Drafting disclosures – best practice rules

There are a few best practice rules one can identify in preparing disclosures. (For a discussion of what disclosures are, click here.) Those best practice rules are the topic of this weblog.

Like warranties, disclosures are statements of facts or events. Therefore, disclosures must not contain obligations, promises or undertakings of any kind. Like warranties, disclosures may refer to annexes attached to the disclosure schedule, which annexes may list, describe or otherwise report the disclosed facts or events.

It is good practice to organise meetings with the senior employees who should potentially have any knowledge of possible warranty breaches. In other words, when a disclosure letter is to be drafted, the disclosing party’s lawyers should meet with each such employee (or small group of employees). They should explain the impact of a warranty breach (i.e., being somewhat different from ordinary course warranties), the thresholds above which a warranty breach is likely to become an issue, and explain word-by-word what is meant by a warranty. The employee should be encouraged to give as much facts and events as possible. After that, he or she may well be requested to sign off on the reflection in the disclosure letter, or to document any disclosure. Subsequently, it should be the negotiation project team that decides whether or not making the disclosure is appropriate.

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