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Ignorance is not bliss: beware minimal due diligence

Lessons from the Quebec Court of Appeal

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

The Quebec Court of Appeal’s decision in Francoeur v. 4417186 Canada Inc., 2013 QCCA 191, provides a cautionary tale on the dangers of entering into a share purchase agreement and subsequently closing a share purchase transaction, without ample due diligence.

The one-sided apportionment of risk

The Francoeur share purchase agreement (the “SPA”), which was signed by parties the court characterized as “fierce competitors”, contained the following key provisions.

  1. The purchaser acknowledged that (a) until closing, it did not have access to certain “key documents” held under seal, (b) it had not undertaken any due diligence, and (c)
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