Piercing the corporate veil: An update in light of VTB Capital plc v Nutritek

International Corp and others [2013] UKSC 5

Introduction

'Piercing the corporate veil' is a term relating to the instances where the English
courts regard it appropriate to legally identify Companies alongside those who
control it i.e. shareholders and directors, which circumvents one fundamental
principle of company law that lawfully incorporated Companies have a legal
personality/identity separate from their controllers, and liability should therefore
be limited to the entity which incurs it; not to be extended. 1
In this case, The Supreme Court clarifies the principles upon which the corporate
veil can be pierced, and in a unanimous dismissal of VTB's corporate veil appeal,
decides in furtherance of the fact that this legal construct should not allow
contractual claims to proceed against non-contracting parties, thereby
reinforcing the doctrine of privity of contract.

Judgment

The Supreme Court unanimously dismissed the corporate veil appeal, creating
precedent stipulating that parties are not permitted to amend their pleaded case
in order to include a new claims on appeal to The Supreme Court, hereby VTB
were not permitted to amend their case to include a claim that Shareholders Mr
Malofeev, Marcap BVI and Marcap Moscow should be treated as jointly and
severally liable with the company RAP for breaches of two of the agreements
held between VTB and the company RAP. The corporate veil could not be pierced
in this instance.

Commentary

To fully comprehend the unanimous judgement of The Supreme Court, one must
decipher whether VTB were denied permission to pierce the corporate veil on the
basis that they had brought the claim secondarily to The Supreme Court, had
not included it in the initial proposed case which was appealed to the Court of
Appeal2, and therefore were denied permission to amend their pleaded case at
1
2

Salomon v Salomon [1897] AC 22

VTB Capital Plc v. Nutritek International Corp & Others [2012] EWCA Civ 808

this stage. Or, on the basis that VTB had failed to meet the requirements of the
principles upon which the corporate veil can be pierced.*

It is in fact the former. 'VTBs proposed case does not give rise to arguable
grounds for contending that the jurisdiction to pierce the corporate veil can be
invoked.'3 As an interlocutory/interim appeal in the law of civil procedure, The
Supreme Court therefore only has jurisdiction to discuss the legitimacy of rulings
already made by the trial court, as a way of tending to specific queries before all
claims are resolved as to all parties.
It is therefore unnecessary and inappropriate 4 to resolve the issue of whether,
(unless any statute relied on in the particular case expressly or impliedly
provides otherwise that VTB could not pierce the corporate veil) 5, the court is
entitled to consider VTB's new requests and pierce the veil of incorporation in
agreement.

The reader should be minded, in their judgement the judges accepted and
professed that the appellate courts should henceforth be vigilant in
discouraging appellants6 from bringing forth arguments on the merits of
decisions concerning the balancing of factors, when in fact the complaint is in
reality requesting for the balances to have been struck entirely differently, and
slow to interfere7.

**********

* Principles upon which the corporate veil can be pierced

1. Where a company is used primarily as a vehicle of fraud or as a

means of escaping pre-existing legal obligations.

http://ukscblog.com/new-judgment-vtb-capital-plc-v-nutritek-international-corp-ors2013-uksc-5/

[2013] UKSC 5, Lord Neuberger Para 130

http://ukscblog.com/new-judgment-vtb-capital-plc-v-nutritek-international-corp-ors2013-uksc-5/

[2013] UKSC 5, Lord Neuberger Para 93

Ibid. para 96

 Gilford Motor Company Ltd v. Horne [1933] 1 Ch 935 the company

was a mere cloak or sham for the purpose of enabling the defendant
to commit a breach of his covenant against solicitation at 965
Jones v. Lipman [1962] 1 WLR 832 - a device and a sham, a mask
which he holds before his face in an attempt to avoid recognition by
the eye of equity Russell J at 836
Woolfson v. Strathclyde Regional Council 1978 SLT 159 - faade
concealing the true facts at 161
Trustor AB v. Smallbone (No 2) [2001] 1 WLR 1177 - if the company
was used as a device or faade to conceal the true facts thereby
avoiding or concealing any liability of those individual(s) at 1185H

Further principles outlined by Munby J in Faiza Ben Hashem v. Shayif

[2008] EWHC 2380 (Fam), paras 159-163; [2009] 1 FLR 115:

2. Ownership and control of a company are not of themselves

sufficient to justify piercing the veil.
3. The court cannot pierce the veil, even when no unconnected third
party is involved, merely because it is perceived that to do so is
necessary in the interests of justice.
4. The corporate veil can only be pierced when there is some
impropriety.
5. The companys involvement in an impropriety will not by itself
justify a piercing of its veil: the impropriety must be linked to
use of the company structure to avoid or conceal liability.
6. It follows that if the court is to pierce the veil, it is necessary to
show both control of the company by the wrongdoer and
impropriety in the sense of a misuse of the company as a device
or faade to conceal wrongdoing.

Final principle outlined by The Court of Appeal in VTB v. Nutritek8:

7. The court's motives for piercing the veil exist outside the
necessity to provide a remedy for the wrong caused by those
controlling the company.

[2012] EWCA Civ 808

References

http://www.bailii.org/uk/cases/UKSC/2013/5.html

http://www.nortonrosefulbright.com/knowledge/publications/68488/piercing-thecorporate-veil-an-update-in-light-of-vtb-v-nutritek

http://ukscblog.com/new-judgment-vtb-capital-plc-v-nutritek-international-corpors-2013-uksc-5/

http://www.supremecourt.uk/decidedcases/docs/UKSC_2012_0167_PressSummary.pdf