a material adverse effect on UBS's ability to market the EBS, this is of course a decision for me, and (particularly in the absence of any reference such as "in the reasonable opinion of" e.g. Decura) must, as both parties accept, be tested objectively.
9. With regard to Issue 3, there are two unusual features in this case, which have a substantial impact, and constitute a significant difference from the way in which such a question would ordinarily be capable of being objectively judged:

(i) The Claimants did not seek to adduce the evidence of an expert, and so the Defendant did not do so either. Had there been such experts, there could obviously have been a testing, with the assistance of their independent opinions, of whether by reference to the impact of Project Accelerate UBS's ability to market the EBS was materially adversely affected, and against what standards and requirements UBS's continuing marketing ability falls to be tested.

(ii) Again in an ordinary case there would have been a track record of UBS in marketing the EBS products since Project Accelerate, or at any rate since the Effective Date of 1 August 2013, so that it would have been possible to see, by reference to the result of such marketing, whether there had been, or must have been, (not was likely to be) a material adverse effect by reference to changes pursuant to Project Accelerate. Effectively 'the proof of the pudding would have been in the eating'. However by virtue of the limbo into which the Agreement has been effectively put since the service of the notice and the commencement of these proceedings, there has not (and no breach by either side in that regard is before me to consider) been a single EBS product marketed. Decura chose to seek objective assessment of a material impairment of UBS' marketing ability before discovering whether UBS was unable or less able to market its products. No pudding is consequently available to me.

10. Blair J pointed out in Grupo Hotelero (at paragraphs 360-364) that it must obviously be relevant to whether there has been material adverse change, or whether a change has had a material adverse effect, that there has been a change; and in particular, in relation to a material adverse change clause, that (364) "a lender cannot trigger such a clause on the basis of circumstances of which it was aware at the time of the agreement." UBS rely upon the fact that, between the time when Mr Gupta first pitched his proposed venture to UBS in 2010 and the execution of the Agreement, UBS made a number of public pronouncements, including on 17 November 2011 as to its proposed Simplification strategy. UBS says that Project Accelerate was simply a component (as had been the Agreement itself, by which they ceased to design and produce EBS themselves) of the implementation, and in fact (hence the name of the Project) an acceleration, of that strategy. Two matters arise:

(i) There is no doubt that Mr Gupta knew of the Simplification strategy (indeed he so accepts in paragraph 61-65 of his witness statement) and was indeed involved in a good deal of the drafting of the material which referred to that strategy.

(ii) However, it is plain that, as Mr Davies submitted, it is not enough for UBS to show that Project Accelerate was consistent with the previous strategy or programme. Mr Gupta must be shown to have been aware in advance of Project Accelerate itself of the changes, to which I shall refer, which are now said to have constituted the cessation of the material part of UBS's business now relied upon.

11. It also appears clear from Grupo Hotelero (at paragraph 363) that Blair J would not have considered a temporary change as sufficient to trigger a 'material adverse change' clause. Both parties accepted before me that, if any changes as a result of Project Accelerate were simply temporary changes, they would not have been material.
12. Before considering and reaching conclusions in relation to the three issues, I must make some reference to the evidence. Although both Mr Gupta and Mr Salter gave a very good account of themselves, and a sufficient indication of why they concluded that Decura is entitled to exercise its rights under clause 20.3, their evidence was in no way determinative in this case, not least because, as I have set out in paragraph 8 above, I am satisfied that the test as to whether clause 20.3 has been triggered is an objective, not a subjective, one. Although the onus of proof remained upon Decura, the crucial questions in both Issues 2 and 3 rested with the evidence of UBS.
13. As a result of the Order of Eder J of 25 July 2014, UBS was required to "provide the documents (where such documents exist) or generate such documents (where such documents do not otherwise exist but such information is accessible from [UBS's] systems)", with regard to a great deal of information sought by Decura in relation to UBS's trading desks and books, products and clients before and after Project Accelerate.
14. This information was supplied, subject to understandable caveats as to its precise accuracy, and as to the contexts in which it was supplied, in that it was very often difficult to give precise answers to questions not framed by reference to the particular circumstances of the way in which UBS operates. The information supplied was however invaluable, and, pursuant to a direction I gave shortly before the hearing, was constituted into a form of Scott Schedule, which formed the basis of much of the cross-examination of the UBS witnesses and of the closing submissions by counsel.
15. I heard the evidence of a number of relevant UBS witnesses, Mr Kengeter, primarily in relation to the original Agreement, Mr Naylor, Mr de Koning, Mr Grob and Mr Shane Edwards, from the UBS Global Equity Derivatives ("GED") business, and Mr Murphy, the current Global Co-Head of the Foreign Exchange, Rates and Credit ("FRC") Division, formerly the Fixed Income Currencies and Commodities ("FICC") Division of UBS. I found all the Defendant's witnesses, but in particular Mr Murphy, impressive. There was some criticism by Mr Davies of the fact that the Defendant did not call a Mr Stewart, the Global Head of Equities, to deal with a case that Mr Gupta expressed to him a wish to complain to Mr Orcel, the CEO of IB. However, I was satisfied with, and accepted, the account given by Mr Naylor (as to which he was not challenged in cross-examination) as to his own discussions both with Mr Stewart and with Mr Gupta, and in any event, for the reasons set out in paragraph 12 above and further in paragraph 59 below, and as Mr Davies accepted in closing, whether Mr Gupta expressed to Mr Stewart an intention to complain to Mr Orcel, is not, in fact, relevant to the Claimant's case that (objectively) the Defendant's ability to market was impaired. I also do not accept that there is any sinister explanation for the fact that, at least until the very recent delivery of Further Information, Mr Naylor and others of the Defendant's witnesses made statements (not pursued in their evidence) that Decura was still continuing, after February 2014, to insist, as they had done previously, on designing Algos in a fund format, rather than by reference to indices.
16. Certain criticisms were made of Mr Murphy by Mr Davies in his closing submissions which went to his credibility and had not been put. I considered that he should be recalled, so that the criticisms could be put to him, and after a robust and candid explanation by Mr Murphy, were expressly not pursued by Mr Davies. I continue to find Mr Murphy an impressive and persuasive witness.

