Bridging the disclosure gap: The Federal Court's take on accuracy and fairness in due diligence materials

It is common for a seller to make disclosures to a buyer about the performance and viability of the business in the due diligence stage of an acquisition transaction. Warranties in the sale agreement offer protection to a buyer if the representations prove to be false, inaccurate or misleading, whereas a seller will usually insist that the sale agreement contains customary limitation provisions to the effect that a buyer cannot make a warranty claim in respect of matters that have been disclosed to it.

The recent decision in Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Trial) [2025] FCA 314 confirms that populating a data room with extensive materials may not, by itself, be sufficient to enable a seller to rely on such disclosure limitation provisions. The Federal Court highlights the need, at least in some circumstances, for a seller to actively bring material documents included in the data room to the attention of a buyer for the disclosure limitation provisions to have the desired effect.

Nature of the transaction

In 2021, Bridging Capital (Buyer) entered into share sale agreements to purchase shares in both Exelsuper and Exelsuper Advice (Companies), each respectively owned by Self Directed Super Funds and Mr Harris (who was also the sole shareholder and director of Self Directed Super Funds) (Sellers) (together, the Sale Agreement).

The Sale Agreement provided for the shares to be paid for and transferred to the Buyer in two tranches, with the price calculated as a factor of adjusted EBIT.

The Buyer paid the initial $2 million for a 45% interest in the Companies on the first completion date. However, a dispute between the parties halted the second completion from occurring. This prompted the Buyer to initiate oppression proceedings that resulted in a court order requiring the Sellers to repurchase the first tranche of shares, which a court appointed valuer assessed at $282,239 – substantially less than the $2 million originally paid by the Buyer.

Having overpaid for the first tranche of shares, the Buyer commenced proceedings alleging that Mr Harris' representations as to the EBIT adjustments throughout due diligence were inaccurate and unreasonable, and therefore:

• misleading or deceptive or likely to mislead or deceive; and

• in breach of warranties under the Sale Agreement for failing to disclose material information about the financial position of the Companies.

The Sellers' representations

While the Buyer pled that Mr Harris made several representations, the Federal Court ruled that only one representation was made out. It held that Mr Harris represented to the Buyer during a Zoom call and in email communications that the recurring revenue of the Companies would be no less than the current actual revenue.

Also relevant is that Mr Gill, a chartered accountant advising the Companies, informed Mr Harris via email that Mr Harris had provided inflated revenue figures to the Buyer in their email communications (Gill Email). The Gill Email was uploaded to the data room.  

Notably, the Federal Court did not hold that recurring revenue representation was misleading or deceptive as the actual recurring revenue achieved was close to the represented amount.

The relevant warranties under the Sale Agreement

The key warranties given by the Sellers in the Sale Agreement included that:

• all information in the data room and Sale Agreement was true, complete, and not misleading;

• each Seller had disclosed all information known to them about the business, the Companies, and their shares, and which would be material to a reasonable buyer; and

• all forecasts and projections provided by the Sellers about the business or the Companies were based on reasonable assumptions and prepared with due care, skill, and on a reasonable basis.

Was there a breach of the warranties?

The Sellers contended that the "corpus of documents" in the data room reflected an accurate picture of the Companies and could have enabled the Buyer to verify the actual financial performance. While the Federal Court accepted this, the Buyer's claim was not about the incorrectness of the data room, but rather that Mr Harris failed to notify the Buyer of material information in response to due diligence queries – information that the Buyer had a reasonable expectation to be put on notice for.

The Federal Court ultimately found that the Sellers breached the material information disclosure warranty, and in reaching this conclusion held that:

• although the data room included underlying materials like bank statements and the Gill Email that could have corrected the Buyer's misapprehension of revenue figures, relying on the Buyer to find these was not a "realistic possibility", especially in the context of a sale transaction where there was a fulsome data room and contrary representations made by the Sellers;

• the Sellers should have notified the Buyer of the underlying materials given their materiality and the impact of revenue on the adjusted EBIT-based purchase price; and

• the presence of bank statements and other verification documents in the data room alone was insufficient to conclude that the information was disclosed in accordance with the warranty.

It was also held that the Sellers breached the warranty regarding the reasonableness of forecasts as the Gill Email clearly showed that the future revenue projections lacked proper foundation.

Having found breaches of the material information disclosure warranty and the forecast warranty, the Federal Court considered there to be a breach of the true and complete warranty since certain representations made in the Sale Agreement were not true.

The Federal Court considered the Sale Agreement’s limitation of liability clauses, under which the Buyer accepts all matters “accurately and fairly disclosed” in the data room, relieving the Sellers of liability for those disclosures. However, as the Sellers breached the warranty to disclose all material information, they could not be said to have made accurate and fair disclosures, rendering the limitation of liability unavailable. The Federal Court did seem to place significant emphasis upon the fact that:

• although the data room may have contained the "source documents" that could have led to the breaches of warranty being discernible, the significance of the matter was such that more was needed to be done to bring it to the attention of the Buyer; and

• it could not be satisfied with the evidence of Mr Harris in endeavouring to explain the manner in which disclosure took place.

Key takeaways

The decision in this case highlights that a seller should not simply place significantly material information into the data room, in the hope that it would go unnoticed or later be relied on to defend against issues of non-disclosure. A good due diligence process requires a seller to correct misrepresentations or misunderstandings directly with a buyer. It also confirms that a heavily populated data room may not alone amount to full disclosure of all material information known to a seller about the business and the company for the purposes of disclosure of information warranties.