When disclosure letters become actionable Representations: Veranova Bidco

In the recent High Court case of Veranova Bidco LP v Johnson Matthey Plc & Ors [2025] EWHC 707 (Comm), the Court rejected a summary judgment application that turned on whether statements made in a draft disclosure letter in an M&A transaction could form the basis for a deceit or fraudulent misrepresentation claim. The decision provides important commentary on the potential dual nature of transactional documents and their implications for misrepresentation claims.

Background

In late 2021, the Claimant had agreed to purchase a particular business from the Defendants. The parties formalised this through a series of documents, which included a share purchase agreement ("the SPA") and a disclosure letter ("the Disclosure Letter").

The Claimant alleged that, at the time of signing, the Defendants were aware that one of the business's most significant customers was reconsidering its commercial relationship and the full extent of this development was not revealed to the Claimant.  This concealment became material when the business later agreed to a price reduction for that customer, impacting the business's value.

Consequently, the Claimant brought two overlapping claims: (i) breach of warranty and (ii) fraudulent misrepresentation or deceit.  The Court's decision focused solely on the deceit allegation, which was based on representations allegedly made in a draft of the Disclosure Letter that had been circulated the day before the SPA was signed.

Summary judgment and strike out application

The Defendants sought summary judgment or strike-out of the Claimant’s allegation on the grounds that, as a matter of construction, the draft Disclosure Letter could not give rise to actionable representations (only breach of contract). They argued that this was a complete legal answer to the Claimant's allegations, making the case an appropriate candidate for early dismissal. 

There was no dispute as to the test for summary judgment, which had recently been expressed in Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden NV v Société Bengaz SA [2024] EWHC 901 (Comm) to include: that there is a ‘realistic’ as opposed to a ‘fanciful’ prospect of success on the claim; that a ‘realistic’ claim or defence is one that carries some degree of conviction (that a claim or defence is more than merely arguable); and the court must not conduct a ‘mini-trial’.

Likewise, there was no dispute as to the test for strike-out, with the Court holding that the test was encapsulated in the commentary in The White Book at §3.4.2, being "those claims which contain a coherent set of facts but those facts even if true, do not disclose any legally recognisable claim against the defendant".

The Court's analysis

The Court’s decision hinged on whether there existed a legal principle preventing disclosure letters from containing actionable representations as opposed to qualifying warranties (and therefore incorporated as promises in the contract). After examining the parties' submissions and relevant case law, the Court concluded there was no such principle and thus the Defendants’ application failed.  Whether the draft Disclosure Letter contained actionable representations was a question of fact that required a full trial and investigation.

The Court emphasised that there is no rigid "rule" about what can constitute a representation when parties exchange soon-to-be contractual documents. The only established principle is that agreeing to provide a warranty will not, without more, amount to making a representation of fact.

Importantly, the Court found nothing "inherently absurd or implausible" about alleging that a disclosure letter provides factual information upon which the recipient might reasonably rely, even though its primary contractual function is to qualify warranties.  As the Court noted, "if the question is 'why are these words here?', it does not seem to me that the only possible answer is 'in order to qualify the warranty'."  However, absent fraud, “in many and perhaps most scenarios, the combination of the warranties and the qualification of those warranties, should provide the recipient with protection against the content of the Disclosure Letter being misleading. But I do not see why that should necessarily mean that nothing in the Disclosure Letter can amount to a representation of fact.”

Comment

The Court in this case distilled a simple but important legal principle: "the giving of a contractual warranty does not, without more, amount to the making of an actionable representation. Beyond that... it all depends." This nuanced approach appropriately reflects the complex reality of commercial transactions, where documents often serve multiple purposes. Indeed, the Court dismissed the Defendants' concerns that this decision would "send shivers through the market" by suggesting parties to M&A transactions could not control their exposure to claims. This argument, the Court noted, lost sight of the specific allegation at issue: that of fraud. The Court  pointedly stated, "The possibility that a fraudulent statement might be made, in the context of provisions seeking to protect against liability for misrepresentation more generally, does not seem to me to be a reason for adopting a rule that prevents such a statement being actionable."

The decision serves as a helpful reminder of the importance of careful drafting and honest disclosure when conducting M&A transactions.  The legal characterisation of transactional documents depends not just on their primary function, but on how they are used and understood in the specific context of each transaction.

This case provides a necessary caution against the assumption that disclosure letters are merely contractual qualifications that cannot have potential representational effect.