Case of the week: Civil Procedure
16 July 2012
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1 October 2012
VTB Capital plc v (1) Nutritek International Corp; (2) Marshall Capital Holdings Ltd; (3) Marshall Capital LLC; (4) Konstantin Malofeev (2012) EWCA Civ 808. CA (Civ Div). Aikens LJ; Lloyd LJ; Rimer LJ. 20 June 2012
It would be contrary to principle and authority to hold that, where the court pierced the corporate veil, it could find that those who had misused the corporate structure were parties to the company’s contracts.
VTB Capital appealed a decision refusing permission to amend, ruling that the English court lacked jurisdiction and discharging a worldwide freezing injunction. Russian state-owned bank VTB lent money to Russagroprom (RAP) to fund its acquisition of Russian dairy companies from Nutritek. The agreement provided for English law and jurisdiction.
RAP defaulted on the loan. VTB alleged that it had been induced to enter into the loan by fraudulent misrepresentations made by Nutritek, for which the other defendants were alleged to be jointly liable.
Marshall Capital Holdings was a British Virgin Islands holding company that owned indirectly a substantial interest in Nutritek. Konstantin Malofeev was an individual said to be the owner and controller of the defendants and of RAP.
VTB’s case against the defendants was pleaded in deceit and unlawful means conspiracy. It applied to add claims in contract on the basis that the court should pierce the corporate veil of RAP to make the defendants liable as parties under the facility agreement.
The judge refused permission to amend, holding that VTB had not demonstrated that England was the appropriate forum, and discharged a freezing injunction obtained against Malofeev.
VTB’s contract claim was not founded on a cause of action known to English law. It was appropriate to pierce the corporate veil only where special circumstances existed, indicating that it was a mere facade concealing the true facts. Once the veil was pierced, however, the court could not treat those in control of the company as themselves parties to its contracts.
There was a good arguable case that VTB had suffered a loss, even though it had been put in funds by its parent to make the loan and so had sustained damage within the jurisdiction.
ontrary to the judge’s view, there was a triable issue that the second defendant was, through the agency of Malofeev, a party to the torts against VTB.
The claimants had an arguable case that its loss was sustained in England, but other elements of the torts occurred elsewhere. In the circumstances there was no presumption that England was the natural or appropriate forum.
The judge had erred in his approach by failing to decide what were the most significant elements of the torts of deceit and conspiracy on the facts. However, the arguments on the significance of the events constituting the torts for the purposes of the Private International Law (Miscellaneous Provisions) Act 1995 were evenly balanced.
In the circumstances VTB had failed to demonstrate that England was clearly or distinctly the appropriate forum. The judge was right to set aside permission to serve the proceedings out of the jurisdiction.
Since the court lacked jurisdiction, there was no question of continuing the freezing injunction against Malofeev.
For the appellant VTB Capital
Clive Freedman QC, Littleton Chambers; Richard Snowden QC, Erskine Chambers; Paul McGrath QC, David Davies, David Peters, Essex Court Chambers;Andrew Burrows QC, Fountain Court; Iain Pester, 11 Stone Buildings; Anthony Reim, litigation partner, PCB
For the defendant (1) Nutritek International Corp
Nigel Jones QC, David Lewis, Hardwicke; Richard Kearns, partner, Kearns & Co
For the defendant (2) Marshall Capital Holdings
Michael Lazarus, Christopher Burdin, 3 Verulam Buildings; Partner Justin Michaelson and associates Darren Roiser, Swati Tripathi, Shivani Sanghi, AnatolyMatveev, SJ Berwin
For the defendant (4) Konstantin Malofeev
Iain Milligan QC, 20 Essex Street; Stephen Rubin QC, Fountain Court; Cyril Kinsky QC, 3 Verulam Buildings; Ed Brown, Essex Court Chambers; Jamie McClelland, Fountain Court; SJ Berwin partner Justin Michaelson
Nigel Jones QC
Every law student learns that in certain circumstances the court can pierce the corporate veil, but this has remained an elusive concept. There have been only around 20 reported cases of note on it in 100 years and remarkably few have tried to explain the principle or its limits.
In the landmark decision of VTB Capital v Nutritek  the Court of Appeal has decided that the principle lives on: “[t]he court can, in an appropriate case, ‘pierce a company’s corporate veil’ and, in doing so, substantially identify the company with those in control of it”.
The court endorsed the “sound summary of the [underlying] principle” (expressed by Sir Andrew Morritt in Trustor AB v Smallbone ): “the court is entitled to pierce the corporate veil and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or façade to conceal the true facts thereby avoiding or concealing any liability of those individual(s). …”
But the court cannot “proceed in consequence to a holding either that the puppet company was a party to the puppeteer’s contract, or vice versa”.
A claimant cannot pierce the veil to impose contractual liability on the controller when that was not intended by him and the undisputed parties to the contract, and thus cannot use the principle against the controller, for example, to establish the contractual jurisdiction of the English court or because he might have more funds to satisfy a judgment.
Hardwicke’s Nigel Jones QC and David Lewis