Anonymised, illustrative composite. An Ontario share purchase, an inventory-valuation error too small to matter on its own, and the only indemnity clause in this hub that changes what counts as a breach rather than what a breach is worth.
At a glance
A buyer acquired 100% of the shares of an Ontario distribution business for $30,400,000. The share purchase agreement’s business representations were qualified, as is standard, by phrases like “in all material respects” and “except as would not be material.” Sitting alongside the indemnity basket and indemnity cap, the agreement carried a materiality scrape: a clause providing that “for purposes of calculating the amount of any Losses arising from a breach of a representation, all materiality and Material Adverse Effect qualifications contained in such representation shall be disregarded.” It was drafted, negotiated and initialled without either side’s counsel flagging that it addressed only one of the two places materiality does work in an indemnity claim.
Eight months after closing, routine reconciliation turned up a $12,000 overstatement in the closing inventory valuation — a single SKU miscounted at a satellite warehouse. Against a $30,400,000 purchase price, it was immaterial by any ordinary commercial measure; nobody on either side disputed that a $12,000 error in a $30,400,000 deal would not, on its own, move anyone's assessment of the business. The buyer claimed it anyway, under the theory that the scrape had removed materiality from the equation entirely, so the size of the error no longer mattered — only whether the representation, read literally, was inaccurate.
$12,000 against a $30,400,000 purchase price is roughly 0.04% — an order of magnitude below any materiality threshold either side’s advisors would have applied during due diligence. It sat comfortably inside the deal’s $150,000 indemnity basket, so the entire dispute was never about whether $12,000 was affordable to pay. It was about whether the clause let the buyer claim it at all.
No statute defines what a materiality scrape does, or how far it reaches. It is a pure drafting construct, and its scope is decided entirely by what the clause actually says it disregards — which is why the same three words, “for purposes of calculating,” decide the whole file.
A materiality scrape can be drafted two ways, and they are not the same clause with different emphasis — they answer different questions. A single scrape disregards materiality qualifications only when calculating the amount of Losses once a breach has already been established. The representation itself still has to be breached on its own terms first — which, for a representation qualified “in all material respects,” means the underlying inaccuracy still has to be material to constitute a breach at all. The scrape only strips materiality out of the second step, not the first. A double scrape goes further: it disregards materiality both in determining whether a breach occurred and in calculating what it is worth, so that even a trivial, immaterial inaccuracy is a breach entitling the buyer to dollar-for-dollar recovery.
This agreement's scrape was single. Its own words — “for purposes of calculating the amount of any Losses arising from a breach” — presuppose a breach that has already arisen; they instruct how to measure it once it exists, and say nothing about the separate question of whether it exists. The financial-statements representation, qualified “in all material respects,” was accurate in all material respects notwithstanding the $12,000 error: a misstatement that size, on inventory of that scale, does not clear the materiality threshold the representation itself sets. There was, in the clause's own terms, no breach for the scrape to calculate damages from.
A single scrape and a double scrape produce opposite outcomes on identical facts. Had this agreement's scrape been drafted to disregard materiality “in determining whether a breach of a representation has occurred and in calculating the amount of any Losses arising from it,” the same $12,000 error would have been a breach, full stop, and the buyer's claim would have succeeded for the full amount inside the basket. The difference between the two outcomes is not the facts, the price, or the size of the error. It is one clause, read correctly.
The buyer's claim was withdrawn once its own counsel confirmed the scrape's scope. There was no breach to indemnify: the representation was accurate in all material respects, the scrape never engaged, and the $12,000 error was absorbed as an ordinary post-closing adjustment nobody had a contractual right to claim.
Read as a double scrape — which is how the buyer's deal team had assumed it operated — every immaterial inaccuracy discovered after closing becomes a potential claim, dollar for dollar, up to the basket. That is a meaningfully different risk allocation than either side priced the deal on, and it is the reason sellers negotiate hard to keep a scrape single: a double scrape effectively deletes the materiality qualifier from every representation it touches, for every purpose, turning a qualified representation into an unqualified one in substance while leaving the qualifying language on the page.
The tell was that neither side's markup of the scrape clause, across four rounds of drafting, ever added or removed the phrase “whether a breach of a representation has occurred and.” A clause that goes eight months without either side touching a specific phrase is not necessarily a clause both sides understand — it can just as easily be a clause neither side has actually read against the two separate questions it needs to answer.
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