Define: Material Issue

Material Issue
Material Issue
Quick Summary of Material Issue


Material Issue refers to a matter that must be resolved in order to reach a resolution in a disagreement. For instance, in a legal case, a material issue is a disputed fact that both parties must provide evidence for. If there is a material issue of disputed fact, a summary judgement cannot be reached. This term can also pertain to the initial delivery of a negotiable instrument or the allocation of securities by a corporation.

What is the dictionary definition of Material Issue?
Dictionary Definition of Material Issue

A material issue is a point of disagreement between multiple parties that must be resolved to settle a dispute. For example, in a court case, a material issue could be whether or not the defendant was present at the scene of the crime. This is a crucial point that must be determined to reach a verdict. Material issues are significant in legal proceedings as they help identify the key points that need to be addressed to reach a resolution. Without identifying material issues, it would be challenging to determine the necessary evidence and arguments needed to support a specific position.

Full Definition Of Material Issue

A “material issue” is a significant legal concept in various fields of law, including contract law, corporate law, and securities law. It refers to an issue that could significantly affect the outcome of a legal dispute or the understanding and performance of contractual obligations. The term’s interpretation can influence the determination of liability, the scope of duties, and the extent of damages. This overview will delve into the meaning, implications, and applications of a material issue in British law, elucidating its role in contractual disputes, corporate governance, and securities regulation.

Contract Law

Definition and Importance

In contract law, a material issue pertains to a fact or circumstance that is significant enough to influence the decision-making process of a reasonable person. This could affect the formation, performance, or breach of a contract. Material issues often involve the core terms and conditions of a contract, and their misrepresentation, non-disclosure, or alteration can lead to significant legal consequences.


A material misrepresentation is a false statement of fact made by one party that induces another to enter into a contract. Under British law, if a party can prove that a misrepresentation was material, they may have the right to rescind the contract or claim damages. For instance, in the case of Smith v. Land and House Property Corporation (1884), the court held that a statement about the quality of a tenant was a material misrepresentation because it induced the purchaser to enter the contract.

Breach of Contract

A material breach of contract occurs when one party fails to perform a substantial part of the contract. This can give the non-breaching party the right to terminate the contract and seek damages. The determination of whether a breach is material involves considering the extent to which the injured party has been deprived of the benefit they reasonably expected. For example, in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962), the court established the doctrine of “innominate terms” and assessed whether the breach deprived the injured party of substantially the whole benefit of the contract.

Corporate Law

Materiality in Corporate Governance

In corporate law, material issues often relate to the disclosure of information and the duty of directors to act in the best interest of the company. Material issues in this context include significant changes in the company’s financial status, potential conflicts of interest, and major business decisions.

Directors’ Duties

Directors have a fiduciary duty to disclose material issues that could affect shareholders’ decisions. Failure to disclose such information can result in legal action against the directors. For instance, under the Companies Act 2006, directors are required to disclose any interest in a transaction or arrangement with the company. Non-disclosure of material interests can lead to claims of breach of duty and personal liability.

Shareholder Actions

Shareholders can bring derivative actions on behalf of the company if they believe directors have failed to address material issues properly. The success of such actions depends on demonstrating that the issue was material and that the directors’ failure to address it caused harm to the company. The case of Foss v Harbottle (1843) is foundational, establishing that individual shareholders cannot sue for wrongs done to the company, except in specific circumstances where material issues are involved.

Securities Law

Material Information in Securities Regulations

In securities law, material information is any information that could influence an investor’s decision to buy, sell, or hold securities. The disclosure of material information is crucial for maintaining market integrity and protecting investors. The Financial Conduct Authority (FCA) regulates the disclosure of material information to prevent market abuse and insider trading.

Insider Trading

Insider trading involves trading based on material, non-public information. The prohibition of insider trading is aimed at ensuring a level playing field for all investors. The Market Abuse Regulation (MAR) defines inside information as information that is precise, not public, and would likely have a significant effect on the price of securities. Individuals found guilty of insider trading can face severe penalties, including fines and imprisonment.

Continuous Disclosure Obligations

Publicly listed companies have continuous disclosure obligations to report material changes in their financial condition or operations promptly. The FCA’s Disclosure Guidance and Transparency Rules (DTR) require companies to disclose material information that could affect the price of their securities without delay. Failure to comply with these requirements can result in sanctions and damage to the company’s reputation.

Case Studies and Practical Applications

Case Study 1: Material Misrepresentation in Contract Law

In Derry v Peek (1889), the House of Lords dealt with the issue of fraudulent misrepresentation. The company’s prospectus contained a statement about its rights to use steam power, which turned out to be false. The court held that for a misrepresentation to be material and actionable, it must be made fraudulently, meaning the maker knew it was false or was reckless as to its truth. This case underscores the importance of materiality in establishing the grounds for rescission and damages in contract disputes.

