Wednesday, 20 June 2012

UK: England and Wales: piercing the veil - Court of Appeal judgment in VTB v Nutritek

The Court of Appeal's much anticipated judgment in VTB Capital Plc v Nutritek International Corp [2012] EWCA Civ 808 was delivered today. Amongst the matters for consideration were the principles governing the piercing of the veil of incorporation and whether a puppeteer company should be made a party to a contract entered by the puppet company. At first instance - see [2011] EWHC 3107 (Ch) - the trial judge held the puppeteer could not be made a party to the contract and in doing so declined to follow Antonio Gramsci Shipping Corp v Stepanovs [2011] EWHC 333 (Comm). Lord Justice Lloyd, delivering the judgment of the Court of Appeal, held that the trial judge was right to do so. His Lordship stated (at paras. [91] and [94]):

... whilst we accept that the 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, no authority has been cited to us, apart from Burton J's decisions in Gramsci and Alliance, that supports the proposition that, once the veil is pierced, the court either does or can (or that it is arguable that it does or can) proceed in consequence to a holding either that the puppet company was a party to the puppeteer's contract, or vice versa. As we have said, we interpret Burton J as having regarded [Gilford Motor Company Ltd. v Horne [1933] 1 Ch 935 and Jones v Lipman [1962] 1 WLR 832] as cases in which the remedies against the companies were granted on the basis that they were themselves parties to the individuals' contracts. We respectfully regard that as a misreading of both cases".

... there remains a question as to whether, even if founded on mistaken reasoning, Gramsci and Alliance anyway represent a principled development of the law that this court should adopt. We have said enough to show that we consider that they do not. The "veil piercing" cases show that the principle is, in its application, a limited one, which has been developed pragmatically for the purpose of providing a practical solution in particular factual circumstances. The reported authorities certainly proceed on the basis that (in the usual case) the puppet company and the controlling puppeteer are to be closely identified, an identification that will or may be regarded as justifying the grant of a judicial remedy against the puppet as well as the puppeteer, if only on the basis that it will be just and convenient to do so. They do not, however, go to the length of treating the puppet company as other than a legal person that is formally distinct and separate from the puppeteer; and, were they to do otherwise, they would wrongly be ignoring the principles of [Salomon v Salomon [1897] AC 22]. Consistently with that, they do not provide any basis for the proposition that the puppeteer should be regarded as having always been a party to a contract to which it or he plainly was not a party."

Update (30 August 2012): the case is heading to the Supreme Court, which granted permission to appeal in July 2012 (see here, pdf).

Update (31 January 2013) - the Supreme Court's judgment is being handed down on 6 Feb 2013.

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