The Commercial Court has recently considered a claim for fraudulent breach of warranty in a share purchase agreement in the case of Veranova Bidco LP v Johnson Matthey Plc and Ors ([2026] EWHC 1021 (Comm)*).

The dispute over the Alvogen supply contract

Under the terms of a sale and purchase agreement signed on 16 December 2021, Veranova (Buyer) agreed to purchase a health business from Johnson Matthey (Seller). As would be normal, the sale and purchase agreement contained a number of warranties given by the Seller to the Buyer, and those warranties were qualified by certain disclosures made separately in a disclosure letter.

Within the Johnson Matthey health business was a key supply contract with Alvogen (the most significant customer of the business), for the sale of Buprenorphine Hydrochloride (BHCL) to Alvogen. The supply contract required Alvogen to purchase 75% of its annual requirements from the Johnson Matthey health business. The supply contract also contained a price-match clause which, upon Alvogen notifying Johnson Matthey of a bona fide offer from a third-party manufacturer to supply BHCL at a lower price, Alvogen would be entitled to purchase from the alternative supplier if Johnson Matthey failed to match the competing offer. On or about 18 October 2021, an alternative manufacturer submitted a competing offer to Alvogen at a price which was around 50% below the Johnson Matthey price.

The Seller provided the Buyer with the following warranties in the sale and purchase agreement:

“None of the Companies (nor JMI in respect of the US Reorganisation Business) is currently renegotiating any material term of any Key Contract, which upon conclusion, would have an adverse or detrimental effect on the Businesses” (Key Contract Warranty).

“Since the applicable Accounts Date: … the Businesses have been carried on in the ordinary and usual course consistent with past practice and so as to maintain the Businesses as going concerns without any material interruption and without any material alteration to the nature, scope or manner of the Businesses”’ (Ordinary and Usual Course Warranty).

The Buyer asserted that both the Ordinary and Usual Course Warranty and the Key Contract Warranty were false at the day of signing the sale and purchase agreement because Alvogen had invoked the price match clause and was renegotiating pricing with the Johnson Matthey health business.

The sale and purchase agreement restricted the Buyer’s ability to bring a standard breach of warranty claim, so in order to recover any damages from the Seller, the Buyer had to establish fraud on the part of the Seller.

The Buyer subsequently brought a claim for fraudulent breach of warranty of the two warranties set out above which, according to the Court, could be made out if it was shown that:

1. there had been a breach of warranty;
2. there had been no disclosure, in accordance with the sale and purchase agreement, of the information leading to the breach of warranty; and
3. one or more of the executives was guilty of wilful or fraudulent misconduct.

Had there been a breach of warranty?

The Court found that there had been a breach of the Key Contract Warranty on the basis that the Johnson Matthey health business was involved in renegotiations for the sale of BHCL, which were triggered when Alvogen activated a price match clause. The Court found that as at 16 December 2021, the conclusion of negotiations with Alvogen would have an adverse and detrimental effect on the Johnson Matthey health business.

Conversely, the Court found that there had been no breach of the Ordinary and Usual Course Warranty, on the basis that ‘negotiations about pricing are entirely to be expected in the course of a long-term supply relationship’ and that the business was not altered by such negotiations.

Had there been adequate disclosure?

The Buyer would fail in its claim if breach of the Key Contract Warranty had been fairly disclosed by the Seller in its disclosure letter. Under the terms of the sale and purchase agreement, information was fairly disclosed if it was provided in a manner which would allow a reasonable buyer to make an informed assessment of the nature and scope of the matter concerned. The Court acknowledged that the Seller had disclosed that pricing renegotiations were ongoing but determined that the disclosure was insufficient, because it did not reference the potential discount in price and therefore did not contain the detail necessary for the Buyer to consider the scope of the matter concerned.

Could fraud be proven?

Once it had been established that there had been a breach of the Key Contract Warranty and that the price negotiations were not fairly disclosed, the Buyer needed to prove fraud.

The Buyer argued that to establish fraud it was sufficient to prove that at least one of the Sellers’ executives knew or was reckless about the falsity of the warranty, regardless of whether they were aware of the exact text of the warranty.

The Court considered this and set out a three-part test. In order to establish fraud, one or more of the Sellers’ executives must have:

• known of matters which in fact made the warranty false;
• had sufficient knowledge of the terms of the warranty in question or was reckless as to what warranties were given; and
• known or was reckless as to whether the warranty was false.

The Buyer argued that the knowledge of four different Johnson Matthey executives should be aggregated to meet the three elements of the test; essentially, if one of the Johnson Matthey executives knew the facts, while another provided the warranty knowing it was false or being reckless as to its truth, then this was enough to satisfy the test.

This was rejected by the Court, which maintained that it was inappropriate to combine the knowledge of the four different Johnson Matthey executives and that at least one of the executives must satisfy all three of the above criteria. On the facts, the Court determined that no individual executive knew about the competing offer and subsequent renegotiations with Alvogen and had sufficient awareness of the Key Contract Warranty. None of the four executives was found to have fallen within the third element of the test. Accordingly, the Court found that there had been no fraud.

Key takeaways on warranties, disclosure and fraud

This case is a confirmation of the high bar for succeeding in a claim for fraudulent breach of a warranty. Crucially, it confirms that a court will not accept allegations of fraud based on knowledge held by various individuals within a corporate entity, if the persons who gave such warranties did not have that same knowledge.

The case also provides a useful exploration of how the Courts approach the wording of certain warranties and the disclosure process.

Whilst this case was largely concerned with the wording of specific clauses contained within the sale and purchase agreement, it serves as a reminder to both buyers and sellers of the significance of warranties and the importance of ensuring adequate and fair disclosure during transactions.

*This judgment is subject to appeal.