Court issues useful guidance on standard of disclosure for M&A transactions

In the latest episode in the long-running litigation between Veranova and John Matthey, the High Court has delivered helpful guidance on the standard of disclosure required to qualify warranties in a share sale agreement.

In doing so, the judge also commented on the extent to which parties may rely on extraneous statements made during due diligence in an attempt to supplement or qualify contractual disclosures.

A summary of the court’s decision is below. You can also:

• read our separate article on the court’s comments in this case on which individuals’ state of mind was relevant when deciding whether a breach of warranty arose out of fraud; and
   
• read our previous article on the High Court’s previous judgment in this litigation concerning whether disclosures in a draft disclosure letter amounted to misrepresentations.

What happened?

Veranova Bidco LP v Johnson Matthey plc and ors [2026] EWHC 1021 (Comm) concerned the sale of shares in a health business.

As is usual on a share sale, the parties negotiated:

• a sale and purchase agreement (SPA), which contained a number of warranties, given by the sellers to the buyer, about the state of the target business; and
   
• a disclosure letter, which set out the respects in which the warranties were not true.

Following completion, the buyer discovered that, before the SPA and disclosure letter were signed, one of the target company’s customers had received an offer to supply a particular pharmaceutical product at a significantly better price than that at which the target had been supplying.

That had, in turn, triggered a contractual right for the customer to switch supplier and a right for the target company to requote to supply the product at the improved price (or something close to that price). Indeed, four days after the SPA and disclosure letter were signed, the target company matched the competing offer.

The buyer argued that these events amounted to a breach of a warranty which stated that none of the target group companies was "currently renegotiating any material term of any Key Contract, which upon conclusion, would have an adverse or detrimental effect on the Businesses”.

The court found that the events that had occurred prior to signing amounted to renegotiations of a key contract.

The key question, however, was whether the principal seller had effectively disclosed those negotiations to the buyer via the disclosure letter. If it had, the buyer would have no claim for breach of warranty.

As is not uncommon, the SPA set out a specific standard which any disclosure had to meet to be effective. That standard read:

“fairly disclosed with sufficient detail to allow a reasonable buyer to make an informed assessment of the nature and scope of the matter concerned”

In deciding this, the court had to consider what amounts to “fair disclosure” and, in particular, whether statements made on behalf of the seller to the buyer outside the disclosure letter could influence this.

What did the court say?

The law on fair disclosure is well developed, and the court had no need to delve into this deeply. The judge stated the established principle that it is a question of fact in each case whether a disclosure is fair, and that a disclosure might not be fair if it simply refers to a source of information, rather than cite the relevant information itself.

In this case, that principle was relevant. The specific disclosure in question had referred to pricing negotiations with the target company’s customer, but it did not mention that the customer had received a competing offer.

In response, the seller pointed out that it had already provided the buyer with significant information on the contract negotiations, including potential pricing, during due diligence calls before the SPA and disclosure letter were signed.

Although this level of detail had not been set out in the disclosure letter, the seller argued that the court should take it into account in deciding whether the disclosure in the disclosure letter was fair and so met the standard for disclosure.

The court was not persuaded. The judge said the question was whether there was sufficient detail within the four corners of the disclosure letter to enable a reasonable buyer to identify the nature and scope of the matters disclosed. If the seller divulged other information as part of due diligence, the seller was perfectly entitled to include that information in the disclosure letter.

In coming to this decision, the court appears to have been influenced by the inclusion of standard non-reliance language in the SPA which would have limited the buyer’s reliance on the warranties to certain defined information sources.

The fact that it did not (or chose not to) do so was significant. The court was not prepared to read beyond the contractual arrangements the parties had constructed as a way to identify precisely what had been disclosed by virtue of a particular disclosure, nor to broaden clear disclosures that had simply been worded inadequately.

By the same token, it was also not possible to rely on statements made outside the disclosure letter when deciding whether a particular disclosure was fair. As with questions around the meaning of a disclosure, whether a disclosure was “fair” had to be decided by looking at the contractual documentation itself, and not by reference to oral statements made during due diligence.

The judge acknowledged that it might seem unfair to simply ignore communications that actually took place between the buyer and seller before the SPA and disclosure letter were signed, or to ignore the buyer’s knowledge resulting from those communications.

However, the judge noted that the wording of the SPA required disclosure that allowed a “reasonable buyer” (rather than “the buyer”) to make an informed assessment of the matter. By using the word “reasonable”, the parties had decided to impose an objective test.

It was therefore irrelevant what the buyer knew beyond the wording of the disclosure letter. The question was whether a reasonable buyer (and not someone in the specific situation of the buyer in this case) would have understood and been able to make an informed assessment based on the wording of the disclosure.

What does this mean for me?

The judgment shows the importance of taking care when drafting share sale documents. The same principles apply equally when negotiating other contractual suites that involve warranties and disclosure, such as a business and asset sale or an equity investment.

For disclosure against warranties to be effective, it must be fair. Although the courts have set out the requirements for a disclosure to be fair, it is common (as in this case) to set out in the contractual documentation (such as the SPA) a specific contractual standard that needs to be met.

The wording of that standard will be critical to ensuring disclosures in any accompanying disclosure letter are effective. In particular, it is worth noting the following.

• The SPA may state that disclosures must contain enough detail to enable the buyer to assess the relevant matter. Although this might not increase the standard significantly beyond “fair” disclosure, it means a seller will need to include sufficient information in its disclosures to ensure they can be appreciated on a stand-alone basis. Disclosures can refer to other information sources, but any references should be specific and not merely direct the buyer generically.
   
• An SPA may go further and refer to a “reasonable buyer”. As the judgment in this case shows, this will impose a more objective standard on disclosure. Courts are reluctant to read beyond the specific wording of contractual arrangements (which will include any disclosures) except in cases of ambiguity. Imposing an objective standard will only reinforce this reluctance, as the courts may be inclined to disregard any knowledge or discussions specific to the buyer and seller in question.
   
• Different SPAs require differing levels of detail. Some may merely require disclosure to allow the buyer to identify the matter, or the nature of the matter. Others may go further and require the disclosure to identify the scope of the matter, or even the amount of any potential liability or impact. Sellers must pay careful attention to these requirements when formulating disclosures.

The case also emphasises the importance of capturing all information that has been provided to a buyer in the disclosure letter and of ensuring that any non-reliance provisions reflect the parties’ intentions. It may not be possible to rely on discussions between the parties to give flavour to a disclosure or to maintain that a buyer is fixed with knowledge of a warranty breach.

This will be a careful balancing act. Clearly there is a practical limit to the length and detail of disclosures, which will usually not need to run to pages and pages. Sellers should discuss disclosures with their legal advisers to assess rigorously whether the right balance has been struck.

Access the court’s decision in Veranova Bidco LP v Johnson Matthey plc and ors [2026] EWHC 1021 (Comm) on whether disclosures on a share sale were fair