High Court refuses to strike out a misrepresentation claim arising from a draft disclosure letter

Disclosure letters play a critical role in share purchase transactions. They allow sellers to qualify the warranties provided in the share purchase agreement by disclosing specific facts about the target company. Typically, these letters are not seen as a source of actionable representations, as their primary purpose is to limit the seller’s liability. However, a recent decision of the High Court in Veranova Bidco LP v Johnson Matthey plc [2025] EWHC 707 (Comm) has challenged this assumption, suggesting that statements made in disclosure letters — even in draft form — could potentially give rise to misrepresentation claims.

Background 

The case involved the sale of a health company from certain Johnson Matthey companies (the Sellers) to Veranova Bidco LP (the Buyer).  The parties entered into several contractual documents concerning the sale, including a share purchase agreement and a disclosure letter.

Following completion, the Buyer discovered that, prior to signing the share purchase agreement, one of the target company’s customers had received an offer to purchase a pharmaceutical product from a competing supplier at a better price.  This triggered the customer’s contractual right to switch suppliers if the target company failed to match the competing offer.  Shortly after the share purchase agreement and disclosure letter were signed, the target company matched the competing offer, which ultimately impacted the value of the business. 

A draft disclosure letter, circulated before the final version was signed, stated that price negotiations with the customer were ongoing, although the impact of the negotiations could not be quantified.  There was no reference in the disclosure letter to the competing offer or the customer having triggered a contractual right to switch suppliers.

The Buyer brought a claim for breach of warranty and fraudulent misrepresentation, on the basis that the disclosures made in the disclosure letter were misleading and insufficient to qualify the warranties given.

Judgment

The Sellers sought summary judgment or strike out of the misrepresentation claim.  Citing several cases to support their position, they argued that warranties in a contract do not amount to actionable representations and this same approach should also apply to disclosures made in disclosure letters, the function of which is to qualify the warranties in the share purchase agreement.  The Sellers also referred to a "no reliance" clause in the share purchase agreement and a statement in the disclosure letter which expressly provided that disclosures are not to imply any representations.

The Buyer submitted that there is no legal principle which automatically precludes the existence of a representation simply because it is based on a draft disclosure letter.  They argued that there is a fundamental distinction between disclosures and warranties, as disclosures are statements of fact rather than contractual promises which are therefore capable of being actionable representations.

The Sellers applied for summary judgment to strike out the misrepresentation claim on the basis that it had no real prospects of success.  The court rejected that application and held that it must go to full trial.  In coming to this decision, the Deputy Judge hearing the case held:

• There is no "rule" about what can or cannot amount to a representation when parties exchange what are about to become contractual documents.
• A disclosure letter may have a dual purpose to qualify the warranties and provide factual information upon which the recipient may reasonably rely.
• A statement providing that the disclosures shall not imply any representations may be insufficient in cases of fraud.
• Given this was a summary judgment/strike out application, the court only needed to find that the statements in the disclosure letter may amount to actionable misrepresentations; whether they are or not will be a matter for a full trial.

Analysis

1. Disclosures could amount to representations: This case leaves open the possibility that statements made in a disclosure letter (including in any draft disclosure letter) could amount to actionable representations.
2. Exclusions may be ineffective: Even if representations are expressly excluded from the disclosure letter, which is often the case, such exclusions could be ineffective where fraudulent statements have been made.
3. Misrepresentation claims offer a different basis for compensation: The distinction between a breach of contract claim and misrepresentation claim is important, as a misrepresentation claim gives rise to a different measure of damages which could offer greater compensation to a buyer in some circumstances.