Warranties and sale agreements – what are the vendor’s obligations?

During sale negotiations, a vendor will often make statements/representations (either oral or written) regarding a range of topics.   As outlined in our earlier article here, while there can be some argument on whether such representations are binding on a vendor, warranties which are contained in a sale agreement will ensure that a purchaser has the full benefit of them.

For this reason, warranties are important provisions in any sale agreement and the vendor needs to properly understand how these warranties operate.   The recent case of Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Trial) [2025] FCA 314 (Bridging Capital case) is a timely reminder of this.

What happened in that case?

The facts of the Bridging Capital case are summarised as follows:

• The Exelsuper companies (the Companies) carried on a financial planning business in Adelaide. The shares in the Companies were owned by Self Directed Super Funds Pty Ltd (SDSF) and Christopher Harris (the sole shareholder and director of SDSF) (Vendors).
• By a share sale agreement (Agreement), the Vendors agreed to sell their shares to Bridging Capital Holdings Pty Ltd (Purchaser). The sole shareholder and director of the Purchaser was Arie Moses.  Under the Agreement:
  • The price of the shares was to be 6x the adjusted earnings before interest and tax, which was calculated to be $9.36 million. The shares were to be paid for in two instalments.
  • The shares were to be transferred in two lots.
  • Upon the first instalment being paid and the transfer of the first lot of shares, Mr Harris and Mr Moses then became joint directors of the Companies.
  • Upon the second instalment being paid and the transfer of the second lot of shares, Mr Moses would gain exclusive control of the Companies.
  • The Vendors provided various warranties to the Purchaser, including a warranty that they had disclosed all information about the business, the companies and the share sale that would be material to a reasonable buyer (All Material Information Disclosure Warranty).
• The transaction underwent multiple phases of financial and legal due diligence facilitated by the provision of information in a data room.
• During negotiations, Mr Harris made misrepresentations to Mr Moses regarding the adjusted EBIT of the Companies, which was used by the Purchaser to determine the purchase price. Mr Harris subsequently attempted to correct the misrepresentation by uploading an email from his accountant to the data room (the Email) (and other documentation), but did not correct the position directly with Mr Moses.
• Shortly after the first instalment was paid and the first lot of shares were transferred, Mr Moses and Harris fell into dispute. BCH and Mr Moses commenced oppression proceedings which subsequently resolved on the basis that the Vendors would buy-back the shares at a market value to be determined by the Court (which was calculated to be $282,239).  The result being that BCH and Mr Moses had heavily overpaid for the first lot of shares (approximately $1.7 million out of pocket, excluding transaction costs).

In the proceeding, the Purchaser alleged, amongst other things, that the Vendors’ failure to disclose certain matters (including matters in the Email) in the lead up to the completion of the Agreement, was in breach of the All Material Information Disclosure Warranty.   In response, the Vendors relied on the materials put in the data room as evidencing the requisite disclosure under the Agreement.

What did the Court determine?

Having regard to the circumstances, the Court determined that:

• the data room contained the necessary source documentation on which a person, upon careful and deliberate scrutiny after having them brought to their attention, could have relied to correct any misapprehension;
• however, the Purchaser was not put on notice as to the matters in the Email when, due to their materiality and in light of the ongoing discussion of revenue as informing the AEBIT-based purchase price, it had a reasonable expectation of being put on notice; and
• the mere fact that the Email (and other documents) was in the data room did not mean that this information was disclosed in accordance with the All Material Information Disclosure Warranty.

On this basis, the Court concluded the Vendors had breached the All Material Information Disclosure Warranty and ordered the Vendors compensate the Purchaser and Mr Moses in the amount of $1,717,761.

What does this mean for vendors?

When entering into a sale agreement, the vendor should pay particular attention to the wording of the warranties to understand its obligations.  Under those warranties, the vendor may be required to disclose to the purchaser all facts that are material to the sale.  If the vendor does not understand the warranties, it should obtain tailored legal advice from a qualified legal practitioner.

However, regardless of the warranties, the vendor should ensure that any representations it makes are correct and not misleading.   Misleading or deceptive conduct and false representations are prohibited under various pieces of legislation, including the Australian Consumer Law.

If the vendor does make a representation that is incorrect or misleading, it may need to take immediate corrective action.   As seen in the Bridging Capital case, taking corrective action via the provision of documents in a data room may not be sufficient, and the vendor may need to specifically notify the purchaser of the misstatement.

 Require assistance?

If you or your business face allegations of making misleading statements, it is crucial to seek legal advice to protect your reputation and avoid financial penalties.   We can also provide expert guidance if you believe that someone is engaging in misleading or deceptive conduct or making false representations.

If you require advice, contact the team at Coulter Legal today.