Executive Summary: Key Legal and Evidentiary Issues

• Allocation of liability for unpaid pre-closing wages and vacation pay under the Asset Purchase Agreement (APA), including whether they were “Excluded Liabilities” covered by the vendor’s indemnity.
• Interpretation of APA provisions excluding employment contracts and wage-related obligations (ss. 1.03, 6.04 and Schedule B) and whether those terms left all employment liabilities with the debenture holders.
• Legal effect of the OLRB settlement with UNIFOR Local 87-M under s. 69 of the Labour Relations Act, and whether GMI’s settlement payments and related legal fees fell within the indemnity in s. 7.01.
• Significance of the non-disclosure of the collective agreement during due diligence, and whether GMI’s failure to request it altered the agreed contractual risk allocation.
• Alleged breach of the public announcements clause (s. 6.01) by GMI’s tweet and “relaunch” announcement, and whether this purported breach barred or reduced GMI’s right to indemnification.
• Attempted set-off by the debenture holders, arguing that GMI’s conduct caused the union claims, versus the court’s view that pre-closing wage debts remained the vendors’ responsibility regardless of when the claim was advanced.

Background and parties

GMI Publications Inc. (GMI) acquired the operating assets of Now Central Communications (NCC), the publisher of NOW Magazine, after NCC defaulted on its obligations under a Guarantee Agreement in favour of various debenture holders. Those debenture holders, represented by Wei Lin as nominee holder, moved to enforce their security and sell NCC’s assets. GMI agreed to purchase all of NCC’s assets, save for specified excluded assets, for a purchase price of $270,000. The assets transferred included accounts receivable, intellectual property and copyrights, permits, computers, office equipment and goodwill. By contrast, employment contracts were expressly excluded: employees were to be terminated prior to closing, and their contracts were not among the assets that GMI acquired. The Asset Purchase Agreement (APA) was signed on December 21, 2022, with a closing date of January 9, 2023.

NCC’s unionized employees were represented by UNIFOR Local 87-M under a collective agreement that ran from January 1, 2019 to December 31, 2022. During pre-closing negotiations, GMI’s representatives inquired about NCC’s legal fees and were told those costs related to union negotiations and grievance settlements. However, the collective agreement itself was not provided to GMI, and GMI did not specifically request a copy as part of its due diligence. The transaction closed, and in January 2023 GMI publicly announced its purchase of NOW Magazine’s assets and its plan to relaunch the brand as a digital-only “nowtoronto.com” news platform.

Union proceedings and settlement at the OLRB

In February 2023, UNIFOR Local 87-M commenced an application before the Ontario Labour Relations Board (OLRB) under section 69 of the Ontario Labour Relations Act. The union alleged that GMI was effectively a successor employer continuing the same operation, and sought to enforce the collective agreement, reinstate terminated employees and bargain for a renewal of the agreement. Upon learning of the proceeding, GMI quickly notified Mr. Lin, acting as representative of the debenture holders, and at that time received the collective agreement for the first time. GMI retained labour counsel to respond to the union’s application and to negotiate a resolution.

The matter was ultimately settled and the terms were embodied in an OLRB decision. Under the settlement, GMI agreed to pay $31,355.92 to members of the NOW bargaining unit. These sums related entirely to unpaid wages, and in one case unpaid vacation pay, owed for work performed before December 22, 2022, i.e., before the effective date of the APA and prior to GMI’s assumption of the business. The settlement also recorded a union statement that the payments would not result in any double recovery for the employees in respect of those wage claims. In defending the OLRB application and negotiating the settlement, GMI incurred legal fees of $27,640.64. GMI then sought to recover a total of $58,000 from the debenture holders under the APA’s indemnification provisions, covering both the settlement amount and its legal costs.