Case Study 2: Directors’ Duties and Material Disclosure

In Regal (Hastings) Ltd v Gulliver (1942), the House of Lords addressed directors’ duties concerning material issues. The directors of Regal (Hastings) Ltd failed to disclose their personal gain from the sale of company assets, leading to a breach of fiduciary duty. The court held that directors must account for any profits made from their position without proper disclosure. This case illustrates the critical role of materiality in assessing directors’ actions and ensuring corporate governance transparency.

Case Study 3: Insider Trading and Material Information

The case of R v McQuoid (2009) involved insider trading charges against McQuoid, a former general counsel of TTP Communications, and his father-in-law. They were found guilty of using inside information about a forthcoming acquisition to trade shares. The court emphasized that the information was material as it significantly influenced their trading decisions. This case highlights the stringent enforcement of securities laws concerning material information and the severe consequences of insider trading.

Legal Standards and Tests for Materiality

Reasonable Person Test

The reasonable person test is often used to determine materiality. This involves assessing whether a reasonable person would consider the issue significant in making a decision. This objective standard helps ensure consistency in judicial decisions and provides a clear benchmark for assessing materiality.

Balancing Test

Courts may also use a balancing test to weigh the significance of a material issue against other factors. This involves considering the extent of the harm caused, the benefits of the disclosure, and the overall impact on the parties involved. This test allows for a more nuanced evaluation of materiality, taking into account the specific circumstances of each case.

The Implications and Consequences of Material Issues

Legal Remedies

Material issues can lead to various legal remedies, including rescission of contracts, damages, and injunctions. The availability of these remedies depends on the nature of the material issue and its impact on the parties involved. For example, in cases of material misrepresentation, the injured party may be entitled to rescind the contract and claim damages for any losses incurred.

Regulatory Sanctions

Regulatory bodies, such as the FCA, can impose sanctions for failing to disclose material information. These sanctions can include fines, suspension of trading activities, and other disciplinary actions. The severity of the sanctions reflects the importance of maintaining market integrity and protecting investors.

Reputational Damage

Failure to address material issues can lead to significant reputational damage for individuals and companies. This can result in loss of investor confidence, decreased market value, and long-term harm to business relationships. Effective management of material issues is therefore essential for maintaining trust and credibility in the market.


Material issues play a pivotal role in various areas of British law, influencing the outcome of legal disputes, the enforcement of regulatory standards, and the integrity of market transactions. Understanding the concept of materiality and its implications is crucial for legal practitioners, corporate executives, and investors. By addressing material issues promptly and transparently, parties can mitigate legal risks, uphold their fiduciary duties, and maintain the confidence of stakeholders. This legal overview underscores the importance of materiality in ensuring fairness, accountability, and transparency in contractual relationships, corporate governance, and securities regulation.

Material Issue FAQ'S

A material issue refers to a fact or a legal point that is significant and relevant to the outcome of a case. It is a crucial element that can affect the rights and obligations of the parties involved.

The determination of a material issue depends on the specific facts and circumstances of each case. Generally, if a fact or legal point has the potential to impact the outcome of the case, it is considered a material issue.

If a material issue is not properly addressed or considered in a legal case, it can lead to an unfair or incorrect judgment. It is essential for all relevant material issues to be thoroughly examined and presented before the court.

Yes, a material issue can be raised at any stage of a legal proceeding, including during pre-trial, trial, or even on appeal. However, it is generally advisable to raise material issues as early as possible to ensure a fair and efficient resolution of the case.

To prove that a specific issue is material, a party must present evidence or legal arguments demonstrating its significance and relevance to the case. This can be done through witness testimony, documents, expert opinions, or legal precedents.

Yes, parties involved in a legal dispute can choose to resolve a material issue through settlement or negotiation. By reaching an agreement, they can avoid the need for a court decision and potentially save time and resources.

The judge has the responsibility to evaluate the evidence and legal arguments presented by the parties and determine which issues are material to the case. The judge’s decision on material issues can significantly impact the outcome of the case.

Yes, if a party believes that the judge has made an error in determining a material issue, they can appeal the decision to a higher court. The appellate court will review the case and determine if the lower court’s decision on the material issue was correct.

Not necessarily. In some cases, material issues can be decided by a jury, especially in jurisdictions where jury trials are available. The jury will evaluate the evidence and legal arguments presented and determine the material issues in the case.

Yes, it is possible for a material issue to change or evolve as new evidence or legal arguments are presented. The parties involved should be prepared to adapt their strategies and arguments accordingly to address any changes in the material issues of the case.

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This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 6th June 2024.

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