Representations and warranties in private M&A transactions
are typically heavily negotiated, with sellers often attempting to
qualify their representations with materiality to avoid being found
liable for immaterial breaches and for immaterial
damages. It is also common during the course of negotiations for
parties to agree to the inclusion of indemnity baskets. These
provisions provide that the seller will not be liable for a breach
of its representations unless the loss suffered by the purchaser as
a result of such breach exceeds a certain minimum (or,
"material") amount.
The Double Materiality Scrape
To counteract the seller-favourable implications of materiality
qualifications and indemnity baskets, purchasers often attempt to
include a double materiality scrape in the acquisition agreement.
Such a clause excludes (or "scrapes") materiality
qualifiers in the seller's representations for purposes of
determining (a) whether a breach of a representation has
