What can I do if the seller hid a pending lawsuit?

Finding out after closing that a lawsuit was already under way is a serious problem, and the answer turns on documents. Gather the agreement, any disclosure schedule, and what the seller said about claims before you signed. A lawyer can tell you whether this is a breach of a representation, a misrepresentation, or something else, and which court or forum applies. In Ontario, a court that can order specific performance may award damages in addition to, or in substitution for, it (Courts of Justice Act, s. 99). Do not wait: time limits run.

What the agreement says

Look for a representation about pending or threatened claims, a disclosure schedule listing exceptions, and an indemnity for losses from undisclosed claims. Ask your lawyer whether the lawsuit was listed in the schedule and what that means for your claim, how the agreement treats breach, and how a claim for indemnity must be made.

When the clock starts

In Ontario, the Limitations Act, 2002 says that unless the Act provides otherwise, no proceeding may be commenced after the second anniversary of the day the claim was discovered (s. 4). A claim is discovered on the earlier of the day the person first knew the matters set out in s. 5(1)(a), and the day a reasonable person with that person’s abilities and in those circumstances first ought to have known them. Subject to the Act’s exceptions, it also bars a proceeding after the 15th anniversary of the day the act or omission took place (s. 15(2)), and business agreements may vary these periods in the ways s. 22(5) allows.

Quebec: fraud and consent

The Civil Code of Québec says error on the part of one party induced by fraud committed by the other party, or with that party’s knowledge, vitiates consent whenever, but for that error, the party would not have contracted or would have contracted on different terms. Other provinces have their own rules, so confirm which law governs.

Evidence to gather

• The date and source of your first knowledge of the lawsuit.
• Emails and messages in which you asked about claims and what the seller answered.
• The court documents, to see when the claim was started and what it seeks.
• The results of any litigation search done before closing.