Factual background

17. Decura places obvious reliance upon what was said in public and other similar statements by or on behalf of UBS during the relevant period. Although Mr Gupta and others at Decura were in considerable contact with UBS during that period, they do not have direct knowledge of what actually occurred, and rely to found their case that there was a cessation of a material part of UBS's IB business, which materially impaired UBS's ability to market the EBS products, upon such statements. UBS does not deny the statements, but is in a position to refer to and describe what actually happened.
18. The relevant picture starts after the first approach by Mr Gupta to UBS in 2010. He was closely involved with strategies which were being discussed by UBS thereafter, and in particular assisted UBS to draft a confidential memorandum of October 2011 which recorded that "UBS IB does not intend to take highly complex/exotic derivative risks through new client business in complex bespoke products". On 17 November 2011 there were presentations at the UBS Investor day when the so-called Simplification strategy was disclosed by UBS. The Group's CEO, Mr Ermotti, made a lengthy presentation describing how they planned to reduce RWAs (risk-weighted assets) by 145 billion Swiss Francs, targeting an approximate 50% reduction in them, intending to "reduce complexity and drive higher quality risk-adjusted returns", stating that they had "reviewed all business activities and made decisions . . . to reduce risk and complexity and improve client focus and capital efficiency". There was to be a 2 billion Swiss Franc cost elimination programme and staff reductions of approximately 3,500. In Mr Kengeter's presentation he referred to seeking to optimise "portfolio attractiveness", describing FICC complex structured products as highly unattractive: FICC were to "reduce capital usage with a focus on serving clients". On 9 December 2011 Mr Kengeter's proposals regarding a potential venture with Mr Gupta sent to Mr Ermotti were copied to Mr Gupta (who accepts that he knew about the Simplification strategy), including suggestions for a new Risk and Strategy Advisory Panel to "act as a valuable sounding board as we continue to reshape the IB". Mr Gupta's response to Mr Kengeter included a statement that a joint venture between UBS and Decura would be a "match made in heaven, as we are specialists in complex products and you've decided to get out of complex risk taking".
19. On 15 March 2012 the Annual Report for 2011 was published, which included the statements that "we are repositioning the Investment Bank to align our businesses more closely with the needs of our core clients . . . Our business model aims to be simpler and more focused, with the goal of optimising returns. . . . In line with this strategy, we plan on reducing risk-weighted assets in the core businesses by approximately one third . . . In reshaping our securities business, we are exiting certain areas, including FICC asset securitisation [and] complex structured products . . . We will continue to reduce risk by exiting or shrinking businesses within our Investment Bank that deliver unattractive returns relative to their capital consumption, particularly in our fixed income, currencies and commodities operations". On the following day, and in the context of continuing discussions which led up to the May Agreement, Mr Gupta sent notes to UBS which included, as a Q and A, in response to the question he posed as to why UBS were "shutting businesses", the answer that it was "part of the process to shrink the IB". The UBS response on 17 March was to "position the conversation – as part of the stated strategy of simplifying the Investment Bank, we intend to exit the development, construction and management of the [MAB] and [Algos]".

Project Accelerate

20. A meeting of the main Board of UBS AG took place on 25 October 2012: Mr Davies points out the Board regulations which, at 5.4, impose ultimate responsibility on the Board for "deciding on whether the UBS Group should enter substantial new business areas or exit an existing business area, in each case insofar as not covered by the current approved strategic framework". Mr Ermotti is recorded as saying to the Board that they "are ahead of schedule in our plans to build additional capital strengths and reduce both costs and risk weighted assets. . . The business model we are proposing to the Board would be unique in the banking industry . . . In short, we would no longer operate businesses where risk-adjusted returns will not meet their costs of capital based on the requirements under Basel 3. We would also exit those businesses with high operational complexity and long-tail risks, as we believe their risk profile could damage returns in future". Mr. Orcel stated: "Exiting most of the FICC business carries some risks, as this has never been done in the industry". He adds that "we will have to position ourselves differently, as we will no longer be able to compete with banks that do remain in the FICC space". At a further Board meeting on 29 October 2012, Mr Ermotti stated that "while the . . . Board have been discussing possible strategic moves since last July, the project has been kept very confidential until 2 weeks ago". A paper was before the Board in which it was stated as a key message that "we are accelerating our transformation from a position of strength", accompanied by presentations describing the "successful execution of our key strategic priorities over the last 12 months", "accelerating the transformation of the Investment Bank" and, in what was apparently an Update on the results for the third quarter of 2012, referring to "significant reduction in FICC/FICC-related businesses". Two days later there was a "Q3 2012" Earnings call when Project Accelerate was publicised. Mr Naratil, the CFO, and Mr Ermotti said:

"The actions we're announcing today to accelerate the transformation of the bank will result in further industry-leading reductions in our RWAs and balance sheet and significant improvements in the bank's long term efficiency. . . . We concluded that . . . assets, which include the goodwill and intangibles associated with businesses we acquired over a decade ago, are impaired. With the significant changes in both the industry and our Investment Bank, this is not surprising. . . . We have . . . identified and will exit businesses with high operational complexity and long-tail risks where we believe their risk profile could damage returns in the future . . . As a result of our decisions, we will reduce FICC risk-weighted assets by 70% . . . Unfortunately, the actions we announced today have painful consequences. In 3 years, UBS is more likely to employ around 54,000 compared with around 64,000 today. . . . Our exit of these businesses is greatly reducing the complexity of our Investment Bank. By exiting over 380 desks and nearly 6,800 trading books we are reducing the RWA allocation . . . including operational risk."

An accompanying news release of the same date stated that:

"Today, UBS announced a significant acceleration in the implementation of its strategy to transform the firm and create the UBS of the future. . . Lines of business to be exited will include many that do not meet their cost of capital sustainably or are in areas with high operational complexity or long-tail risks likely to weigh on future returns. . . The complete exit of business lines from the Investment Bank will eliminate associated front to back costs".

21. The Annual Report for 2012 recorded that "in October 2012, we announced a significant acceleration of the implementation of our strategy presented in November 2011. . . Consistent with the accelerated implementation of our strategy . . . the existing business functions are being reorganised to focus on those industries and geographies that offer the best opportunities". The market reaction was very positive. In its review of recent developments in its submission to the SEC in the United States, UBS described its "acceleration of the implementation of our strategy to transform the firm . . . We will exit most products and services in our fixed income business", and Mr Axel Weber the UBS Chairman told the Financial Times that "most of the Investment Bank's fixed income operations . . . will be split off into a non-core unit and gradually wound down".
22. In a paper for the Group Executive Board in December 2012 headed "Project Accelerate: Investment Bank – strategic positioning and scope", which was not in fact discussed at the Executive Board meeting, it was stated:

"The IB will exit capital intensive, highly structured and long-dated products . . . (see section 3 "IB core – Scope of Credit/Rates/FX products" for a list of the "Out of Scope Products")."

