In a recent decision, Gestion F. Lessard inc. v.
Bournival, 2016 QCCS 2537, the Superior Court of Québec
observed the potential liabilities involved in share purchase
transactions — such as threats of litigation by unsatisfied
customers, employee conflicts and software malfunction — and
reminded us that not all potential liabilities can be imputed on
the seller for fraud.
Summary of facts
This case deals with a share purchase transaction, where the
defendant sold its corporation to the plaintiffs, holding companies
owned by the two individuals intervened in the proceedings.
Following the sale of the corporation, a series of problems
appeared, including disputes with unsatisfied customers, conflicts
between employees, and defects of a software. As such, the
plaintiffs instituted an action against the defendant and claimed
that such problems should have been disclosed by the defendant, and
that the plaintiffs were induced into the transaction by the
The Court found that the plaintiffs' claim with respect to
unsatisfied customers was not grounded in fact. When the
transaction took place, there was no pending litigation between the
corporation and its customers. Moreover, it appears from the
testimony that the corporation had good relationships with its
customers. Therefore, the plaintiffs cannot succeed in their claim
with respect to the costs assumed by the corporation to settle the
disputes with unsatisfied customers.
Further, the Court noted that the conflicts between employees
occurred after the transaction had closed. Thus, such problem
cannot be deemed a conflict that should have been disclosed by the
defendant in the share purchase agreement ("SPA").
Regarding the defect of the software, the Court found that the
defendant had omitted to declare important defects of the software.
As a result, his representation and warranty in respect of the
condition of equipment contained in the SPA was inaccurate, and he
is obliged to pay the damages sustained by the plaintiffs in
accordance with the SPA.
Buying a business is different from buying assets of a business.
One of the fundamental differences is that, unless the agreement
stipulates otherwise, the buyer is bound to take over the current
liabilities and potential liabilities of the target business.
Therefore, as a prudent buyer, it is extremely important to
familiarize yourself with the operation and the assets/liabilities
of the target business by conducting a due diligence review of the
Gowling WLG can assist you in conducting the due diligence
review and help uncover potential liabilities that can be addressed
prior to the closing of the acquisition. Gowling WLG can also help
prepare the transactional documents, such as the assets/share
purchase agreement, to provide you with maximum protection whenever
a representation and warranty made by your counterpart is false or
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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