Base Metal Trading Ltd. v Shamurin

Where a company is used as a vehicle for a joint venture conducted principally abroad, the place of incorporation does not by itself determine the law governing the relationship between the company and its founders or directors. The court must identify the proper law of each alleged obligation by examining its real substance and connecting factors.

A contract of employment is governed under Article 6 of the Rome Convention by the country in which the employee habitually works, or, where appropriate, the place of business through which he was engaged, unless the circumstances show a closer connection elsewhere. In tort, the substance and location of the alleged wrongdoing remain decisive. The exception to double actionability requires clear and satisfying grounds. Equitable and analogous obligations may be governed by the proper law of the underlying obligation rather than automatically by the law of the place of incorporation.

Base Metal Trading Ltd, a Guernsey company whose business was conducted principally from Russia, claimed damages from its director and beneficial owner, Mr Shamurin. It alleged that he had breached contractual, common-law and equitable duties by entering into speculative futures transactions on the London Metal Exchange rather than confining his trading to hedging.

The parties had formed a joint venture rooted in Russia. The principal issues were whether the alleged employment, tortious and equitable obligations were governed by English, Guernsey or Russian law, and whether the claim could succeed even if English or Guernsey law applied.

1. The claim was dismissed. The relationship between the parties was a joint venture or partnership rooted in Russia. The incorporation of BMTL in Guernsey was principally intended to provide a stable and tax-efficient trading vehicle. It did not demonstrate an intention that the founders’ relations with the company should be governed by Guernsey or English law.
2. The contractual claim was governed by Russian law. Under the Contracts (Applicable Law) Act 1990 and the Rome Convention, there was no express or implied choice of English or Guernsey law under Article 3. The employee habitually worked in Russia and the business through which he was engaged was there. The circumstances did not establish a closer connection with another country under Article 6.2.
3. The alleged tort or assumption of responsibility was, in substance, committed in Russia. The decision to speculate was made there, the company’s business was located there, and the alleged loss was felt there. The London brokers and London bank account were matters of implementation and payment, not the substance of the wrongdoing.
4. The double-actionability exception did not apply. There were no clear and satisfying grounds for displacing the general rule in favour of Russian law. Russia had the most significant relationship with the occurrence and the parties, and applying Russian law was neither unfair nor contrary to public policy.
5. The alleged equitable and directors’ obligations were not matters of internal management governed automatically by the law of incorporation. They arose, if at all, from the prior agreement between the promoters and were therefore governed by the law applicable to that underlying obligation. The court regarded law and equity as a consistent whole.
6. In any event, BMTL had not established an obligation prohibiting speculative futures trading. The agreed hedging policy did not implicitly impose such an absolute prohibition, and no particular transaction was shown to have been imprudent. The factual defence concerning hedging and authorisation therefore did not need to be finally determined.