23. Attached was a document so headed, which has been called, in the course of this trial, the "Out of Scope Document". Its purpose and meaning is very much in issue before me, and I shall return to it below. Also part of the paper was a statement relating to what was to become the FRC department (formerly FICC): "Overall products (subject to finalisation) down (by) 84%" - in fact, as contained in the documents which Mr Murphy believed were subsequently provided to the Regulator dated 13 March 2013, the relevant products were reduced by 62%.
24. In a further "Accelerate – Update" of 20 March 2013 it was stated: "Complexity: products scope agreed, with more complex products being excluded". In an interview of 22 March 2013, Mr Weber tells The Australian that "We re-focussed the Investment Bank on a capital light investment bank that is focused on corporate clients. So basically mergers and acquisitions, advisory, capital market business, equity, debt capital markets and on our wealth management franchise clients who we serve also in the Investment Bank". Mr Gupta commented on these developments in a proposal ("the Further Proposal") made, on behalf of Decura, for a further strategic partnership with UBS. He referred to the "Recent UBS Initiative", stating that "UBS has clearly taken the first key step in the right direction (ahead of all its competitors) to de-emphasise risk taking trading businesses to instead focus on its assets/wealth management businesses".
25. In May 2013 UBS produced for interactions with clients a document called "Investment Bank Closing the Perception Gap", which recorded that "At the end of Q3, UBS announced an acceleration of our strategy to position the organisation favourably for changes in the regulatory environment . . . for risk and capital optimisation and for operational efficiency". It recorded as one of its "key messages" that this was "not an "Exit" of Fixed Income, but a clear differentiation of those components that deliver value to our clients, with appropriate Capital and Risk profile". It recorded that they were "exiting some businesses that are not expected to deliver adequate risk-adjusted returns . . . e.g. . . . complex structured products . . . [and] correlation", and described the UBS IB as "looking to the future . . . playing to our strengths", one of the four strengths identified being "competitive Fixed Income presence". The Summary read as follows:

"We are not trying to be everything to everyone, rather to excel in those things that are most relevant to our clients and where we can add value.

Our Fixed Income product footprint and coverage remains highly relevant for our clients.

We are a world class Equities, FX and Fixed Income futures house and as the broader Fixed Income market structure moves in that direction we are very well positioned to capitalise on it."

26. Mr Weber on 25 February 2014 was reported by the Australian Financial Review as confirming that "we are not abandoning fixed income", and that UBS had exited "very complex, punitively high risk weighted, assets structured finance products" but continued to provide clients with "various fixed income services". In a Bloomberg report dated November 2014 Mr Orcel was recorded as stating that the fixed-income business was "absolutely critical", was undergoing the biggest changes and was where he said he saw the greatest opportunities. In 2013 Derivatives Week published its 2013 global derivatives rankings, which recognised UBS as the top ranked "Structured Product House".
27. Such is the setting in which the rival contentions are made, and reliance is placed also on the contents of the Scott Schedule, to which I referred in paragraph 14 above, and to which I will refer below. On 9 February 2013, Mr Naylor suggested to Mr Gupta that Mr de Koning be appointed as "a senior person on the business side to be an almost full time point of contact for Decura at UBS": he was recorded as being "very enthusiastic about doing this himself, and since he has a strong funds background I think it makes sense . . . he's part of Structured Sales . . . and as such will play a key role in the distribution of future products". By email of the same date Mr Gupta described this as "awesome news – def[initely] works for us. Makes business sense as he'll be central to distributing the products". Unfortunately, for reasons which are not before me to resolve, no products have yet been marketed. Decura assert that they have by their notice been entitled to terminate the Agreement, and if they are so entitled then the compensation which they claim will follow. If they are not so entitled then the Agreement will continue.

Issue 1

28. I turn to the issues set out in paragraph 6 above, and first to Issue 1, the meaning of material. This is relevant to both Issue 2 – a material part of the business of UBS - and to Issue 3, material adverse effect or, as I have described it, material impairment. I refer to a number of matters which are common to both usages:

(i) As discussed in paragraph 9(i) above, no expert evidence has been adduced by either party on which I could have relied as to what is material either to a banking business or as to marketing ability.

(ii) As discussed in paragraph 12, it is common ground that the answer is objective, and in particular does not depend, for example, on what Decura believed was material when they served the notice.

(iii) As to both usages, it is apparent from Grupo Hotelero and from common sense that there are degrees of materiality, and the consequences here are that if both tests of materiality are satisfied an important commercial contract could be terminated.

(iv) As to both usages, materiality must be assessed at the relevant time. Mr Handyside submits that this means the time of the Agreement. Mr Davies however has sought to establish both questions of materiality by reference to events as a result of Project Accelerate (October 2012) to date, by reference to the history set out in paragraphs 20 to 26 above and the facts disclosed in relation to the business of UBS from 2011 to date. It seems to me clear that the time to assess materiality is when the notice was served on the basis of the asserted entitlement of Decura to terminate by reference to it, namely 31 July 2014. In my judgment the notice can obviously not be relied upon if the alleged disposal and/or the alleged adverse effect was no longer material by the time of the notice, even if it would have been so at the time of the Agreement, and/or if there had been a temporary disposal with adverse effect which had been restored or resolved prior to the notice (see paragraph 11 above); conversely, the notice could be relied upon if there were by then a material (and more than temporary) disposal which would not have been material as at the time of the Agreement. In the events of this case, this may not make a great deal of difference, as in practice it is inevitable (particularly given the absence of pudding referred to in paragraph 9(ii) above), that the nature and effect of the alleged disposal can only be assessed in the light of what happened, and testing what had happened as at July 2014 is in any event the only pragmatic course.

29. As to where in the spectrum of materiality I should arrive in this case, I have already referred to the dispute between the parties in paragraph 7 above. UBS submit that there should be a very high threshold by reference inter alia to an American academic work by Professor Schwartz, A "Standard Clause Analysis" of the Frustration Doctrine and the Material Adverse Change Clause 57 UCLA L Rev 789 (2010), referred to with respect by Blair J in Grupo Hotelero at 335. At 827 Professor Schwartz refers to a line of American authorities which clarifies that relying on a Material Adverse Change clause requires a "high standard" and that a party seeking to invoke such a clause must bear a "heavy burden". Although such American authority is of course not binding on me, as it was not on Blair J, the fact that such a clause is relied on to discharge a party's obligations and terminate a contract obviously emphasises its significance.
30. There is little if any dispute between the parties that I must consider the question of materiality, in relation to both usages, in the context of the factual matrix of the contract, although there is not unanimity as to what are the relevant components of that matrix. I consider that I am entitled to take into account the following:

(i) The Agreement is of unlimited duration, only subject to the termination provisions. UBS point to the substantial financial and commercial consequences of a triggering of the notice, whether relating to a termination prior to the year end after the Effective Date, as here (paragraph 2 above), or indeed by reference to the consequence of a compulsory buyout thereafter.

(ii) UBS point to the other termination provisions, referred to in paragraph 2 above, all of which are more conventional and more dramatic in their effect than this provision, particularly if it is interpreted as Decura contend. Decura submit that the Agreement was drafted by very experienced commercial solicitors on both sides and this provision and its twin in clause 20.4 are intended to be different from the other provisions.

