A bridge over troubled disclosures
27 August 2025
Ahead of the Deal - Australian M&A Briefing
Prevention is better than cure, and being well-informed about the state of the target business before agreeing transaction terms is the best form of protection for a buyer. For that reason, most buyers would agree that the primary purpose of including warranties in a sale and purchase agreement is less about the possibility of making a claim for damages post-completion, and more to prompt disclosure by the seller. For disclosure to serve this purpose and be taken to qualify the seller's warranties, it must be made in a form and context that allows the purchaser to comprehend the significance of the information.
The recent Federal Court decision in Bridging Capital Holdings v Self Directed Super Funds is a reminder that merely including information in a data room may not be sufficient to constitute "fair disclosure" against warranties. Another case this year, DTZ Worldwide Ltd v AIG Australia Ltd, highlights the importance for sellers of considering the overall impression created by their disclosures – which is also relevant for sellers in assessing the risk of a claim for misleading or deceptive conduct.
Key insights
- What is fair disclosure depends on the circumstances – context is crucial. Where express representations have been made to a buyer on key matters, such as valuation, simply uploading contradictory information to the data room without communicating the correction to the buyer is unlikely to satisfy a "fair disclosure" standard or preclude potential claims for breach of warranty.
- Disclosure materials need to be considered holistically – Sellers need to consider what, when and how information is provided (or not provided) to buyers, and the overall impression this creates, in considering whether their disclosures are appropriate and sufficient.
The Bridging Capital case
Bridging Capital Holdings (the Buyer) succeeded in its claim against Self Directed Super Funds and Mr Harris (the principal and sole shareholder of Self Directed Super Funds) (the Sellers) for breach of warranties in a sale agreement. Specifically, the Buyer established that the Seller had failed to provide all material information in relation to the target companies to the Buyer, in breach of warranty.
The Buyer acquired a 45% interest in two financial planning companies from the Sellers. During due diligence and negotiations, Mr Harris made a number of inaccurate representations to the Buyer in relation to the earnings of the target companies. Those representations were fundamental to the Buyer's valuation, which was known by Mr Harris. After being informed by his accountant that the figures he had provided to the Buyer were inaccurate, Mr Harris did not address this directly with the Buyer. Instead, he uploaded the accountant's email explaining the inaccuracy (along with various supporting documents) to the data room, without drawing the Buyer's attention to these materials. These documents were neither noticed nor reviewed by the Buyer.
Central to the dispute was whether the Sellers were in breach of several warranties given by them in the sale agreement, including a warranty that the Sellers had disclosed all information known to them about the business and the target companies that would be material to a reasonable buyer.
In line with usual Australian market practice, the warranties in the sale agreement were qualified by (among other things) all matters "fairly disclosed" in the data room.
Context is king
Neither party disputed the accuracy of the information in the data room or that proper disclosure would have limited the Buyer's ability to recover for breach of the relevant warranties. The Buyer's case was that the Sellers had failed to point out material matters of which the Buyer should have been put on notice, given the prior – and inconsistent – representations made in response to their due diligence enquiries.
The judgment noted that, while relevant documents were uploaded to the data room, the manner of disclosure was "exceedingly technical" as the documents were buried in a large volume of materials.
"The index [of the data room] alone is some 417 pages… The materially false position set out by [the Seller] … would not have been corrected unless [the Buyer] or his advisers found the proverbial needle in the haystack."
The court found that the Buyer had not been adequately put on notice of the information and had not been given the opportunity to understand its significance in relation to the earnings representations made. As a result, the materials could not be considered as having been disclosed "fairly", and therefore did not limit the Sellers' liability under the relevant warranties.
There was evidence that Mr Harris had deployed this tactic intentionally throughout the due diligence process, by giving positive information directly to the Buyer and then attempting to limit the Sellers' liability by placing contradictory information in the voluminous data room. The court found that, given the representations in relation to earnings which had been made to the Buyer directly, the onus was not on the Buyer to find the "needle in the haystack" in the data room that would have corrected these representations.
Overall impressions count: DTZ Worldwide Ltd v AIG Australia Ltd
The DTZ Worldwide decision highlights the importance of considering the overall impression created by disclosures made (and not made) by the seller.
