ONCA Deals A Blow To Deal Certainty In M&A

• Published date: 12 January 2026
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, M&A/Private Equity, Corporate and Company Law, Trials & Appeals & Compensation
• Law Firm: Fasken
• Author: Mr Paul Blyschak, Claire Gowdy, Ian W. Palm, Brad Moore, Alexandra Lazar, Melissa Cook, Adrian Wan and Gurinder (Gigi) Gujral

Overview and Key Takeaways

The Ontario Court of Appeal (ONCA) has affirmed that the terms of an earlier, non-binding letter of intent (LOI) may be admissible in a dispute under the subsequent purchase agreement even where the agreement expressly bars reference to the LOI.¹

Our key practical takeaways include:

• The rulings impact deal certainty in M&A and arguably overlook the critical role played by "entire agreement" clauses in M&A.
• Dealmakers and their advisors may want to limit the scope of detailed legal provisions in an LOI - even when non-binding - unless they have been carefully considered and negotiated.
• Another key question for dealmakers results: should the substance of "entire agreement" clauses be revised to account for the rulings? Put differently, is new boilerplate needed in pursuit of deal certainty?

For our analysis of the ruling of the Ontario Superior Court of Justice (ONSC) giving rise to the appeal, see here. For more Fasken M&A thought leadership, visit our Capital Markets and M&A hub and subscribe.

The Dispute in Brief: Earnout Acceleration Meets Materiality

The share purchase agreement (SPA) in Project Freeway included an earnout. At issue was what meaning to give to a "materiality" qualifier in the earnout's acceleration clause. The clause stated acceleration would occur if the buyer sold a "material portion of the assets" of the target business without the seller's consent. The seller claimed this had occurred by way of a sale and leaseback arrangement involving land and buildings of the target for proceeds of US$97.9 million.

The seller argued "materiality" meant significant in terms of value, which it claimed had been met by the financial magnitude of the sale and leaseback. The buyer took the position that a sale was only "material" if it impacted the target's post-closing performance and thus the earnout. It argued that the sale and leaseback allowed the target to continue its operations as it had prior to the transaction, so it was not material for purposes of the earnout acceleration clause.

The ONSC preferred the buyer's interpretation, and in part relied on the brief discussion of earnout acceleration in a non-binding LOI the parties had negotiated nine weeks before signing the definitive SPA. Specifically, the ONSC relied on language in the LOI indicating that "materiality" for the purpose of the acceleration clause meant important in connection with the earnout's milestones.

Preliminary Deal Documents: Fair Game Under the Factual Matrix

The seller argued the court was precluded from considering the LOI by the SPA's "entire agreement" clause, which expressly referenced the LOI.² The ONSC disagreed on the basis...