(iii) There is the same dispute as to the contrast with (and, if Decura be right, distinction from) the other limb of clauses 20.3 and 20.4, namely as to disposal of all or substantially all of the party's assets or business. Decura submit that that may be a more drastic situation, but the less drastic position is also thus provided for, and its meaning should not be affected.

(iv) UBS point to the fact that there was no guarantee of any income, revenue or profit at all under the Agreement, and no obligation on UBS to sell or even to market. Mr Gupta indeed in an email, at the time, of 25 May 2012 to Mr. Kengeter and Mr Stewart pointed out that "UBS will only market our products if they like our products; if they feel our products are not good enough, they have NO commitment to market them". The protection for Decura, UBS submit, is the get-out provision referred to in paragraph 5(i) above. Decura submit that the very absence of such obligation to market or sell justifies a termination provision if that (un-guaranteed) ability to market is materially impaired by a disposal of part of UBS's business. Decura submit that the protection is needed because of the expectation of profit from the Agreement, which can be seen by reference to matters set out in paragraph 1 above: the agreement by UBS to inject $50 million capital in exchange for a 10% equity interest in Decura, and the proposed share-out of the first $200 million of gross revenues, with a provision in respect of any excess, and Mr Gupta produced a spreadsheet, which he said had been jointly discussed, looking to expectations of $500 million. UBS say that the $500 million was never agreed, but that in any event the financial provisions only emphasise that the Agreement was intended to be long term and not easily terminable.

(iv) Further UBS refer, if there is to be reliance upon the changes referable to Project Accelerate, to the knowledge by Decura and Mr Gupta of the Simplification strategy, as referred to in paragraphs 18 and 19 above, such that insofar as changes in the UBS business are referred to, many of them had already occurred or begun, to the knowledge of Decura, prior to the date of the Agreement.

31. I consider that both parties' espousal of the epithets significant or substantial as the proper interpretation of material in this case is right. I consider that I am entitled to take into account, in assessing materiality, all the matters set out above. I conclude that I do not need any further assistance by way of the interpolation of the word "very", but shall where necessary weigh up materiality with reference to all the matters that I have set out in relation to this Issue, but without the need to determine this as a separate issue.

Issue 2

32. This issue relates to Decura's case that, as a result of Project Accelerate and by the time of the service of the notice in July 2014, UBS had ceased to carry on a material part of the IB business.
33. Decura has altered or refined the way in which this case was put in their pleadings, as was pointed out by UBS in their skeleton. In their Particulars of Claim it was stated "Decura does not allege a total cessation by UBS IB of all fixed income business but, rather, a cessation of a material part of it and in particular of the structured businesses relevant to [EBS]". In Further Information, in response to a question as to what was "relevant", the answer was given that "UBS's . . . structured business is . . . "relevant" to EBS because all [Algos] and [MAB] [are] considered "structured/complex"": but in a further reply they there stated "Decura does not rely solely on cessation of structured fixed income business but relies on all of the lines of business which, under Project Accelerate, UBS has either exited completely or removed from its core focus". At the trial it seemed clear to me that Decura's case rested upon structured fixed income products (which thus include MAB and Algos) and no attempt was made to establish that any other business in which, as a result of Project Accelerate, UBS decided not to continue to trade, such as mortgage business, was material. UBS submit that Decura are at best alleging a partial cessation of a type of business, and in particular they characterised Decura's case in paragraph 27 of their closing submissions as follows, namely that "there has been a cessation of a material part (i.e. a substantially reduced number of products) of a part (i.e. structured products) of a part (i.e. UBS IB's fixed income business) of part (i.e. UBS IB's FICC business) of UBS IB's business".
34. Mr Davies submits that a part of the FICC business has been run down or is no longer to be traded and thus ceased, and thus that UBS has ceased a part of the IB's business, which Mr Davies put in opening as "part of a line or part of several lines of business which add up to a material change".
35. It is plain that UBS did not close down their Fixed Income Division, indeed the FICC is continuing, reconstituted as FRC, leading to the winning of a prize (see paragraph 26 above) and doing $1 billion worth of business in the first half of 2014.
36. Decura relies particularly on the following, from the matters set out in paragraphs 20 to 26 above, some of which were available to them prior to their issuing their notice and their proceedings. Indeed those which were available, such as the public documents and those known at the time to Mr Gupta, were the only matters on which they were, at the outset of proceedings, able to rely.

(i) As to paragraph 20 above, the statement to the Board by Mr Orcel: "we will no longer be able to compete with banks that do remain in the FICC space", obviously implying that UBS will not so remain, and as supported by the Board regulation now disclosed.

(ii) Somewhat inconsistent with, although perhaps clarificatory of, that statement, that also then made by Mr Orcel about "exiting most of the FICC business". This was repeated in the SEC submission and in Mr Weber's statement to the Financial Times (paragraph 21).

(iii) The Q3 2012 Update (paragraph 20 above) has "significant reduction in FICC/FICC-related businesses".

(iv) Exiting of "those businesses with high operational complexity and long-tailed risk" (October 25 Board meeting and the Q3 2012 Earnings call, both paragraph 20 above): "more complex products being excluded" (March 2013 Update, paragraph 24 above).

The distinction is made clear in the May 2013 Closing the Perception Gap document (paragraph 25), namely that UBS is exiting some businesses, but not exiting Fixed Income, which "remains highly relevant". The same point is made clearly in the passages referred to in paragraph 26.

37. It is thus that Decura's case is or has become that UBS exited structured products, being some of the business carried on by the FICC and now the FRC. It is significant that all save the most generalised of those statements concentrate on the Bank's exit from the more complex products, or of highly structured and long-dated products, as opposed to all structured products. Against this background it is important to note the statements that were being made a year earlier as part of the Simplification strategy, namely that, as appears from paragraphs 18 and 19, as Mr Gupta knew, UBS were aiming to get out of the "highly unattractive" FICC complex structured products. There is no doubt that Project Accelerate was a much more dramatic move than the Simplification strategy, but, as was constantly reiterated in the documents themselves referred to above (paragraph 20 (four times) and paragraph 21 (three times)) and by virtue of the very name of the project itself, it could be said to be, as Mr Murphy described it (Day 8/54) "an acceleration of the strategic direction that was already announced in 2011, and it was accelerating the reduction in capital deployed in the business, whilst maintaining the kernel of a full service Investment Bank".
38. After production of information by UBS, including that directed by Eder J as referred to in paragraph 13 above, the Scott Schedule has been prepared, now containing some 29 tables and incorporating both sides' comments. The information contained in them has been supplemented, clarified and in some cases corrected by the detailed evidence from UBS, to which I have referred in paragraph 15 above, and I shall set out the facts or statistics that can be deduced from them, relevant to this issue, as follows:

(i) There has been as a result of Project Accelerate a reduction of the types of products traded by the FICC by 62% (Table 1, but corrected by UBS evidence, and in particular by reference to the report to the Regulator (see paragraph 23 above)), being a reduction from 141 to 54. However, insofar as the necessary concentration is upon structured products, there needs to be material supplementation of this picture by reference to the evidence given, unchallenged, by Mr Naylor and Mr Murphy. First, Mr Murphy explained (to which I shall refer further below) that a number of the products listed in the Out of Scope Document, albeit no longer mandated to be sold by FICC, could be and were marketed and traded by the GED, by the Equities salesmen. Secondly Mr Naylor made clear (Day 7/82-84) that there were considerable quantities of GED salesmen in fact selling structured products, to the tune of some $400 million per year.

