Friday 6 July 2012

VTB Capital Plc v Nutritek International Corp & Ors [2012] EWCA Civ 808 (20 June 2012)


VTB Capital Plc v Nutritek International Corp & Ors [2012] EWCA Civ 808 (20 June 2012)

The Court of Appeal has in this case reconciled the differences between the jurisprudence from judges in the Chancery Division and the Commercial Court. The appeal determined whether it is possible to pierce the corporate veil in order to hold the controller of a company liable as a party to a company’s contracts.  The Commercial Court previously had developed authority stating it would be possible to pierce the corporate veil for such an individual to be so liable, provided certain conditions were met (Gramsci v Stepanovs [2011] EWHC 333 (Comm)). However, Arnold J in VTB Capital Plc v Nutritek came to the opposite view in the Chancery Division and was therefore appealed to settle the contradictory nature of these two authorities.

The matter concerned both contractual and tortious claims by Nutritek against the four defendants; two companies incorporated in the British Virgin Islands, one in Russia and a further defendant who resides in Russia. The issue at hand was whether the corporate veil could be pierced in order to determine the exercise of the English courts over parties outside this jurisdiction; essentially to amend the claim forms to serve the proceedings out of the jurisdiction. 

A fundamental principle of company law is that the rights and liabilities of an incorporated company are distinct from that of individuals with control of that company. However the principle of “piercing the veil of incorporation” involves the blurring of that distinction such that those same individuals become potentially liable for the acts of that company. Authority relied upon in this case in favour of piercing the corporate veil states it is appropriate when the corporate structure is a “mere facade concealing the true facts” (DHN Food Distributers Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852 at 161).

The appeal judges decided to err on the side of caution, to hold that it was contrary to principle and authority that in circumstances where the corporate veil was pierced, a court could find that those who misused the company where then parties to that company's contracts. Accordingly the appeal was refused and the original determination of Arnold J in Nutritek affirmed.