In the context of a merger or acquisition, a vendor may unknowingly make untrue representations about the target business. “Sandbagging” occurs when a buyer discovers such misrepresentations prior to closing and seeks to enforce indemnity provisions after closing. The success of such claims will depend on the following:
- The Terms of the M&A Agreement. If the parties expressly agree that the buyer’s knowledge will (or will not) bar post-closing indemnification, Canadian courts will consider, and likely respect, the parties’ intentions.
- The Common Law. In Bhasin v Hrynew (“Bhasin”), the Supreme Court of Canada articulated a general duty of