(ii) Sales of FICC core structured products fell by either 86% (Table 13) or 74% (Mr Murphy's evidence) between 2012 and 2014, but again there need to be added the sales of structured products by the GED. There were also reasons for the fall explained by Mr Murphy in his evidence: leaving aside his evidence about the exit from correlation business, he referred to two large one off transactions, and to a "25% reduction overall in terms of the structured revenues, largely due to market practice" (Day 8/20).

(iii) There was a 54% drop in respect of the number of clients dealt with by FICC/FRC between 2012 and 2013 (Table 11), although Table H showed very good client retention in respect of those who did trade in 2013.

(iv) There was a 35% reduction in the FICC/FRC sales force (Tables 6 and 7) – 618 reduced to 402. Mr Murphy gave detailed evidence about the skills of those FRC salesmen who were retained. He explained that the reduction in the FRC sales force was driven by the increasingly electronic nature of the business, requiring fewer sales people to execute client orders, the greater efficiency of the sales force and the effects of the 25% decrease in FICC business referred to above. He also explained (at paragraph 44 of his first witness statement, as to which he was not cross-examined) that FRC had retained the senior managers for the distribution teams covering those clients most likely to be interested in investing in EBS products (retaining the coverage of those clients who generated almost 80% of the revenues historically generated by sales of Algos in FICC).

39. There is no doubt that (as Mr Naratil said in the passage cited in paragraph 20 above), Project Accelerate involved "significant changes". There was also a "shrinking" of the business. Mr Gupta himself so described it in his Q and A in March 2013, set out in paragraph 19 above, and Mr Ermotti said so in the 20 January 2014 issue of Forbes:

"Many said it was impossible to shrink the Bank to greatness, but now we have silenced our critics."

He similarly referred as recently as December 2014 to its having been like 'decommissioning a nuclear plant'. I have referred to Mr Murphy's description in paragraph 37 above. Mr Kengeter did not accept that it was a "step-change" (Day 6/59) but an "acceleration" of the direction of "almost 5 years of continuous reductions and restructurings at UBS", but a "forceful" continuation (Day 6/63). That was plainly what was referred to (paragraph 20 above) as "significant reduction in FICC/FICC-related businesses". But was there the cessation of a part of the UBS IB business? By virtue of the drop in the gross sales or the reduction in the number of products on offer, were UBS not only shrinking the business or reducing the sales, but ceasing a part of the business? It is plain that there was no specific part of the business which was ceased, as there might have been if it could have been said that all structured products were exited. There was simply a reduction in the business done by the Fixed Income department (FICC/FRC) and a substantial cutting back of the number of structured products on offer, and thus a reduction in sales of structured products. It is clearly not possible to identify a part of the business which ceased or was ceased or indeed was decommissioned. I do not conclude that a ceasing to trade in "very complex, punitively high risk weighted, asset structured finance products", whilst continuing to provide clients with "various fixed income services" (paragraph 26 above), can be said to amount to a cessation of a part of the business, and in any event at least some of that had occurred (and to Mr Gupta's knowledge) as a result of the Simplification strategy prior to the Agreement.

40. In closing, Mr Davies adopted a suggestion from me that material part of the business could or should be interpreted as meaning "material proportion". On further consideration, and taking into account Mr Handyside's submissions, I do not consider that this is arguable (quite apart from whether it is pleaded):

(i) The Agreement does not say "material proportion", and it would lead to a very uncertain analysis at any given time as to what proportion would be material. Particularly given the dispute about the spectrum of materiality, there would be bound to be argument as to the percentages, and it seems to me that, as compared with identification of a part of a business, reference to an (unspecified) percentage drop in overall business is an unsatisfactory and uncommercial way to construe and assess such a termination clause.

(ii) In any event in this case the evidence has not been adduced which would sufficiently address the case that the ceasing to trade in complex structured products would amount to a material proportion of UBS IB's business. I have no idea and no evidence as to what proportion it constituted. As can be seen above, I have some evidence as to the proportion of the FICC/FRC business which was affected by Project Accelerate, but the test is not one as to a material proportion of part of the IB business.

In relation to this Bank, with so many different aspects to its business, I am satisfied that this clause must be construed by reference to the identification of a specific part of the business, and none such is identified.

41. In those circumstances I resolve Issue 2 in favour of UBS, without needing to address the question of materiality. There was no cessation of a part of the business of UBS IB.
42. If I had needed to resolve that question, there would be matters to consider:

(i) Decura point to UBS's own description of the spheres in which they were before and after Project Accelerate competitive with other banks (see the different descriptions in the Annual Report for 2011 as compared to that for 2012). There may have been a degree of pessimism about UBS's place in the business world at that stage, though it is clear that by 2013 confidence was restored (see paragraphs 25 and 26 above).

(ii) There would need to be consideration of UBS's reliance upon the factual matrix, referred to in paragraph 30 above, as imposing a high threshold.

43. The percentage reductions referred to in paragraph 38 above, even as amended and explained, are significant. But no question of res ipsa loquitur applies, and in the light of the powerful evidence of Mr Murphy and Mr Naylor and the absence of an expert witness, there would be real doubt whether of themselves they would constitute a material cessation of some part of the IB business, particularly in the context of the document produced for interactions with clients in May 2013 to institutional investors, which plainly make entirely clear that fixed income products and the fixed income division remain significant, and part of UBS's "competitive fixed income presence". At the very least it could be argued that any understanding, or misunderstanding, derived from statements made prior to May 2013 was only temporary, and corrected.
44. The question whether there was the cessation of a material part of the business does not accordingly in the event arise for decision, because of my conclusion in paragraph 41 above.

