Anonymised, illustrative composite. A demand letter sat in the data room from week three of a ten-week diligence period, buried in a subfolder, never scheduled. The seller argued the upload was disclosure. The purchase agreement's own definitions said otherwise.
At a glance
A buyer purchased all of the shares of an Ontario specialty packaging manufacturer for $4,200,000. The purchase agreement's litigation representation stated there was no pending or threatened litigation against the company, “except as set forth in Schedule 4.9.” The agreement's own definitions section, in the boilerplate every purchase agreement carries, defined “Disclosed” to mean set forth in the Disclosure Schedules attached to the agreement — nothing broader.
In week three of a ten-week diligence period, seller's counsel uploaded a demand letter to the data room: a former customer alleging a packaging defect had caused a product recall, implying a claim worth roughly $310,000. The letter went into a Litigation subfolder that ultimately held about forty documents. It was never raised verbally, never flagged in a diligence call, and never carried forward onto Schedule 4.9 when that schedule was finalized and attached to the agreement at signing, six weeks later. The buyer's diligence team, working through roughly 1,400 documents across the whole data room, did not catch it either.
After closing, the customer filed the lawsuit the demand letter had threatened. The buyer discovered the letter had been sitting in the data room the entire time and claimed the litigation representation had been breached, since Schedule 4.9 was blank. The seller's answer was that the claim had been disclosed — it was right there in the data room from week three, available to be found. The buyer's answer was that the agreement itself said what “Disclosed” meant, and the data room was not it.
The claim was worth roughly $310,000. The indemnity had a $50,000 basket, below which the buyer could not recover at all. Once the claim cleared the basket, the buyer's net recovery came to roughly $260,000.
No statute governs whether uploading a document to a data room counts as disclosing it — that is a threshold question answered entirely by what the specific purchase agreement's own defined terms say. Some purchase agreements expand the definition deliberately, adding a “deemed disclosure” or data-room qualifier that treats anything genuinely available in the data room as disclosed for purposes of every representation. This agreement did not. Its own definitions clause tied “Disclosed” specifically and exclusively to the Disclosure Schedules, and the litigation representation's own qualifier pointed to Schedule 4.9 by name, not to the data room generally.
Treadstone Law's own explainer of how disclosure schedules work describes exactly the mechanic this turned on: “A disclosure schedule (sometimes called a disclosure letter) is an attachment to a share purchase agreement (SPA) or asset purchase agreement (APA) that lists specific facts, exceptions, and qualifications to the representations and warranties the seller makes in the body of the agreement,” and “the disclosure schedule is where the seller carves out the real-world exceptions to those broad statements, item by item, usually cross-referenced by section number to the specific representation it qualifies.” Under an agreement drafted that way, a representation qualified “except as set forth in Schedule 4.9” is not qualified by anything that is not, in fact, set forth in Schedule 4.9 — regardless of where else in a thousand-document data room the same fact might also appear.
Because the agreement defined “Disclosed” strictly by reference to the schedules, and Schedule 4.9 was blank, the litigation representation was breached notwithstanding the week-three upload. The buyer recovered under the indemnity, net of the basket, for a claim the seller had genuinely believed — wrongly, on this agreement's own terms — that it had already told the buyer about.
Had this purchase agreement instead included an expanded, deemed-disclosure definition treating anything genuinely uploaded and reasonably findable in the data room as disclosed, the outcome would likely have reversed entirely: the seller would have owed nothing, on the theory that the buyer had, or should have had, the opportunity to find the letter itself. The roughly $260,000 difference turned on one definitional sentence that either was, or was not, in the agreement — not on how carefully anyone actually reviewed the data room.
The tell was available to both sides before signing, in the agreement's own definitions section: reading what “Disclosed” was actually defined to mean would have told the seller a data-room upload, without a matching schedule entry, was doing no legal work at all — and would have told the buyer's diligence team exactly how much weight its own document review needed to carry, since nothing short of a scheduled item could later be excused as something the buyer “should have caught.”
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