Veranova Bidco LP v Johnson Matthey Plc & Ors
A recent decision of the UK Commercial Court, Veranova Bidco LP v Johnson Matthey Plc & Ors [2026] EWHC 1021 (Comm) has confirmed that multiple individuals' knowledge cannot be aggregated for the purposes of arguing a corporation fraudulently breached a Sale and Purchase Agreement warranty. To establish fraud, a claimant will need to prove that an individual whose knowledge can be attributable to the company had sufficient knowledge of the relevant facts to appreciate their significance to the warranty, and either knew or was reckless as to whether a warranty was breached by that information.
Background
The claims arose from the sale of the Johnson Matthey Health Business ("Health Business") to the claimant, Veranova Bidco LP ("Veranova").
At the time the SPA was signed, the Health Business was renegotiating the price of one pharmaceutical product with its largest customer of that product. While Veranova was informed of the ongoing price renegotiations, it was not informed that an approximately 50% price reduction was being considered (and ultimately agreed). Veranova subsequently signed the SPA whilst the price renegotiations were ongoing.
The claim alleged breaches of two warranties in the SPA:
- 'Ordinary and Usual Course Warranty': The Health Business have been carried on in the ordinary and usual course consistent with past practice without any material alteration to the nature, scope or manner of the Health Business; and
- 'Key Contracts Warranty': None of the parties were renegotiating any material term of any key contracts which would have an adverse or detrimental effect on the Health Business.
The SPA contained a limitation clause, which meant that Veranova could only succeed in a claim for breach of warranty if it could prove that the claim arose directly as a result of the seller's fraud or wilful misconduct. This limitation applied because the buyer had obtained a warranty and indemnity insurance policy prior to completion in respect of the purchase.
Key findings
The Court accepted that the 'Key Contracts Warranty' had been breached without adequate disclosure. However, the Court dismissed the claim, as it found the seller had not engaged in fraudulent conduct. In making this decision, Dias J made some key findings regarding corporate dishonesty.
Not possible to "aggregate" individuals' knowledge for fraud
The Court rejected the proposition that it is possible to "aggregate" the knowledge and facts of multiple individuals to establish that a corporation had fraudulent knowledge. Dias J upheld the proposition that dishonesty is not established where one person knows the relevant facts but does not know that those facts render the warranty untrue, and another person knows the terms of the warranty but not the facts that render it false.
In making this finding, the Court drew from the test for wilful misconduct – which it held was as follows: "conduct by a person who knows that he is committing and intends to commit a breach of duty or is reckless as to the same". While the claimant did not plead wilful misconduct, the Court held that this test for wilful misconduct implies that the conduct and culpable state of mind must co-exist in the same person – which the Court held gave "colour and meaning" to the concept of fraud in the SPA.
The test for attributing fraud to a company
To succeed in establishing that the breach arose from fraud, the Court agreed that the claimant (in this case) must show that:
- One or more of the company's executives knew the facts which made the warranty (as qualified by any disclosure) false;
- That same executive must have sufficient knowledge of the nature and terms of the warranty to appreciate the significance of the facts to the warranty, or was reckless to what warranties were given; and
- The executive must have known or was reckless as whether the warranty was breached by the information.
The Court also commented that recklessness in this sense is a "high hurdle", noting that it is inherently unlikely that senior executives of a company would simply not care whether what warranties were being offered, and whether they were true or false. If the executives had put in place proper processes to ensure that the warranties provided were accurate, then any fault resultant would be more likely to be one of negligence than recklessness.
Decision subject to appeal
Notably, the trial judge (Dias J) granted permission to Veranova to appeal on the question of law as to what a claimant needs to show to establish that a breach of warranty by a corporate defendant is fraudulent, stating that this was "an important issue with significance extending well beyond this case on which there is no clear authority." We may well see a UK appeal court decision on this issue.
Why is it relevant in New Zealand?
To date, New Zealand courts have taken a similar approach to English law in relation to aggregating acts and knowledge to a corporate principal. Like in Veranova, NZ courts have held the principle of aggregation does not apply when determining whether a corporate principal has acted fraudulently or dishonestly, and we consider that New Zealand courts would be likely to take a similarly strict approach to attributing fraudulent conduct to corporations for breaches of warranties.
Veranova is therefore a timely reminder for parties entering M&A transactions to carefully consider how risk is allocated for warranty breaches, especially where limiting claims against the seller to potential breaches arising from fraud.