Issue 3

45. In case I am wrong in my conclusion as to Issue 2, I turn to deal with Issue 3, on the assumption that Decura has succeeded in establishing that there has been a cessation of carrying on a material part of UBS's IB business, which I would assume to arise out of the reduction of its sale of structured products and of the size of the sales force and the client base of the FICC. The question is whether the matters described in paragraphs 20 to 26 above and in the Scott Schedule and other statistics set out in paragraph 38 above had after Project Accelerate and still in July 2014 a material adverse effect on UBS IB's ability to market the EBS products.
46. Again, there are some general matters:

(i) The material impairment must result from Project Accelerate and not from the changes prior to Project Accelerate, as referred to in paragraphs 18 and 19 above. This is not only because (as set out in paragraph 19 above) the exit from complex structured products (Annual Report for 2011) was already in place prior to the Agreement as a result of the Simplification strategy, but also because Mr Gupta (and therefore Decura) was aware of the Simplification strategy, as set out in paragraphs 18 and 19 above, Project Accelerate was, nevertheless, as I have described, an acceleration and a significant change, as is clear from the 25 October 2012 Board meeting, and had, it seems from the meeting note of 29 October 2012 (paragraph 20 above), only been discussed since the July.

(ii) The question is one as to actual (not likely) material impairment of the ability to market (see paragraph 8 above). It is not a question of material adverse effect on sales. Although evidence of a drop off of sales of EBS products (or a failure to sell them) might have been helpful evidence from which to draw inferences, and would certainly have shifted the evidential onus to UBS, there are and were no such inferences, because their marketing never commenced (see paragraph 9(ii) above). The assistance that can be drawn from sales of other products similar to EBS, and without the establishment or involvement of the sales and marketing team which UBS and Decura were planning to set up (see paragraphs 27 and 38(iv) above and 57 and 63.2 below) can only be of very general relevance.

(iii) UBS have given detailed and persuasive evidence, through Mr Naylor, Mr Grob and Mr Murphy, of the extent and ability of the UBS IB sales force both in the GED (which was hardly affected at all by Project Accelerate) and in the FRC even after the sales force reduction referred to in paragraph 38(iv) above. Without expert evidence I am left unassisted in reaching my conclusions as to whether, notwithstanding that evidence, UBS's marketing ability in relation to EBS products was impaired.

47. There were 2 areas of evidence which were effectively discrete to this issue, although briefly touched on above:

(i) The Out of Scope Document. Decura contends that the effect of this document was that many or most of the EBS products were, as from the production of that document, and in accordance with it, excluded from the UBS IB's mandate and could not thereafter be traded. If that be right, then it would have had an obvious effect on UBS's ability to market them.

(ii) 'Pan IB', which was an expression used during the hearing to refer to across the board within UBS IB. The case made by Decura is that although the Equities Division (including GED) was more or less unaffected by Project Accelerate, the FICC was "decimated", and because EBS products were intended to be marketed by the FICC (subsequently FRC) and the GED, even though the GED was ready, willing and able to market, the FRC was not, or not adequately, and so UBS IB's ability to market pan IB was materially impaired.

Out of Scope

48. The Out of Scope Document, as referred to in paragraph 23 above, was part of the documentation put before the Group Executive Board in December 2012, but not in fact discussed by them. It is headed "IB Core – Scope of Credit/Rate FX Products", and contains two columns "In Scope Products" and "Out of Scope Products". Included in the latter are six categories into which Algos of the EBS would fall – Bond Strategy Indices, Credit Strategy Indices, Currency Strategy Indices, Multi Strategy Indices, Rate Strategy Indices and Volatility Strategy Indices. There is then the reference to the Document in the presentation itself, which I have set out in paragraph 22 above. Leaving aside MAB, which is not suggested to have become Out of Scope, if six of the eight Algos products were thus rendered Out of Scope, then the UBS IB could have no mandate to market or trade in them. This Document was not seen by Decura at the time, but after its disclosure in these proceedings it then featured significantly in the way in which Decura put its case.
49. Mr Murphy, who was at the time (as Global Co-Head of Rates and Credit) and still is (as Global Co-Head of FRC) responsible for the FRC. He explained that he was the author of the Document, and that its purpose was to set out only a list of products which were in and out of scope for the FRC (the new department, successor of the FICC, of which the F stands for FX, the R for Rates and the C for Credit, and hence the heading of the document), and was not intended to nor did affect the GED. The Document was never shown or supplied to the sales force, such that the GED would neither have been prevented nor disincentivised from trading in any products within their mandate, and so similarly would not have been prevented or disincentivised once EBS products were available to market. He had no explanation for the passage in the accompanying presentation, save that:

(i) He did not see that paper at the time, and it was prepared by McKinsey as consultants.

(ii) Both Mr Kengeter and Mr Naylor, when cross-examined, accepted, when shown it by Mr Davies, that it was a reasonable interpretation, particularly as a result of the covering note in the presentation, that the products were excluded entirely from the IB, but neither had had any role in its preparation. Mr Murphy however was the author of the document, and confirmed that it simply meant what it said, by reference to its own heading, relating to the FRC only.

(iii) The same document, which Mr Murphy believes to have been sent to the Regulator as part of a package dated 13 March 2013, and headed "Updated Credit/Rates/FX Product List", does not appear to have been accompanied by the McKinsey note

50. I have already said in paragraph 16 above that I find Mr Murphy to be both a credible and persuasive witness. There is corroboration of what he says:

(i) Mr Naylor confirms that all but two of the Algos were and are within the mandate of the GED. It is common ground that MAB, which had always been marketed by the GED, remained in scope, and significantly is not listed in the Document at all, whether as In Scope and certainly not as Out of Scope, because of not being FICC/FRC products: which supports Mr Murphy's explanation that the Out of Scope Document had no impact on the scope of sales by the GED.

(ii) The UBS witnesses confirmed what was stated in the recent Further Information (referred to in paragraph 15 above) that (i) the GED is actually trading products based on 6 out of 8 of the index based Algos (this was not challenged), (ii) when and if the two Algo products not presently within the GED mandate are developed in index format the mandate can and will be extended to cover them.

(iii) The documents believed to have been provided to the Regulator (though described on the front sheet as 'IB Product Scope'), made it clear that although there were 87 out of scope products in the FRC (see paragraph 38(i) above), there were no reductions reported in the number of in scope products in the Equities Division, all 194 remaining in scope; and these, as is clear from what is discussed below and from the evidence of the UBS witnesses, would and can include the EBS products (save the two referred to in (ii) above).

(iv) At least two EBS products which UBS requested Decura to consider for production during the 'limbo' period were products falling within the out of scope list in the Out of Scope Document.

51. Even more significantly, there were, as discussed below, arrangements for sales and marketing meetings between Decura and UBS during the 'limbo' period, including proposals to meet the FRC sales people, and there was no suggestion that the products to be discussed were out of scope. As discussed in paragraph 56 below, until February 2014 Decura were planning to design and produce the Algos in fund format; in which case they would have been marketed, as they had always been, by the GED. Once it was proposed to produce them in index format then Mr Naylor confirms that, if they had been produced, they would have been marketed by the FRC (as well as the GED) and would have been in mandate.
52. I am entirely satisfied that the EBS products, once they had been produced, would not have been treated as out of scope or not within mandate, and that the Out of Scope Document did not have the affect asserted by Mr Davies.