The buyer, DTZ Worldwide, acquired a global property services business from the United Group for over $1.2 billion, with the purchase price based on a multiple of projected earnings. The proceedings were against the W&I insurers for the transaction, from whom the buyer was seeking to recover under the relevant insurance policy.
While the buyer's claims against the insurer ultimately failed as the court rejected the buyer's methods of assessing its damages and, accordingly, it did not meet the threshold for recovery under the insurance policies, the court's comments demonstrate that in any claim for breach of warranty the manner and context in which information is, or is not, disclosed can be crucial.
One of the matters considered was disclosure in relation to a major facilities management contract for a stadium in Singapore, which was beset by significant operational and financial issues, including unexpectedly high cleaning costs and the imposition of performance penalties – neither of which were disclosed to the buyer. The court found that the disclosure in relation to this contract breached the disclosure warranty in the sale agreement, as it was misleading in a number of respects including:
- the disclosure materials included information regarding one issue with the contract (relating to the pitch), without disclosing the separate issues with cleaning costs and performance penalties known to management at the time. This selective disclosure created the impression that all significant issues with the contract had been disclosed (when they had not); and
- there was a failure to update a previous answer given to the buyer in response to a specific request for information, which suggested that the contract was performing as expected, despite management knowing this was no longer the case.
Taken together, the combination of partial disclosure and positive statements about the contract's performance created an impression for the buyer that the relevant contract was likely to meet the revenue forecasts which had been provided, even though it was known this was no longer the case.
Beyond the sale agreement
As has become typical in disputes regarding pre-contractual conduct in M&A transactions, the buyer in Bridging Capital alleged that the Sellers had engaged in misleading or deceptive conduct in breach of section 18 of the Australian Consumer Law.
While the claims failed on the particular facts of the case (such that damages were awarded only for breach of warranty), it has been established that claims for misleading or deceptive conduct can be made out in the context of M&A transactions even where the transaction documents purport to exclude such liability. This was highlighted, prominently, in the 2023 decision in Cargill Australia Ltd v Viterra Malt Pty Ltd, where the court awarded $169 million in damages against the seller.
Even where the parties are sophisticated, well-advised, and agree as a matter of contract that the sale agreement represents the entirety of the agreement between them, the courts have found that parties cannot contract out of potential liability for misleading or deceptive conduct. Notably, as was the case in Cargill, misleading or deceptive conduct can arise as a result of statements made in documents (such as the information memorandum) that are expressly stated, and acknowledged, not to form part of the information which is warranted in the sale agreement.
Implications for Australian M&A deals
In our view, the Bridging Capital judgment generally affirms the market's expectations regarding what constitutes fair disclosure. We do not anticipate that it will result in any change to the prevailing Australian market practice of the entire contents of the data room qualifying the warranties to the extent a matter is "fairly disclosed" (noting that what constitutes fair disclosure will typically be defined in the sale agreement).
Nevertheless, the decision serves as a timely reminder for sellers to consider both the form and context of what information has – and has not – been disclosed to a buyer in a holistic sense. This should be assessed within the specific circumstances of the transaction, and with particular regard to the information on which the buyer is relying to inform its valuation. This is relevant not only to assessing whether information has been "fairly disclosed" such that it qualifies the agreed warranties but also, as was highlighted in DTZ Worldwide, in relation to potential warranty breaches more broadly.
Appropriately addressing disclosure of specific issues in the context of the totality of the information that has been provided to a buyer may also mitigate the risk of a claim for misleading or deceptive conduct. Particular attention should be paid to key selling statements in the information memorandum or other marketing materials, as well as forecasts and other forward-looking information. While such documents are typically excluded from the warranties in the sale agreement, given that statutory liability cannot be excluded by contract, sellers should consider:
- the overall impression created by the sellers' conduct, disclosure and, perhaps most pertinently, what has not been disclosed; and
- whether making any further specific disclosures (for example, in a disclosure letter) is appropriate to ensure that the buyer is on notice of all material information before the sale agreement is entered into – particularly where those disclosures relate to matters that are likely to go directly to value or are at odds with what a buyer has otherwise been told, or led to believe, about the target business.
This is not to suggest that a seller has to highlight every possible risk or downside, or to depart from the usual principle of "buyer beware". A prudent seller should, however, consider how its actions (or inactions) may be interpreted with the benefit of hindsight if the buyer later feels it has been misled into entering into an unfavourable deal.
