Wednesday, February 6, 2013

UK Supreme Court on the Corporate Veil: VTB Capital v. Nutritek

We had previously discussed the judgment of the Court of Appeal in VTB v. Nutritek. The United Kingdom Supreme Court has dismissed the appeal against this decision.

While we will discuss the case in more detail in the coming days, one specific point is noteworthy. In dismissing the appeal, the Court has left open (at least as far as the Supreme Court is concerned) an extremely important question of principle: does a Court at all have the power under English law to pierce the corporate veil in the absence of any statutory indication? It has long been assumed as almost axiomatic that Court do have such a power – the Court of Appeal in VTB decided the question principally on the ground of what the consequence of lifting the veil would be. This is also the basis on which the Supreme Court decides the case; however, what the Court left open is perhaps as important as what it decided. Lord Neuberger, giving the leading judgment on the point, notes:

125.  Mr Lazarus argued that in all, or at  least almost all, the cases where the principle was actually applied, it was  either common ground that the principle existed (Gilford Motor Co Ltd  v Horne  [1933] Ch 935,  Re H (restraint order: realisable property) [1996] 2 BCLC 500, and Trustor) and/or the result achieved by piercing the veil of incorporation  could have been achieved by a less controversial route - for instance, through the law of agency (In re Darby, Ex p Brougham [1911] 1 KB 95,  Gilford, and  Jones v Lipman [1962] 1 WLR 832), through statutory interpretation (Daimler Company Ltd v Continental Tyre and Rubber Company (Great Britain) Ltd [1916] 2 AC 307, Merchandise Transport Ltd v British Transport Commission [1962] 2 QB 173, Wood Preservation Ltd v Prior [1969] 1 WLR 1077, and Re A Company [1985] BCLC 333), or on the basis that, as stated by Lord Goff in Goss v Chilcott [1996] AC 788, 798, money due to an individual which he directs to his  company is treated as received by him (Gencor ACP Ltd v Dalby [2000] 2 BCLC 734, and Trustor).

126.  In summary, therefore, the case for  Mr Malofeev is that piercing the corporate veil is contrary to high authority, inconsistent with principle, and unnecessary to achieve justice.

127.  I see the force of this argument, but there are points the other way. I am not convinced that all the cases where the court has pierced the veil can be explained on the basis advanced by Mr Lazarus. Further, as Mr Howard QC said, the fact is that those cases were decided on the basis of piercing the veil. More generally, it may be right for the law to permit the veil to be pierced in certain circumstances in order to defeat injustice. In addition, there are other cases, notably Adams v Cape Industries plc [1990] Ch 433, where the principle was held to exist (albeit that they include  obiter  observations and are anyway not binding in this court). It is also difficult to explain the first instance decision in Kensington International Ltd v Republic of the Congo [2005] EWHC 2684 (Comm), [2006] 2 BCLC 296 on any basis other than the principle (but I am not at all sure that the case was rightly decided …). Further, the existence of the principle is accepted by all the leading textbooks

130.  In my view, it is unnecessary and inappropriate to resolve the issue of whether we should decide that, unless any statute relied on in the particular case expressly or impliedly provides otherwise, the court cannot pierce the veil of incorporation. It is unnecessary, because the second argument raised on behalf of Mr Malofeev, to which I shall shortly turn, persuades me that VTB cannot succeed on this issue. It is inappropriate because this is an  interlocutory appeal, and it  Page 41 would therefore be wrong (absent special circumstances) to decide an issue of such general importance if it is unnecessary to do so…

In subsequent posts on this blog, we will discuss the judgment, and also the highly interesting argument mentioned above, in further detail.

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