Pan IB

53. This argument arises out of what is in fact common ground, namely that by virtue of the Agreement (particularly clause 9.1(b) coupled with clause 47.7, set out in paragraph 5(iv)) the Agreement provided that all of UBS IB sales persons would be available to market and distribute the EBS products. Hence "pan IB". The difference between the parties is that UBS point out that there was no requirement as to any particular commitment upon a particular division, or as to any apportionment of the products between divisions. Decura submits that it was essential that there be marketing and distribution not only by the GED but also by the FICC (becoming FRC) – in principle this is not challenged by UBS, though always subject to the appropriateness of a particular product being marketed by a particular division – but that there was (although no material impact on the GED sales force), because of the decimation of the FICC which they allege, accordingly material impairment of UBS's ability to market. This was described by Mr Handyside in his skeleton as a 'new case', namely that the alleged absence of material involvement by FRC in the proposed marketing of Algos was significant.
54. It is necessary to look at the position prior to the Agreement, by which UBS were to 'exit' Algos and MAB products in favour of Decura. The position is, I am satisfied, as follows:

(i) MAB products had always been marketed only by the GED.

(ii) Algos were traded by both the GED and the FICC:

(a) If they were in fund format, which was the minority, they would be sold almost exclusively by the GED.

(b) If they were in index format, they would be sold by the division to which the underlying strategy was relevant. By November 2013 in Decura's sales literature ("an Introduction to Decura") five out of the seven proposed Algos would be based on equities, commodities or multi-asset underlyings, and hence within the GED.

55. There is no agreement between the parties as to the historical split between the divisions with regard to Algos, and the statistics relied upon by Decura show an 80/20 split between Global Equities and FICC in 2009 and 2010. However it is clear that in 2011 and 2012 they were divided 50/50. In any event it is clear that Algos in index format would be sold by both divisions. Mr Edwards gave evidence (paragraph 34 of his second witness statement) that the Algos put forward by Decura could all be marketed by the GED, which was not challenged in cross-examination.
56. So long as the Algos being designed and developed by Decura were in a fund format, then there would be no argument as to the appropriate division for marketing them being the GED. Decura's own literature made clear that the Algos they were intending to develop would be on a fund basis. However UBS made it clear during 2013 that they would prefer the Algos to be developed in an index format, and by February 2014 Decura had agreed to do this. As from that point, it would be important to involve salesmen from FRC.
57. It is against that background that the position about the sales force, and Decura's case should be considered:

(i) Mr Gupta sent an email on 25 September 2012 to Mr Stewart, among others, asking for the details of the proposed number of sales people, by region and client type, to be assigned by UBS's sales heads: he said he needed this quite urgently as the numbers would help him determine how many marketers/traders he needed to service the franchise. Mr Jolley, the Project Manager, by email of 3 October 2012 gave Mr Gupta the numbers for equities distribution, and said he was working on the FICC numbers, which by further email of 7 October he said he was still awaiting.

(ii) There were no further developments until the exchange of emails in February 2013 set out in paragraph 27 above. As can there be seen, the appointment of Mr de Koning, who was a managing director in the GED, was described as "awesome news" by Mr Gupta on the basis that he would be "central to distributing the products".

(iii) Mr Naylor copied in Mr Gupta on 5 March 2013 with an email dealing with introducing the key UBS personnel who would be most involved, and listing 5 of them. None were from the FICC, and that does not seem to have raised any concern.

(iv) In Mr Gupta's Further Proposal referred to in paragraph 24 above in March 2013 he appears to have been entirely confident in UBS's "current sales force", because that was what was to be used or "leveraged" for the proposal he was there suggesting.

(v) In an exchange of emails on 26 June 2013 between Mr Naylor and Mr Salter, Mr Salter asked for the involvement of senior sales at a meeting to be held: he assumed that Mr Grob would be present from the GED and asked whether there was an equivalent person from the FICC: Mr Naylor confirmed Mr Grob and others, and said that FICC might be more difficult, but he would see what he could do. At the meeting, attended among others by Mr de Koning, Mr Naylor and Mr Edwards on the UBS side and Mr Gupta and others on the part of Decura, a substantial number of people came, of which it seems that 1 structurer and 1 sales person from the FICC. There was no mention in the notes of any desire for greater involvement by the FICC. Mr Salter asked in an email of 22 August 2013 who the key sales people were to be for various territories, and again made no reference to any need for greater involvement by the FICC. By email of 22 August 2013 Mr Grob suggested that Mr Salter got in touch with named UBS country heads, and there was again a number of client meetings in August and September 2013 for Decura to meet key UBS people, and again no concern raised about the FICC.

(vi) In a meeting of 5 September 2013 between Mr Naylor and Mr Gupta various concerns are noted, none of them relating to an insufficient involvement by the FICC. Mr Gupta is reported as asking how he can meet Mr Orcel, but Mr Naylor does not recollect that this was in the context of wanting to complain about FICC involvement. More notes of meetings follow through to December 2013, including discussion of the advantages of funds against indices for the Algos, but still no complaint about the FICC.

(vii) On 3 March 2014 Mr Gupta asks Mr Moseley at GED for information prior to a meeting with Mr Naylor and Mr Orcel about the UBS sales people who would be marketing EBS products and he wished a breakdown into seniority, region, client type and product area.

(viii) By email of 26 June 2014 Mr Naylor provided to Mr Gupta as requested a list of "the key FRC and equity sales people who will be marketing Decura's products". He identifies 16 FRC and 16 GED representatives, all of them senior UBS personnel from around the world. In addition to providing the list of key sales people he attached the latest version of the UBS sales plan. Mr Naylor emailed Mr Gupta on 2 July 2014 repeating his invitation to come in and meet the sales team. It appears that thereafter, for reasons unexplained to me, relations broke down.

58. Mr Gupta gave evidence that, although he had not complained to Mr Naylor, he had told Mr Stewart more than once that he wanted to speak to Mr Orcel, and that he would want to complain about the level of involvement of FICC/ FRC salesmen. It is plain from what I have set out above that there is nothing in writing to support this proposition, nor any apparent basis for any such complaint.
59. As set out in paragraph 15 above, Mr Stewart was not called, so that Mr Gupta's expressed desire to complain to Mr Orcel about FRC could not be put to him. I am not however persuaded that Mr Gupta had, or at any rate made or intimated, any such complaint at the time. In any event:

(i) His own belief, if such it was, that UBS were not sufficiently involving FICC sales people, even if complained of at the time, is not relevant, when it is for me to decide objectively whether, as a result of Project Accelerate, the FICC/FRC was not in a position to assist sufficiently in the marketing of the EBS products so that UBS's marketing ability was materially impaired. This was accepted by Mr Davies in paragraph 35 of his skeleton: and, as he pointed out, if Mr Gupta did not complain, that also is of no relevance for the same reason.