Contract structure and key APA provisions

The dispute turned on how the APA allocated risk for employment-related liabilities and whether those obligations came within the vendor’s indemnity. Section 7.01 of the APA, the indemnification clause, provided that the “Vendor shall defend, indemnify and hold harmless the Purchaser” from and against all claims, judgments, damages, liabilities, settlements, losses, costs and expenses, including reasonable legal fees, arising from or relating to, among other things, any “Excluded Liability.” The APA drew a firm line between assets and liabilities that GMI was assuming and those that remained with the vendor. Schedule B listed “Excluded Assets,” which included employment contracts. Section 1.03 specified that GMI would assume liabilities arising from assigned contracts, but not employment contracts. It further stated that GMI did not assume and would not indemnify the vendor in respect of any liabilities for salary, wages, bonuses, commissions, vacation pay, severance or other compensation owed or becoming payable by the vendor or NCC to any current or former employees.

Section 6.04, titled “NCC Employees,” reinforced this allocation at closing. It required the vendor, commencing on and prior to the closing date, to terminate all NCC employees—full-time, part-time, active, inactive or on statutory leave—and stipulated that “all liabilities owing to any such NCC Employees in respect of such terminations” would be “Excluded Liabilities.” These liabilities included, but were not limited to, statutory notice, termination payments, severance, vacation pay, benefits, bonuses and other compensation or entitlements. Read together, the provisions and Schedule B showed that GMI was acquiring the business assets free of the historic employment liabilities; the debenture holders remained responsible for wages and related employment obligations up to the closing date.

Positions of the parties on liability and disclosure

The debenture holders opposed GMI’s indemnity claim on several grounds. First, they argued that GMI had acquired the assets on an “as is, where is” basis and had acknowledged the completion of its due diligence. If GMI was unaware of the collective agreement or the specific wage liabilities, they said, that ignorance resulted from GMI’s own failure to conduct proper due diligence, and could not form the foundation of an indemnity claim. Second, they maintained that they had no obligation to disclose the collective agreement and that, in any event, any such nondisclosure did not trigger the indemnity. They rejected any suggestion that failing to provide the agreement amounted to a breach of representation, warranty or covenant. Third, the debenture holders asserted that GMI had itself breached the APA by issuing public announcements without their prior written consent, contrary to section 6.01. That clause provided that, unless required by law, neither party would make public announcements regarding the agreement or the transactions contemplated by it without the other party’s prior written consent, which “shall not be unreasonably withheld or delayed.”

The vendors claimed that GMI’s tweet and announcement, especially describing a “relaunch” of NOW Toronto, invited union scrutiny and ultimately triggered UNIFOR’s OLRB application regarding successorship and the continuation of operations. On this theory, GMI’s own breach had caused the union proceeding and any resulting liability, such that GMI should be barred from relying on the indemnity or, at a minimum, that the vendors should be entitled to a set-off equal to the amounts paid by GMI under the settlement.

The court’s interpretive approach to the APA

Justice Des Rosiers applied the modern principles of contractual interpretation from Sattva Capital Corp. v. Creston Moly Corp., Bhasin v. Hrynew and The Plan Group v. Bell Canada. The court emphasized that a commercial contract must be read as a whole, giving the words their ordinary and grammatical meaning in light of the surrounding circumstances and without being dominated by technical rules of construction. The goal is to ascertain the objective intent of the parties at the time of contract formation, taking into account the factual matrix but not subjective intentions. In particular, where ambiguity arises, the interpretation should align with sound commercial principles and good business sense, and avoid any commercial absurdity.

Applying these principles, the judge concluded that the APA clearly allocated employment-related risks and liabilities to the vendors. Employment contracts were excluded assets; wages, severance, vacation pay and other compensation for current or former employees were expressly excluded from the liabilities assumed by GMI; and section 6.04 placed all termination-related payments to NCC employees on the vendor’s side of the ledger. The parties’ conduct, including the absence of any attempt to transfer employment contracts and the vendors’ initial acknowledgement that GMI should be indemnified for employment issues arising out of the OLRB matter, supported this reading. Whether the collective agreement had been disclosed during due diligence was therefore legally irrelevant to the allocation of responsibility under the APA.

