Anonymised, illustrative composite. Ontario, a share purchase, one doubtful receivable, and two remedies — a working capital adjustment and an indemnity claim — both aimed at the same dollar.
At a glance
A holding company bought all the shares of a commercial printing business for $4,650,000, structured with a standard closing net working capital target and a 60-day post-closing completion-accounts process to true up the price. During diligence, the buyer’s accountants had flagged a $180,000 receivable owed by one of the target’s largest customers, who was disputing a batch of invoices over a print-quality complaint. Neither side resolved the dispute before signing. The seller’s position was that the receivable was collectible and should stay in working capital at face value; the buyer’s was that it should be reserved against. They left it unresolved in the purchase agreement and let the completion-accounts process run its course.
The buyer’s completion accountants determined, applying the agreed accounting policies, that the $180,000 receivable was not collectible and should be fully reserved. That reserve reduced closing net working capital below the target by $180,000, and under the adjustment mechanic the seller paid the buyer $180,000 to true up the price. Separately, the buyer’s counsel then delivered an indemnity claim asserting that the same $180,000 shortfall was also a breach of the share purchase agreement’s representation that “all accounts receivable of the Corporation are bona fide, arose in the ordinary course of business, and are collectible in the ordinary course of business, net of any reserves shown on the Interim Balance Sheet” — and demanded a second $180,000, this time from the indemnity basket rather than through the price mechanism.
There is no statute here, and no reported Canadian decision was found addressing this precise interaction. This is a construction question, full stop: what does the purchase agreement itself say about the relationship between the price-adjustment mechanism and the indemnity? Two clauses do the work, and both were present but poorly connected. First, the working capital adjustment article stated it was intended to true up the price for balance-sheet items measured as at closing — language courts read as fixing what the parties agreed the business was worth at closing, not as resolving whose fault a shortfall was. Second, buried in the general indemnity article was a single sentence: “no Buyer Indemnified Party shall be entitled to indemnification under this Article for any Loss to the extent such Loss was reflected as a reduction to the Purchase Price pursuant to the Working Capital Adjustment.” That sentence is a no-duplication provision, and on ordinary principles it does exactly what it says: it does not bar the indemnity claim outright, it bars recovering the same loss twice. Because the $180,000 write-down in the completion accounts and the $180,000 indemnity claim were traceable to the identical receivable and the identical shortfall, the no-duplication clause caught it squarely.
$180,000 claimed once through the price mechanism, $180,000 claimed a second time through the indemnity — on a $4,650,000 deal, a buyer collecting both would have recovered 7.7% of the purchase price against a single, one-time $180,000 shortfall. The indemnity basket in this deal was a modest $50,000, non-tipping; the working capital true-up had no separate cap because it was mechanical, not a claim. Whether the buyer could route the claim through the uncapped price mechanism, the capped-but-already-exceeded indemnity basket, or both, was therefore not a rounding error — it decided whether the claim was subject to a cap at all.
The indemnity claim was rejected. The no-duplication sentence, read against the working capital adjustment article, meant the $180,000 already recovered through the price mechanism extinguished the identical claim under the representation. The buyer kept the $180,000 price reduction it had already collected and recovered nothing further. Had the receivable instead been collectible for, say, $60,000 of the $180,000 — a partial recovery different from what the completion accounts assumed — the no-duplication clause would not have barred a claim for the remaining, un-recovered $120,000; it bars re-claiming the same dollar, not every claim touching the same fact.
Without that one sentence, or with it drafted to say the price adjustment is the buyer’s sole and exclusive remedy for balance-sheet items rather than merely non-duplicative with the indemnity, the case runs the other way entirely: with sole-remedy language, the indemnity claim would have been barred outright regardless of overlap; with no no-duplication language at all, a court would have had to decide, on ordinary contract construction and with no clause to point to, whether double recovery was intended or merely an oversight in drafting two remedies that were never meant to interact — an expensive, genuinely uncertain fight neither side wanted.
The tell was where the no-duplication sentence lived. It sat in the general indemnity article, not in the working capital adjustment article, and it was drafted from the seller’s side of the transaction rather than as a jointly negotiated mechanic. A buyer’s first-draft SPA will often omit this sentence entirely, because an uncapped price-true-up plus an uncapped-in-substance indemnity claim is a better outcome for the buyer than either alone. Its presence, and precisely where it sat, was the seller’s counsel doing exactly the job this mechanic exists to test.
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