In Veranova Bidco LP v Johnson Matthey Plc and Others [2025] EWHC 707 (Comm), the High Court considered whether a seller’s statements in a draft disclosure letter exchanged during transaction negotiations could amount to fraudulent misrepresentation. The Court refused an application by the sellers for summary judgment or strike-out, concluding that the buyer’s deceit claim had a real prospect of success.

The key issue was whether such disclosures, which are typically used to qualify warranties in a share purchase agreement (SPA), could also be actionable representations. The judgment left open the possibility that under certain factual circumstances, disclosures might indeed constitute misrepresentations.

Background of the Case

The case arose from Veranova Bidco LP’s purchase of a health business from Johnson Matthey plc and related entities. As is standard practice in such transactions, the parties entered into an SPA containing warranties from the sellers and a disclosure letter in which the sellers qualified those warranties.

However, shortly after completion, the buyer discovered that the target company’s key customer, Alvogen, had triggered a price adjustment mechanism in its supply contract.This followed the receipt of a significantly more competitive offer from a third-party supplier for a key pharmaceutical product, Buprenorphine HCl (“BHCL”).The sellers did not disclose this offer or its implications in the SPA or the final disclosure letter.

In a draft version of the disclosure letter circulated one day before signing, the sellers included statements suggesting that “no competing offer had been notified” and that it was “not possible to quantify the impact of ongoing price negotiations.” The buyer alleged that these statements were fraudulent representations, made to induce it to enter the SPA.

The buyer claimed that the disclosures were knowingly or recklessly false and brought a claim in deceit, in addition to breach of warranty claims under the SPA.

The Court’s Reasoning

The High Court rejected the sellers’ argument that statements in a disclosure letter could never constitute representations. It made the following findings.

There is no universal legal rule that prevents contractual disclosures from giving rise to actionable misrepresentations.

The fact that a disclosure letter’s primary purpose is to qualify warranties does not preclude it from also serving a secondary function - meaning to convey factual information that a buyer may rely upon.

Disclosures differ fundamentally from warranties. While warranties are contractual promises, disclosures are unilateral statements of fact, often shared late in the negotiation process in response to buyer enquiries.

The Court was particularly cautious to distinguish disclosures from the warranties themselves. Past cases, such as Sycamore Bidco v Breslin and Idemitsu Kosan Co Ltd v Sumitomo Corp, established that contractual warranties do not of themselves amount to representations. However, the same principle could not be extended to disclosures, especially draft versions exchanged during pre-contractual negotiations.

The Court also addressed the sellers’ reliance on a clause in the disclosure letter which stated: “The disclosure of any matter hereby shall not imply any representation...”. While acknowledging that such clauses may be effective in excluding liability for non-fraudulent misrepresentation, the judge noted that fraudulent misrepresentation cannot generally be excluded under English law.

Therefore, the Court concluded that the buyer’s deceit claim should proceed to full trial, as it raised serious issues of fact that could not be resolved on a summary basis.

Implications of the Decision

While the ruling does not establish binding precedent, being a decision on a strike-out and summary judgment application, it serves as a critical warning to sellers:

• Disclosures, particularly in draft form,     may be interpreted as representations where they convey factual     information that the buyer reasonably relies upon;
• Efforts to exclude liability for     representations in disclosure letters may not protect sellers from claims     in fraudulent misrepresentation;
• Misrepresentation claims, if successful,     can lead to greater damages or even rescission of the SPA, compared to     standard contractual remedies for breach of warranty.

This decision also highlights the distinction between disclosures and warranties. Unlike warranties, which are often negotiated and incorporated with an agreed risk-allocation framework, disclosures are generally unilateral factual assertions made by the seller—sometimes with limited buyer input. This makes them more vulnerable to misrepresentation claims.

Buyers and sellers should take extra care. Sellers should review disclosures carefully for accuracy, especially in pre-signing drafts. Buyers should be alert to factual assertions in disclosures and be clear whether they are relying on them in entering into the SPA.

Conclusion

The case of Veranova Bidco LP v Johnson Matthey Plc provides an important reminder of the potential dual role of disclosure letters: both as warranty-qualifying documents and as vehicles for conveying factual information. If disclosures are found to be false and made with fraudulent intent, they may constitute actionable misrepresentations.

While the Court did not decide that the representations in this case were false or that they induced the transaction, it acknowledged that such a finding was plausible and warranted a trial of the full facts. This decision underscores the increased scrutiny sellers may face and the importance of accurate, transparent drafting in M&A transactions.

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