Finding that the OLRB settlement was an excluded liability

On the central issue—whether the OLRB settlement amount formed part of an “Excluded Liability”—the court held that it did. The settlement obliged GMI to pay $31,355.92 in respect of unpaid wages and one claim for unpaid vacation pay for work performed before December 22, 2022, i.e., before GMI’s acquisition became effective. Those are precisely the categories of obligations that sections 1.03 and 6.04, read with Schedule B, stated would remain with the vendor and not be assumed by the purchaser. The fact that the employees’ claims were pursued through a union application to the OLRB rather than directly as civil actions was immaterial: the underlying nature of the obligation remained unpaid pre-closing wages and vacation entitlements. Justice Des Rosiers concluded that the parties intended all such historical wage liabilities to remain the responsibility of the debenture holders and that the APA’s language was “clear” on that point. Consequently, the settlement amount fell squarely within the definition of “Excluded Liability,” and GMI was entitled to be indemnified for the full $31,355.92.

Entitlement to legal fees under the indemnity

Section 7.01 of the APA also covered “reasonable legal fees, disbursements and charges” associated with indemnifiable claims and liabilities. Because the OLRB settlement related to an excluded liability—pre-closing wages and vacation pay for former NCC employees—the legal fees incurred by GMI in dealing with that proceeding were equally subject to indemnification. GMI filed a bill of costs reflecting $27,640.64 in legal fees for the OLRB case and settlement negotiations. After reviewing the bill, the court was satisfied that the fees were reasonable in amount and in relation to the work performed. Justice Des Rosiers therefore held that the indemnity extended to these legal costs, in addition to the underlying wage settlement, bringing GMI’s indemnifiable loss to a total of $58,000.

Assessment of the public announcements clause and alleged breach

The court rejected the debenture holders’ contention that GMI’s public communications constituted a breach of section 6.01 sufficient to defeat its indemnity claim. Justice Des Rosiers noted that the transaction involved a media business whose value depended on public engagement and brand recognition; it was commercially obvious that GMI would need to announce its acquisition and relaunch efforts. The public announcements clause itself contemplated that announcements would be made, since it required consent and stated that such consent could not be unreasonably withheld or delayed. Nothing in the negotiations or the parties’ dealings suggested an intention to keep the sale confidential. To interpret section 6.01 as effectively prohibiting GMI from making any public announcement, or as allowing the vendor to use the clause to escape agreed-upon employment liabilities, would contradict sound commercial principles and amount to a commercial absurdity.

Justice Des Rosiers concluded that GMI’s tweet and its announcement of a digital “relaunch” of NOW Toronto were within the reasonable contemplation of both parties at the time of contracting. As a result, the court found no breach of the APA by GMI on this point and no basis to deny or reduce the indemnity on account of section 6.01. Even if that interpretation were mistaken, the judge added that the vendors still would not be entitled to a complete set-off, because the underlying debts—unpaid wages and vacation pay for pre-closing work—did not arise out of any alleged breach of the public announcements clause and remained the vendors’ own obligations under the APA.

Final disposition, successful party and monetary outcome

Justice Des Rosiers held that the parties had “clearly allocated between themselves their respective liabilities and the risks associated,” assigning responsibility for employees’ salaries and related entitlements up to the closing date to the debenture holders. The fact that the employees’ claims were pursued after closing through a union proceeding did not alter that allocation. The court granted GMI’s application, ordered that GMI is entitled to indemnification in the total amount of $58,000, and directed that several respondents against whom GMI had discontinued its claims be removed from the order. GMI Publications Inc. is therefore the successful party, with a monetary award of $58,000 in its favour representing the combined wage settlement and legal fees under the APA’s indemnity clause. The judgment did not fix the costs of the court application itself; instead, the parties were invited to make brief written submissions if they could not agree, meaning any additional costs award cannot be determined from this decision and the only quantified amount ordered in favour of GMI at this stage is the $58,000 indemnity.