The perils of Pre-Contractual Representations – Lessons from Veranova BidCo LP v Johnson Matthey PLC and others [2025] EWHC 707 (Comm)

In this case in the Commercial Court, Sean O’Sullivan KC (sitting as Deputy High Court Judge) dismissed an application for summary judgement/strike out of a deceit claim based on the contents/omissions of a draft disclosure letter in an M&A acquisition.

The case involves the purchase in 2022 by Veranova Bidco LP (“Buyer“) of a pharma health business from Johnson Matthey PLC (“Seller“) for a reported consideration of £325m. The Seller sought summary judgement and strike out of a £117.3m deceit claim brought by the Buyer on the basis that information provided in a draft disclosure letter could not amount to a “representation” and that the purpose of the disclosure letter was solely to qualify the warranties in the Sale and Purchase Agreement (“SPA“).

Summary of the facts

During the negotiation of the SPA and the disclosure letter a key customer of the Seller, Alvogen Incorporated (“Alvogen“) invoked a favoured nations clause in its supply agreement with the Seller whereby Alvogen was entitled to purchase product from a third party if the Seller refused to price match a third party supplier’s lower price. In the draft disclosure letter the Seller disclosed that the company was facing increased competition in the market for the sale of Buprenorphine but that the adverse impact on the business going forward could not be quantified. It went on to say that the Seller was in discussions with Alvogen regarding the ongoing pricing for the product. Supporting documents surrounding these negotiations were disclosed in the data room. The actual offer from the third party to Alvoglen (“Third Party Offer“) was not however disclosed notwithstanding that it was duly verified by the Seller some 6 days before signing of the SPA in December 2021. The Seller then agreed to match the Third Party Offer within a week after execution and exchange of the SPA.

The Buyer’s claim was two pronged – The Buyer claimed:

(i) for breach of 2 warranties in the SPA for failure to make adequate disclosures and furthermore that the failure was fraudulent as the directors had actual knowledge that the content of the warranties was false;

(ii) for deceit.

The application before the Court concerned an application to strike out the deceit claim.

Counsel for the Seller argued that the function of a disclosure letter was simply to qualify the warranties in the SPA and that without some special wording suggestive of an intention to make representations, it cannot give rise to implied representations of fact on which the Buyer could rely. Counsel further argued that the SPA itself contained a “no reliance” clause and the disclosure letter on its face stated:

“The disclosure of any matter hereby shall not imply any representation, warranty, undertaking, assurance, covenant, indemnity, guarantee or any other commitment of any nature whatsoever not expressly given in the SPA and none of the Business Warranties …shall be extended by the scope of any of the disclosures”

Counsel for the Seller also submitted that disregarding the contractual position would be unprincipled and asserted that it would create considerable and unwelcome uncertainty in that it meant that the Seller in this case could have unwittingly made countless representations in the disclosure letter upon which the Buyer could have relied, the upshot being that in M&A transactions parties would be unable to balance the allocation of risk between buyers and sellers and that it “would send shivers through the market“.

Counsel for the Buyer argued that there is no universal legal principle which automatically precludes the existence of a representation simply because it is based on a draft disclosure letter and submitted that the question of whether the disclosure letter contained actionable representations was a complex issue which required investigation of the facts and should be determined at trial.

The Judge, refused the application to strike out the Buyer’s deceit claims on the basis that at trial he felt that “they had a reasonable prospect of success“. The Judge commented that there is no rule about what can or cannot amount to a representation when parties exchange what are to become contractual documents, except only that agreeing to provide a warranty will not, without more, amount to making a representation, and the fact that the primary contractual function of the disclosure letter is to qualify the warranties, does not mean it’s inherently absurd or implausible that it also provides factual information on which the buyer might reasonably rely.

The Judge did concede that, in the absence of fraud, the contractual provisions of the SPA limiting the liability of the Seller may have prevented a claim for misrepresentation in respect of the disclosure letter.

Conclusion

The case highlights the importance of strictly abiding by and complying with the definition of “Disclosed” in any M&A transaction and the implications of omitting (deliberately or otherwise) pertinent material facts from any disclosure or not updating earlier draft disclosures at the date of execution of the documents. Sellers need to be reminded that they must honestly believe that the information they have provided to a potential buyer in a disclosure letter is true, accurate, up to date and meets the definition of “Disclosed” in the SPA.