(ii) It is at any rate quite clear that prior to February 2014 when MAB products, if and when developed, were inevitably to be marketed by GED, and Algos were to be developed in funds format, the role of the FICC/FRC would be of minimal significance, and only became important once the Algos were to be developed in index format:

(a) This was not until very shortly before the notice was in the event served. It is difficult to see that Project Accelerate in October 2012 can be said to have led to the problem.

(b) If it was a problem (notwithstanding the 'awesome' appointment of Mr de Koning), it was thoroughly solved (whether or not there was a complaint) by the proposed team consisting of 32 senior people, 16 from each division. Thus it was either a temporary problem (see paragraph 11 above) or in any event one which had been resolved prior to the service of the notice.

60. Accordingly I am satisfied that there is nothing in the so-called pan IB point, and that if Decura are to succeed in establishing that Project Accelerate (if constituting a cessation of a material part of UBS's business) had a material adverse effect on UBS's ability to market, it must do so without assistance from that argument.

Material Adverse Effect

61. I turn then to consider whether (in the light of these findings) if Decura had succeeded on Issue 2 they would also have succeeded, as they need to do (see paragraph 8 above), on Issue 3.
62. It is necessary to refer back to the matters which I have set out above: in paragraph 38(i) the reduction in the products to be traded by the FRC (but not by the Equities Division), in paragraph 38(ii) the reduction in the sale of FICC core structured products, in paragraph 38(iii) the drop in the number of clients dealt with by FRC between 2012 and 2013 and in paragraph 38(iv) the reduction in the FICC/FRC sales force. The issue here however is addressed to material impairment in relation to marketing EBS products, and in that regard it is also necessary to refer to my findings in paragraph 54 above as to the manner in which MAB and Algos had been traded (by both the GED and the FICC) prior to the Agreement. The issue is of course not as to whether there was a drop in sales of other products by the FRC (such as the correlation business) or even other structured products, for which there may be many reasons, but as to the material impairment of ability to market EBS, when and if they were ready to be resumed. Even if there is a relevance in evidence about sales of other products, the matter is by no means, as I said in paragraph 41(ii) above in relation to Issue 2, a matter of res ipsa loquitur in relation to marketing of EBS products, particularly where credible and persuasive evidence is given by those at UBS who, both in the GED and the FRC, assert that they are ready, willing and able to market.
63. Decura submit that (although Mr Gupta professed himself in evidence very happy with the GED sales force) the reduced sales force in the FRC means that they will be less able to market the EBS products. But, as appears in paragraph 38(i) and in particular 38(iv), this is contested by UBS's witnesses, and in particular Mr Murphy, in charge of the FRC. He accepted in cross-examination (Day 8/18) that the reduction in the FRC sales force would have "somewhat of an effect". He then referred to FRC's client interactions and in his witness statement to Mr Naylor's evidence that there had been over 12,000 interactions (or 25,500 including telephone calls) with the 124 clients to whom UBS had sold Algos during the period 2011 to 2013 (when the Agreement took effect). Of the 16 senior FRC sales people identified to Decura as part of the proposed senior team of 32 (see paragraph 57(viii) above), he gave evidence that all were skilled in selling both flow (i.e. vanilla) and structured fixed income products, and that all but two had been involved in senior roles in the FICC prior to Project Accelerate.
64. Decura submit that if the FRC are not selling as many other fixed income products as they had previously, they would not have the skill or connections to market EBS products as effectively. This is contested by the UBS witnesses. Mr Grob gave evidence that a team had been identified, mandated to coordinate the marketing of EBS products (once developed by Decura) across UBS IB, and to liaise with Decura's team, as confirmed by Mr Naylor. Mr Handyside referred to Tables A, B, C and D in relation to client retention, in particular showing that there had been some revenue from two thirds of Decura's target clients, and, whereas Mr Davies rightly pointed out that this did not necessarily mean that they could be retained for EBS products, clients not being, as Decura described it "fungible", nevertheless Mr Handyside referred to Table H, which showed that of the 1675 clients who purchased FICC structured products in 2012, 82% of them purchased an FRC product in 2013. The specialised sales team retained in the FRC (paragraph 38(iv) above) would be well equipped to market to the relevant clients.
65. Decura submit that the reduction of the number of products being marketed in the FRC is going to lead to a smaller client base of those who might be interested in EBS. Insofar as any conclusions can be reached by reference to other products, Mr Handyside refers to Table C to show that of 124 clients across IB who invested in Algos, 59 of them were sold an FICC strategy, and of those 59, 53 had bought products in 2014. The GED were more or less unaffected, as discussed above and had always marketed the products. In any event, as to the FRC, Mr Murphy carefully explained the drop off of both clients and business in the FRC by reference to factors which had nothing to do with the saleability of EBS (see paragraph 38(ii) above), and notwithstanding his being recalled for further challenge (as set out in paragraph 16 above) he remained convincing.
66. Decura submit that the sales forces in the FRC and the GED will not be in a position to support each other and cross-sell as necessary. Mr Naylor and Mr Murphy however explained that just such a course was intended and would be followed: Mr Murphy agreed that some clients would have a relationship with the FRC and not with the GED. Mr de Koning, Mr Grob and Mr Edwards emphasised the broad skills and experience of the GED sales team, and Mr Murphy confirmed that there would be the specialist team within the FRC in addition.
67. The vaunted recent success of the FRC (paragraph 35 above) is, as Mr Davies points out, primarily by reference to the increase in flow business, and not in the kind of structured products similar to the EBS. However Mr Edwards explained (at paragraph 41 of his second witness statement), by reference to UBS's success in the global derivatives rankings in the Structured Products category referred to in paragraph 26 above, that "the category most closely linked to UBS IB's ability to sell EBS is the Structured Products category, in which UBS IB excelled", and Mr Davies (Day 11/119) agreed as to the relevance of such category.
68. The onus was upon Decura to establish that there has been a material impairment and Mr Davies accepted that in this regard "it is about ability to market, and one has to measure that as best one can" (Day 11/117). Doing the best that I can, I conclude that, set against the persuasive evidence of the Defendant, the Claimants' case has in my judgment not been proved in this regard, and I am not satisfied that, by virtue of Project Accelerate, UBS's ability to market the EBS products, as and when they are available to be marketed, has been significantly or materially impaired. Just as Mr Orcel recently confirmed (paragraph 26 above) that UBS's fixed income business is "absolutely critical", and provides the greatest opportunities, so UBS's witnesses have made it clear that they and their sales forces remain as qualified and as prepared to perform under the Agreement, and to market the EBS products successfully once they are developed and produced. I accept that evidence. I see no reason why both parties should not profit from a successful partnership in that regard.
69. I am satisfied that Decura have failed to prove their case in respect of both Issues 2 and 3, and consequently I must give judgment for UBS.