Supreme Court rules on jurisdiction and piercing the corporate veil

06/02/13

The Supreme Court has today given judgment in VTB Capital plc v Nutritek International Corp and others [2013] UKSC 5.  By a majority (3-2), the Supreme Court has dismissed VTB's appeal.

The case concerned a loan facility agreement under which VTB agreed to advance US$225m to Russagroprom LLC ("RAP") in order to finance RAP's acquisition of a number of Russian dairy companies from Nutritek.  RAP subsequently defaulted on its loan repayments and VTB recovered less than US$40m.  VTB then issued proceedings in the Chancery Division against Nutritek and others alleging that it had been induced to enter into the facility agreement by fraudulent misrepresentations as to (1) the value of the dairy companies and (2) the ownership of RAP.  In relation to the latter, VTB alleged that although Nutritek had represented that it and RAP were independent companies, in fact both were ultimately controlled by the same individual, a Russian national called Mr Konstantin Malofeev.

VTB initially brought claims in deceit and conspiracy, in response to which the defendants challenged jurisdiction on the basis that Russia was the more appropriate forum.  VTB later sought to add a claim for breach of the facility agreement, the basis of which was that the corporate veil of RAP could be pierced with the result that Mr Malofeev and the other parties to the conspiracy could themselves be held liable on the facility agreement.  As regards jurisdiction, this was potentially significant since the facility agreement contained an exclusive jurisdiction clause in favour of the English Courts; however, the proposed claim involved a novel application of the piercing the veil doctrine.

Both Arnold J and the Court of Appeal upheld the defendants' jurisdiction challenge in respect of VTB's tort claims and refused to grant VTB permission to introduce its proposed claim in contract.

By a majority (Lords Neuberger, Mance, and Wilson) the Supreme Court dismissed VTB's appeal.  Although the majority agreed with VTB that the Court of Appeal had erred in holding that Russian law (as opposed to English law) applied to VTB's tort claims, nevertheless they held that the Court of Appeal's decision on forum conveniens was an evaluative judgment with which the Supreme Court should not interfere.  The minority (Lords Clarke and Reed) held that they would have allowed the appeal on the basis that the English Court was the proper forum for VTB's tort claims.

So far as VTB's proposed claim in contract was concerned, the Supreme Court unanimously declined to accept Nutritek's argument that there is no principle of piercing the corporate veil in English law, but they held that the present case was not one in which the principle should be applied.

The judgments contain an important restatement of the principles governing service out of the jurisdiction, and they confirm the existence of the principle of piercing the corporate veil, but leave open how far that principle goes. The judgments are also important in the guidance they give as to the right of, and need for, a defendant to provide the court with a summary of his defence without submitting to the jurisdiction, and the negative impact of a discharged worldwide freezing order which is re-imposed pending an appeal on the continuation of a jurisdiction dispute through the appeal process.