Fundamental representations drafted to survive forever

The situation

A buyer acquired all the shares of an Ontario sheet-metal fabricator in March 2009 for $6.2 million. The agreement did what competent agreements do: it separated the general representations, which survived eighteen months, from the fundamental representations — title, capacity, authority, and the absence of any other agreement affecting the shares — which were expressed to survive indefinitely and without limitation as to time. Both sides understood that as belt and braces. It was neither.

The problem

Seventeen years later the buyer went to sell. Diligence turned up a 2007 estate freeze in which new common shares had been issued to a family trust for a subscription price that was recorded in a directors' resolution and never actually paid. A beneficiary of that trust, by then estranged, asserted an interest in 18% of the equity and registered a caution against the sale process. The same defect appears in a sibling file on unpaid share subscriptions.

The buyer's answer was obvious and, it thought, safe: the vendors had represented that they owned the shares free of any other person's interest, and that representation survived forever. It did not. It survived until March 2024.

The numbers

The beneficiary's claim was compromised at $1.4 million against the buyer, being roughly 18% of the equity value the buyer's own sale process had established, discounted for litigation risk. The buyer's indemnity claim against the two selling shareholders for the same amount was issued in June 2026 and met a limitations defence it could not answer. Legal costs on the failed indemnity claim: $71,000. Net recovery from the vendors: nil.

The rule that decided it

Ontario's Limitations Act, 2002 runs two clocks. The familiar one is s.4, two years from discovery, which the buyer met comfortably. The one that ended the claim is s.15, and s.15(1) says exactly what it is for: “Even if the limitation period established by any other section of this Act in respect of a claim has not expired, no proceeding shall be commenced in respect of the claim after the expiry of a limitation period established by this section.” Section 15(2) then fixes it: “No proceeding shall be commenced in respect of any claim after the 15th anniversary of the day on which the act or omission on which the claim is based took place.”

The act on which this claim was based was the giving of the title representation at closing in March 2009. Fifteen years later is March 2024. The clock ran from the representation, not from the discovery, and it ran while nobody knew there was anything to discover.

The exception the drafting needed does not exist before discovery. Section 22 permits contracting around the Act, but it treats s.15 differently from every other period. Paragraph 2 of s.22(5) allows a business agreement to vary the s.15 period, “except that it may be suspended or extended only in accordance with subsection (4)” — and s.22(4) permits suspension or extension of a s.15 period by agreement “but only if the relevant claim has been discovered”. In 2009 there was no discovered claim. There was nothing for the parties to extend. Section 22(6) confirms that ““vary” includes extend, shorten and suspend”, so the only variation actually available to these parties in advance was to make the fundamental representations shorter than fifteen years. A clause saying indefinitely was the one thing the statute would not give them.

The single route past s.15(2) is s.15(4), which stops the clock while the person against whom the claim is made “wilfully conceals from the person with the claim the fact that injury, loss or damage has occurred” or wilfully misleads them about the appropriateness of a proceeding. The buyer pleaded it. Section 15(5) puts the burden of proving s.15(4) applies on the person with the claim, and on the evidence the vendors had not concealed anything — they had simply never known the subscription cheque was never cashed.

The outcome

The buyer carried the $1.4 million itself and completed its sale at a reduced price. The vendors, who had distributed the 2009 proceeds long ago, paid nothing. The buyer's counsel now drafts fundamental representations to a stated end date — the fifteenth anniversary of closing, less a stated notice margin — rather than to indefinitely, so that the diary entry exists at all. A clause that says forever generates no reminder.

What it would have cost otherwise

The recoverable window was fifteen years and the buyer used none of it. The realistic alternative was not a longer survival clause, because the statute would not have permitted one; it was a title search discipline. A share-register and minute-book reconstruction on the 2007 freeze — confirming that the subscription price for every issuance had actually been received — would have cost a few thousand dollars in 2009 and would have surfaced the defect while the vendors still held the money and while the representation was seventeen years from expiry.

The tell

The tell is the word indefinitely itself. In a jurisdiction with an ultimate limitation period, a survival clause that names no end date is not longer than one that does — it is the same length, minus the diary entry. Any clause expressed as forever should prompt the question the drafter skipped: forever until when, under which statute, measured from what act?

Takeaways

• • Ontario s.15(2) bars any claim after the fifteenth anniversary of the act or omission, and s.15(1) says it applies even where the s.4 discovery period has not expired. A fundamental representation cannot outlive it.
• • The two directions are governed by different exceptions. Shortening a period is permitted in a business agreement under s.22(5) para 1; extending the s.15 period is permitted under s.22(4) only if the claim has already been discovered — which at signing it never has.
• • The only escape is s.15(4) wilful concealment, and s.15(5) puts the burden on the claimant. Ignorance on the vendor's side defeats it.
• • Draft fundamental representations to a stated date rather than to indefinitely. The date is what produces a reminder; the word produces nothing.
• • Historic share issuances are where this bites. Confirm that consideration for every issuance was actually received, not merely resolved upon.

Sources

• • Limitations Act, 2002, S.O. 2002, c. 24, Sched. B — s.4, s.15(1), (2), (4), (5), s.22(4), s.22(5) para 2, s.22(6). Ontario e-Laws serves the consolidated text to a curl User-Agent only.
• • No statute governs how long a contractual indemnity should survive — that is a bargain. The statute governs only the outer limit past which no proceeding may be commenced, which is why a longer bargain does not help.
• • Treadstone Law — fundamental versus general representations on an Ontario business sale — the drafting distinction. It addresses the bargain between the parties, not the ultimate limitation period that overrides it.
• • Treadstone Law — time limits on indemnity claims, Ontario business sale — adjacent background on notice and claim deadlines.