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Property - Asset Sale. SpaceBridge Inc. v. Baylin Technologies Inc.
In SpaceBridge Inc. v. Baylin Technologies Inc. (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal, this from a "finding that an amendment to the Notice of Application was not statute-barred".
These extracts usefully illustrate some aspects of asset purchase agreements:[2] The appellants, (collectively, “Baylin”), purchased assets from the respondents (collectively, “SpaceBridge”) in January 2018 through an Asset Purchase Agreement (“APA”). The APA set out a mechanism that prescribed how the parties were to make claims for indemnification from each other. The scope of the right to indemnification was specified in various provisions of the APA, which also provided for an indemnity escrow to be established by a separate Escrow Agreement. Substantiated indemnity claims were to be paid from the Indemnity Escrow, which was to be funded by Baylin. The Escrow Agreement set out the procedures for submitting a claim for indemnity, contesting the claim, resolution, and payment. All claims for indemnity had to be made within 18 months of the close of the APA. Any funds remaining at that time were to be released by the Escrow Agent to SpaceBridge, to be credited towards the purchase price.
The indemnification claim process
[3] Section 8.4 of the APA provided that an indemnified party making a claim against an indemnifying party was to initiate the claim by way of delivery of a written notice describing the facts alleged as the basis of the claim, the section or sections of the APA alleged to have been violated, and the estimated dollar value of the damages claimed (an “Indemnity Claim”). Section 10.3 set out how notice was to be given for claims under the APA, and when notice was deemed effective. Notice could be given through personal delivery, registered mail, or email. Section 8.9 of the APA provided that amounts payable by SpaceBridge were to first be paid out of the Escrow Fund.
[4] The Escrow Agreement governed the process for claim indemnification payments from the Escrow Fund. Section 4.1(c)(1) of the Escrow Agreement required that a party seeking indemnification from the Escrow Fund deliver a certificate (a “Claim Certificate”) to the Escrow Agent and the party against whom the claim was made, setting out the particulars of the claim. Section 7.9 of the Escrow Agreement set out how notice of these claims was to be given, permitting delivery by “recognized national courier” or email. It did not list registered mail as a permitted means of giving notice.
[5] A party against whom an Indemnity Claim was made had 30 days to object to the claim by delivering an Objection Certificate to the Escrow Agent. If the Objection Certificate was not delivered within 30 days of delivery of a Claim Certificate, the indemnifying party would be deemed to have accepted the correctness of the indemnification claim, and the Escrow Agent would be required to release the amount claimed.
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