Developments for Disclosure Letters

In a landmark decision that sheds light on the evolving role of disclosure letters in M&A transactions, the High Court has refused to strike out a misrepresentation claim based on statements made in a draft disclosure letter. The case of In Veranova Bidco LP v Johnson Matthey plc [2025] EWHC 707 (Comm), has shown that even a draft form of a disclosure letter, can give rise to actionable representations.

The claimant (C): Veranova Bidco LP, the buyer in a share purchase transaction, brought a claim for deceit, alleging that the defendant (D): Johnson Matthey plc, the seller, made false representations in a draft disclosure letter circulated before the deal was completed. D argued that statements made in a draft disclosure letter cannot amount to actionable representations.

The High Court dismissed D’s application, holding that:

1. No Blanket Rule on Representations in Contractual Drafts – while warranties alone do not amount to representations, disclosures are not in the same category and may, depending on the facts, be construed as representations.
2. Disclosures and Warranties- disclosures may also serve a dual function – qualifying warranties and conveying factual information that a buyer may reasonably rely upon.
3. The Role of the Disclosure Letter is Fact-Sensitive– whether the draft disclosure letter in fact contained actionable representations is a matter that must be determined at trial, considering the parties’ negotiations, the context in which the letter was circulated, and the buyer’s reliance on the information disclosed.

This ruling is significant for corporate transactions for numerous reasons:

• Drafts Are Not Off-Limits: Parties can no longer assume that pre-contractual or draft versions of disclosure letters are immune from legal scrutiny in misrepresentation claims.
• Dual Purpose Acknowledged: The recognition that a disclosure letter can serve both to qualify warranties and to provide actionable information marks a nuanced shift in how these documents are treated legally.
• Greater Litigation Risk in M&A: Sellers must now be particularly cautious about the content of draft disclosures, as statements made early in negotiations could come back to haunt them.

No longer are disclosure letters merely tools to limit liability via warranty qualification. Instead, the court has opened the door for buyers to argue that these documents, even in draft form, may also contain representations that can ground a claim in fraud or misrepresentation. When communicating during M&A negotiations, words matter – even the ones written in drafts.

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This article is for general information only and does not constitute legal or professional advice. Please note the law may have changed since this article was published. We do not accept responsibility or liability for any actions taken based on the information in this article.