Corporate dishonesty: mental states cannot be aggregated to establish fraud

In Veranova Bidco LP v Johnson Matthey Plc [2026] EWHC 1021 the High Court has confirmed that dishonesty of a corporate defendant cannot be established by aggregating the knowledge of multiple officers of a company, concluding that it is still necessary to show conscious dishonesty of at least one natural person.

We summarise below the court’s analysis of this developing area of the law of fraud and corporate attribution. You can also:

• read our separate article on the guidance the court gave on the standard of disclosure in M&A transactions; and
• read our article on the High Court’s judgment in a previous strike out application in this litigation, concerning whether disclosures in a draft disclosure letter could amount to misrepresentations.

What happened?

Veranova Bidco LP v Johnson Matthey plc and ors [2026] EWHC 1021 (Comm) concerned the sale of shares in a health business.

As is usual on a share sale, the parties negotiated:

• a sale and purchase agreement (SPA), which contained a number of warranties, given by the sellers to the buyer, about the state of the target business; and
• a disclosure letter, which set out the respects in which the warranties were not true.

Following completion, the buyer discovered that, before the SPA and disclosure letter were signed, one of the target company’s customers had received an offer to supply a particular pharmaceutical product at a significantly better price than that at which the target had been supplying.

That had, in turn, triggered a contractual right for the customer to switch supplier and a right for the target company to requote to supply the product at the improved price (or something close to that price). Indeed, four days after the SPA and disclosure letter were signed, the target company matched the competing offer.

The buyer argued that these events amounted to a breach of a warranty in the SPA which stated that none of the target group companies was "currently renegotiating any material term of any Key Contract, which upon conclusion, would have an adverse or detrimental effect on the Businesses” (the Key Contract Warranty). As discussed in our separate article, the court agreed that this warranty was breached and the sellers had not adequately qualified this in the disclosure letter.

However, establishing breach of the Key Contract Warranty was not sufficient for the buyer to win its case. The SPA contained limitation provisions preventing the buyer from bringing a claim for breach of the warranty against the sellers unless it could prove the claim arose from the fraud or wilful misconduct of the sellers (the Warranty Limitation). 

The buyer therefore sought to prove that the states of mind of four of the seller’s senior executives (the Seller Executives) were sufficient to establish that the breach of warranty was fraudulent. 

(It should be noted that originally the buyer also pleaded a claim in the tort of deceit against the Seller Executives, but this was abandoned a month before the trial.) 

What did the court say?

The court found that the test for fraud in the context of the Warranty Limitation was substantially the same as in a claim for deceit. Accordingly, it was necessary for the buyer to show that the seller: 

• knew that the Key Contract Warranty was false;
• gave the Key Contract Warranty without belief in its truth; or
• was reckless as to whether the Key Contract Warranty was true or false. 

The main battleground between the parties was how to apply this test in a corporate context, and particularly in circumstances where the court was being asked to consider the state of mind of multiple individuals, i.e. the Seller Executives. 

The buyer’s primary case was that once it had been established that the Key Contract Warranty was false, it was only necessary for the court to find that one of the Seller Executives was aware of the facts that made the Key Contract Warranty false in order to make out the claim for fraud. 

The court had no hesitation in rejecting this argument. In doing so, the court gave the following guidance as to the test to apply in ascertaining whether a company’s breach of warranty was fraudulent.

• It is insufficient to show only that a relevant individual was aware of the facts that would make the relevant warranty false. It is necessary to show conscious dishonesty – the defendant must know or be reckless as to the terms of the warranty and their falsity.
• Whilst the state of mind of the Seller Executives was attributable to the seller, English law does not recognise the concept of composite fraud - the court will not (i) aggregate knowledge of facts and knowledge of falsity where that knowledge is held by different individuals; and (ii) attribute that aggregated knowledge to a corporate entity. It is not possible to add an innocent state of mind to an innocent state of mind to obtain a dishonest state of mind.
• In order to find that a company has breached a warranty fraudulently, it is, therefore, necessary to find (at least) one bad apple – there must be at least one individual with a dishonest state of mind that can be attributed to the company.

In providing this guidance, the court distinguished the case from the recent decision of Synthos Spolka Akcyjna v Ineos Industries Holdings Ltd [2026] EWHC 83 (Comm). In that case, the court had permitted the knowledge of various individuals within a company to be aggregated and attributed to the relevant company, but this was on the basis that, amongst other things, the SPA in Synthos contained an express clause which contractually deemed the actual knowledge of certain individuals to be that of the company. 

