Can a Business Buyer Sue for Non-Disclosure After Closing in Ontario?

Can a business buyer in Ontario sue if the seller hid problems before closing?

Yes — but winning that lawsuit is much harder than most buyers expect, and a recent Ontario Superior Court decision illustrates exactly why. In 1916458 Ontario Limited v. Beaulieu, 2026 ONSC 3503 (CanLII), the court dismissed the buyers’ claim in full and ordered them to pay the outstanding balance on the promissory note they had signed at closing. The outcome is a sharp reminder that the protections built into a share purchase agreement are only as strong as the buyer’s willingness to use them.

What did the buyers claim the seller did wrong?

The buyers alleged that before closing, the seller knew about a significant drop in revenue, had laid off employees, was dealing with health issues, and had unresolved customer problems — none of which was disclosed as required under the share purchase agreement (SPA). They argued these omissions breached both the ordinary-course covenant and several warranties in the agreement.

The court examined each allegation carefully. It found that the revenue fluctuations were consistent with broader market conditions and fell within the normal range of business variation. Nothing in the evidence pointed to changes that were genuinely outside the ordinary course of the business. Without that foundation, the warranty and covenant claims could not succeed.

How do Ontario courts interpret “ordinary course of business” in a share purchase agreement?

Ontario courts use the Sattva framework to interpret commercial contracts, meaning the language of the agreement is read in its full commercial context. Under that approach, “ordinary course of business” is not a zero-tolerance standard. A business can experience revenue swings, lose a customer, or reduce its workforce and still be operating in the ordinary course — particularly when those events are driven by market forces rather than management decisions that fundamentally change the nature or value of the enterprise.

For a buyer to succeed on an ordinary-course breach, the evidence must show that something genuinely abnormal happened and that the seller knew about it and stayed silent. Disappointment with financial results, standing alone, is not enough.

What happens to damages if the court finds a breach anyway?

Even if the court had found a breach, the buyers faced a second obstacle: the SPA itself. The agreement contained an indemnification clause that was the sole remedy for warranty breaches, and it capped recovery at the purchase price. The court found that the buyers had not established recoverable reliance or expectation damages within those contractual limits. Goodwill and valuation evidence was weighed and found insufficient to support the numbers the buyers were claiming.

This is a critical point for anyone negotiating a business purchase. The remedies section of an SPA can quietly shrink a seemingly strong claim to nothing. Our Ontario employment lawyers regularly advise on the employment-related warranties — such as representations about staff, severance obligations, and workplace claims — that are often the most contentious in a business sale.

Can a buyer lose their claim entirely because they didn’t do enough due diligence?

Yes, and that is exactly what happened here. The SPA gave the buyers a right to access the seller’s records before closing and a right to terminate the agreement if they were not satisfied. The buyers did not request interim financial statements and did not exercise their termination right. The court applied the principle from Arcamm Electrical to apportion the loss and concluded that the buyers’ failure to investigate meant their losses were avoidable. The damages were reduced to nil.

This is not a technicality. Ontario courts treat contractual access and walk-away rights as meaningful tools that buyers are expected to use. If you have the right to look at the books and you don’t, a court may later conclude that you accepted the risk of what you would have found.

What happened with the promissory note?

The sellers had a counterclaim for the unpaid balance on the promissory note the buyers signed as part of the purchase price. The court valued the inventory using historical financial statement amounts consistent with how the Income Tax Act treats such assets. The amount owing was calculated and, importantly, was not challenged by the buyers in any meaningful way. The counterclaim was allowed in full.

This outcome — paying a seller after a failed lawsuit — is the scenario every business buyer should plan to avoid. If you are considering a purchase with a vendor take-back note, understanding your exposure on that note is just as important as understanding your warranty rights.

Practical takeaways for business buyers

• Use every access right in the SPA. If the agreement gives you the right to request interim financials before closing, request them. A court will hold you to the fact that you didn’t.
• Negotiate meaningful warranty language. Vague ordinary-course covenants are hard to enforce. Specific representations about revenue thresholds, headcount, and customer concentration are easier to prove.
• Read the remedies section as carefully as the warranties. A sole-remedy indemnification clause and a purchase-price cap can eliminate recovery even when a breach is clear.
• Understand your promissory note exposure. If the deal falls apart after closing, you may still owe the seller money — and that obligation can survive a failed lawsuit.
• Get employment-related warranties in writing. Representations about staff, outstanding severance claims, and workplace complaints are among the most common sources of post-closing disputes. If you are buying a business in Burlington or the surrounding area, our Burlington employment law team can help you identify the right questions to ask before you sign.
• Consider an employment contract review for key staff. If the target business has senior employees with significant termination entitlements, those obligations transfer with the business. An employment contract review before closing can reveal hidden liabilities.

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If you are buying or selling a business and have questions about how employment warranties, ordinary-course covenants, or post-closing claims work in Ontario, UL Lawyers offers a free initial consultation from their Burlington office and serves clients across the province. Reach out to speak with our Ontario business and employment law team about your situation.

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This article is automated commentary on a public court decision and is for general information only — not legal advice. Decisions rely on facts unique to each case. If you are affected by a similar issue, contact a lawyer for advice specific to your situation.