Selling A Business? Your Indemnity Clause Probably Doesn’t Transfer Pre-closing Negligence

An engineering firm sold its assets through an asset purchase agreement that included a broad indemnity clause. Years later, when a grain elevator it had negligently designed before closing was found to be defective, the seller settled the claim and sought to recover from the buyer under the indemnity.

In Strongco Corporation v Nordstrong Equipment Limited, ¹ the Alberta Court of Appeal (the “Court”) held that broad indemnity language does not transfer liability for a party’s own pre-closing negligence, unless the contract makes that intention unmistakably clear.

The decision reinforces a principle with direct implications for anyone drafting or relying on indemnity clauses in asset purchase agreements.