Having failed in its primary case, the buyer argued other, more conventional, tests for finding requisite dishonesty, but these were not made out on the facts. The judge agreed that the buyer would need to show that:

• one (or more) of the Seller Executives knew of matters which in fact made the Key Contracts Warranty (as qualified by any disclosure) false;
• the same Seller Executive either knew enough about the nature and terms of the Key Contracts Warranty to realise that their knowledge was relevant, or else was reckless as to what warranties were given; and
• the same Seller Executive also knew or was reckless as to whether the Key Contracts Warranty was falsified by their knowledge.

The court found that, as a matter of fact, none of the four Seller Executives came close to meeting this test.

Comment

Had the court found that knowledge of various officers of a company could be aggregated to ground a claim in fraud in the way suggested by the buyer, this would have widened significantly the potential scope of claims for fraudulent breach of warranties. This could have far-reaching consequences, particularly as such breaches are typically excluded from the scope of W&I insurance policies. In this respect, the decision is likely to be welcomed by many corporates, who will expect claimants seeking to bring a claim in fraud against a corporate to be faced with a high bar. 

Nevertheless, it is notable that the Judge in Veranova accepted at the trial that this was an issue on which there is no clear authority and so granted permission to appeal. If the buyer pursues that appeal, this will be one to watch. 

Although expressed in general terms, there is a question as to the wider applicability of the decision and the extent to which it will be confined to the language of the contract in question (as appears to be the case in light of Synthos). The concept of a fraudulent breach of contract is not one that ordinarily arises unless specifically provided for by the contractual terms, so it may well be said in subsequent cases that the parties had something different in mind in the particular context of any given agreement.

If the Court of Appeal is minded to go a different route on any appeal, it may seek to argue that “recklessness” (one of the potential routes to establishing fraud) is, to some extent, an objective standard, such that it should be open to the court to consider the state of mind of one officer as part of assessing whether another officer has been reckless as to whether a warranty is true or false. This point was alluded to in the Veranova judgment, albeit that the court found that this did not necessarily entail an aggregation of minds – the former state of mind would just form part of the factual matrix in which the latter’s state of mind should be assessed. The difference between this analysis and aggregation may be considered slight.

What does this mean for me? 

For sellers, the case demonstrates the importance of officers/employees continuing to test warranties to ensure they are comfortable that they believe in their truth or have made adequate disclosure within the requirements of the contract documents. When defending allegations of fraud, and on the basis of Veranova, it should be sufficient for each officer to be able to demonstrate that they had a genuine belief in the truth of the warranty. 

Buyers may wish to reflect on how they can anticipate issues of attribution. For example, the contrast the court drew with the Synthos case suggests that predetermining how knowledge of company officers will be attributed to the seller and building this into the terms of the contract may be of assistance. 

Lastly, for prospective claimants seeking to bring claims in fraud, the case provided some useful practical reminders.

• The importance of contemporaneous documentary evidence is heightened where witnesses are recalling historic events. The court recognised that “it is now generally accepted that all "memory" of distant events in fact depends on a process of reconstruction which is inevitably influenced, whether consciously or not, by a multitude of factors”. The court will test witness evidence carefully by reference to the contemporaneous documents. The court highlight a further factor being “the very natural human instinct for a witness, when their past behaviour is subjected to critical scrutiny, to reconstruct events in such a way as to put themselves in the most favourable light possible, especially when they have a stake in the outcome of the proceedings through a concern for their own reputation. This is a particularly pertinent consideration here, where the allegations are ones of fraud”. In Gestmin (Supra), Leggatt J (as he then was) said that "... the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.
• Evidence must be robust because, whilst the standard of proof is the balance of probabilities, the court will require more convincing evidence in practice to establish fraud. As the court noted in Veranova “fraud is usually less likely than negligence and that the more serious the allegation, all other things being equal, the less likely it is to have occurred”.
• In terms of fraud claims against corporates, focus should be put on identifying “bad apple” officers with the requisite knowledge and intention to make out fraudulent behaviour rather than seeking to prove allegations through a variety of individuals who, combined, could be said to meet the test.

Access the court’s decision in Veranova Bidco LP v Johnson Matthey plc and ors [2026] EWHC 1021 (Comm)