Quebec Court of Appeal enforces SSENSE’s $10 million settlement

Dematic Limited c. 17667884 Canada inc. (Atallah Group Inc.), 2026 QCCA 959
Does a debtor have an obligation to disclose its impending insolvency before entering into a settlement?

Summary: The Quebec Court of Appeal has dismissed an appeal by Dematic from a ruling enforcing a settlement reached with SSENSE shortly before the retailer entered CCAA proceedings. The Court upheld the finding that Dematic’s August 2025 email offering $10 million, waived invoices, spare parts and future services, followed by SSENSE’s unequivocal acceptance, created a binding transaction even though the parties expected to sign a formal agreement later. It also rejected Dematic’s argument that SSENSE’s failure to disclose its insolvency vitiated consent, finding the parties’ relationship was an ordinary exchange contract rather than a cooperative venture imposing a proactive duty of disclosure, and that SSENSE’s financial condition was not objectively decisive because Dematic, not SSENSE, was the principal payer under the settlement.

The Appellant was an engineering company specialising in supply chain automation with headquarters in the United States. The Respondent conducted business under the trade name “SSENSE”, and ran an online retail platform based in Montreal. In 2020, SSENSE sought to upgrade its fulfillment centre in the hopes of increasing its daily capacity to fulfill orders. On November 4, 2020, the parties entered into an agreement whereby, for the total price of $40 million, the Appellant would install the machinery, software and systems needed to meet SSENSE’s fulfillment target (“the Master Agreement”).

The Appellant never managed to implement the system as planned, nor set up the centre to meet the promised target. After attempts to make the system work, settlement discussions began in February 2025. Between August 26 and 27, 2025, the parties exchanged emails regarding a settlement offer (“the Email Exchange”). After months of negotiations, the Respondent accepted an offer of settlement contained in the Appellant’s email. At that time, the Respondent was in a precarious financial situation that culminated in proceedings under the Companies’ Creditors Arrangement Act (“CCAA”).

In the following weeks, SSENSE followed up with the Appellant, seeking to “paper” the settlement. The Appellant, taken aback by the news of SSENSE’s financial difficulties, never responded. SSENSE demanded that the Appellant finalize the agreement reached in the Email Exchange by September 29, 2025, and requested that the Appellant pay the settlement amount of $10 million no later than October 3, 2025. The Appellant refused to sign the settlement agreement, arguing that no agreement was reached and that SSENSE negotiated in bad faith by failing to disclose its precarious financial situation.

On an application for homologation of a transaction, a judge must determine, in the light of the evidence presented, whether there had been a meeting of minds on the essential terms of the transaction. The trial judge concluded that although the parties contemplated it, executing a formal written settlement agreement was not an essential element of the transaction. The trial judge acknowledged that as of June 2025, SSENSE was in a precarious financial situation. This information was never disclosed during the settlement discussions or otherwise. In the absence of a contractual or statutory provision requiring disclosure of financial circumstances, an obligation to make such disclosure must be based on good faith in contractual dealings. The trial judge concluded this information was not decisive. Both parties entered into the settlement agreement with the expectation that their business relationship would last until at least October 2026. It was never SSENSE’s intent to halt its operations; it reasonably expected to continue its operations into 2026. It was seeking a suitable arrangement with its lenders and, failing that, it was prepared to continue the CCAA proceedings and secure interim financing from its shareholders. Ultimately, it never ceased operations.

On appeal, the Appellant argued, among other things, that the trial judge failed to consider that the Master Agreement created an implied obligation for the Respondent to disclose its financial situation to the Appellant in light of the Supreme Court’s decision in Ponce. The Master Agreement allowed either party to terminate the Agreement in the event of the other party’s insolvency and thus created a duty to inform in the course of the settlement negotiations.

The duty of good faith can feature both prohibitive and proactive dimensions. Its prohibitive dimension requires that parties not act dishonestly in performing the contract, and that they not “jeopardize the existence or equilibrium of the contractual relationship.” It is not expected that a party subordinate its interests to those of the other party in order to respect the prohibitive contours of the duty of good faith. They should, however, “look out for the interests” of their contractual partners. The Supreme Court in Ponce notably found that parties may have a legitimate expectation that their contractual partners will refrain from “scheming in any way to enrich themselves at [the other party’s] expense.” The proactive dimension requires that each contracting party assist their contracting partner, without acting in a manner contrary to their own interests. According to the circumstances, they must provide the other party with the information that is relevant to the performance of their obligations “in order to facilitate it or avoid making it more onerous than originally intended”.

Specific circumstances are required to bring about such an obligation. Ponce makes it clear that mere “exchange contracts” do not bring about the same intensity of obligations as “cooperation contracts”, wherein parties set out to pursue a common objective in the long term. Here, the parties were not pursuing a common enterprise or objective. The Appellant was a supplier of goods and services to SSENSE, for which SSENSE paid in kind. The RMA expires in 2026, and nothing would, in theory, prevent SSENSE from replacing the Appellant with another provider in the same industry. The relationship between the parties was clearly an “exchange contract” that did not bring about a proactive duty of good faith that would extend to the disclosure by the parties of their financial statements.

The mere inclusion of a clause regarding termination in the event of bankruptcy in the Master Agreement did not create an obligation to disclose insolvency in the course of settlement negotiations arising from a contractual dispute. The settlement was necessarily retrospective and sought to compensate SSENSE for the Appellant’s failure to perform its obligations. The Appellant did not demonstrate that knowledge of SSENSE’s insolvency crisis would have facilitated its own obligations under the Master Agreement or protected its own financial interests going forward. The disclosure might well have weakened the Respondent’s bargaining position (and thus strengthened that of the Appellant), but that did not compel the disclosure when the insolvency did not affect the Appellant’s alleged contractual default that it wished to settle.

Moreover, SSENSE was not the party paying under the transaction. Its ability to pay was not germane to SSENSE’s performance of any obligation under the transaction. Periodic payments to be made by the Appellant under the RMA would be current and coincide with the provision of ongoing maintenance by the Respondent. If payments ceased, so would the service, so that again any future monetary obligation of the Respondent was not relevant to the settlement.

The Court dismissed the appeal.

Judges: The Honourable Mark Schrager, J.A., Patrick Healy, J.A. and Christian Immer, J.A.

Professionals involved:

• Charles Ouimet, Danny Duy Vu and Anna Arapovic of Stikeman Elliott for the Atallah Group

• Alain Riendeau and Brandon Farber of Fasken for EY as monitor

• Laurent Nahmiash and Lydia Amazouz of INF for Dematic