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w w w . C A N A D I A N L a w y e r m a g . c o m J U N E 2 0 1 7 45 says Geraghty. In Canada, it isn't needed, she says, because the law of contract says that a seller who breaches the representa- tion can be sued for damages. Pro-sandbagging provisions are hard to negotiate, she notes, as they involve trust issues. U.S. law on sandbagging changes from state to state, Stauder notes. Sometimes, buyers have to show reliance on the representation, but not always. Delaware and New York each have nuanced regimes to the extent there is case law, he says, though it is not exactly the same. In New York, how a sandbagging clause plays out in litigation may depend on how the buyer learned of certain cir- cumstances, for example. And it's been a hot-button issue in the U.S. for the past five to seven years, he says, raising questions such as what kind of damages to exclude from a buyer's recovery. "It used to be that conse- quential, punitive and special damages couldn't be recovered" by the buyer, says Stauder, but this is changing. Partly as an outgrowth of the more litigious U.S. market, these clauses have been leaning more toward the buyer's side, he says. In the U.S. and in Canada, the prevailing market practice is still to remain silent, says Adkins, "with the theory being, if you get into a dispute, you can go to court, and the court will figure it out. [Otherwise], the buyer puts in their sandbag provision, the seller takes it out and you have a fight. Often, the compromise position is to just to stay silent." With the multiplicity of sophisticated, multiple buyers in the U.S., including private equity funds, there are stronger pushes to get the best possible deals and preserve all their rights, Adkins says, which has led to a big push in the U.S. for pro-sandbagging clauses that expressly permit a buyer to bring a claim, even if they're deemed to know of a breach beforehand. "That has not been the case in Canada," he adds. "I think probably 25 to 30 per cent of U.S. deals have [a sandbag- ging provision] in it, whereas I suspect it's in the 15-per-cent range in Canada. . . . . The question in Canada is whether that provision would be enforceable." In Delaware, where the vast majority of U.S. public companies are incorporated, pro- sandbagging clauses have been upheld, but in Canada, there is no case law on sandbagging yet, he says. Materiality scrapes A materiality scrape provision "scrapes" or excludes material- ity, material adverse effect and other materiality qualifiers in the seller's representations and warranties for the purposes of post-closing indemnification, and it is far more prevalent now in Canadian deals than it was even two years ago, says Litwack. "The intention is for sellers to limit their exposure by limiting to what rises to certain levels of materiality," Stauder explains. The materiality scrape is a counter-trend in an oth- erwise seller-friendly environment, he says, and a lot of sell- ers' exposures are backstopped by R&W insurance. Other M&A cross-border trends Litwack notes a U.S. trend to execute deals faster. For exam- ple, he says, a quality of earnings report will be made available before the players go to market. "A lot of things are done early on, ahead of going to market, that make the deal/transaction go much quicker." And Adkins believes the most relevant developments in the U.S. that affect M&A in Canada aren't legal ones; rather, he expects the greatest impact to be from the new, pro-energy government in the U.S., which recently approved the Keystone Pipeline project between Canada and the United States. "I think the changing gov- ernment in the U.S. is having a direct impact on activity in our energy sector and probably will continue to do that." Sensitive points in Canada-U.S. trade tend to be softwood lumber and agribusiness, he adds, which will not necessarily affect M&A much. "Under NAFTA, the open border in North America for auto manufacturing is of importance. Canada and the U.S. both have an interest in that continuing; and I think a lot of the focus in the U.S. [on trade] is more southbound than up to Canada." A LOT OF THINGS ARE DONE EARLY ON, AHEAD OF GOING TO MARKET, THAT MAKE THE DEAL/TRANSACTION GO MUCH QUICKER. ALAN LITWACK, Dickinson Wright LLP CORPORATE COUNSEL Connect with Find more than 4,100 corporate counsel and over 1,500 organizations along with fresh editorial content, information on deals and links to important resources. Lexpert.ca/ccca ntitled-6 1 2017-05-12 11:26 AM

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