Case Update: Veranova Bidco LP V Johnson Matthey Plc [2026] EWHC 1021 (Comm) – Establishing Fraud Is Not A Team Sport

In this decision, the Commercial Court dismissed a claim for fraudulent breach of warranty under a sale and purchase agreement and held that fraud cannot be constructed by piecing together fragments of knowledge held by different individuals. Instead, the claimant was required to prove that one executive knew the facts that made the warranty false, understood their relevance in relation to the warranty, and either knew the warranty was false or was recklessly indifferent as to its truth.

Background

The dispute concerned the sale of the Defendants’ health business (the “Health Business”), a global manufacturer of buprenorphine hydrochloride (“BHCL”). The Health Business’ largest customer was Alvogen, with whom it had a long-term supply contract (the “Supply Contract”). The Supply Contract contained a price-match clause. In broad terms, the price-match clause enabled Alvogen to initiate discussions with the Health Business, once a year, if it received a bona fide offer from a third-party manufacturer which was at least 8% lower than the price charged under the Supply Contract. Alvogen invoked the price-match clause in October 2021 after receiving a competing offer to supply BHCL at approximately half the price charged under the Supply Contract.

Shortly thereafter, the Defendants sold the Health Business to the Claimant under a Sale and Purchase Agreement (“SPA”) dated 16 December 2021. The SPA contained various warranties, including that (1) the Health Business had been operated “in the ordinary and usual course consistent with past practice and […] without any … material alteration to its nature, scope or manner” (“Ordinary and Usual Course Warranty”), and (2) no renegotiations of “any material term of any Key Contract, which upon conclusion, would have an adverse or detrimental effect on the Businesses” were underway (“Key Contracts Warranty”). The SPA also largely excluded the sellers’ warranty liability except for fraud and wilful misconduct.

The Claimant accepted that it was told about the renegotiation of the Supply Contract. However, it alleged it had been led to believe that the price of BHCL would only fall modestly from USD 16/g to USD 12-13/g, when in fact a reduction to USD 8/g was proposed following the triggering of the price match clause. The Claimant brought a claim for fraudulent breach of the Ordinary and Usual Course Warranty and Key Contracts Warranty.

The Defendants argued that there had been no breach of the Ordinary and Usual Course Warranty because discussions with a purchaser on price pursuant to a contractual term are within the ordinary course of business. Further, the Defendants said that there had been no breach of the Key Contracts Warranty because negotiations with Alvogen did not commence until after 16 December 2021, when the SPA was signed. In any event, the Defendants submitted that the warranties were adequately qualified by disclosures.

Commercial Court Decision

Breach of warranty: The Commercial Court rejected the Claimant’s argument that the Alvogen negotiations breached the Ordinary and Usual Course Warranty. The Court agreed with the Defendants and held that price renegotiations were a routine part of the business and did not alter its nature, scope or manner. However, the Court ruled that the Key Contracts Warranty was false because the negotiations with Alvogen were ongoing when the SPA was signed and were likely to have an adverse effect on the Health Business.

Fair disclosure: The disclosure letter referred to pricing pressure, increased competition, and ongoing discussions with Alvogen. However, the Court held that these general references were not sufficient to constitute a fair disclosure: The Defendants should have disclosed that Alvogen had invoked the price-match clause based on a genuine third-party offer of around USD 8/g, and that matching that price would be necessary to retain its business. The failure to disclose those key details meant that the warranty had not been fairly disclosed. For this reason, the Defendants were judged to have breached the Key Contracts Warranty.

Fraud: Despite that breach of warranty, the SPA limited liability to cases of fraud and wilful misconduct. The Claimant therefore argued that the knowledge of different employees could be combined to establish fraud. The Court rejected this argument and held that the establishment of fraud required the following:

1. A dishonest state of mind in a single individual whose knowledge can be attributed to the company; fraud cannot be established by aggregating knowledge across employees [137-138];
2. The Claimant had to prove that one executive (whose knowledge was attributable to the Defendants) knew the facts that made the warranty false, understood their relevance to the warranty (or was recklessly indifferent to the warranties given), and knew (or was recklessly indifferent to whether) the warranty was false [256].

As a result, despite finding that there had been a breach of the Key Contracts Warranty, the claim failed because the Court held that none of the Defendants’ executives individually possessed the necessary knowledge set out above. The Court noted that the executives had no apparent motive to act dishonestly, had not sought to conceal other negative information, and had waived privilege for the case.

Practical Considerations

• In practice, lawyers should note that SPAs limiting liability to fraud may leave claimants without a remedy unless strong evidence of fraud exists. It is also important to remember that fraud cannot be constructed by aggregating fragments of knowledge held by different individuals.
• It should also be considered at an early stage whether fraud-only recourse is sufficient when commercially significant matters are being disclosed through several individuals and teams within the selling entity.
• The decision also underlines the importance of providing full disclosure of all key details relevant to warranties given under SPAs.