VTB Capital Plc v Nutritek International Corp & Ors

The corporate veil cannot generally be pierced to impose contractual liability on a person controlling a company. The established cases concern equitable relief against a company used to evade an independent liability of its controller. They do not create a general common-law claim for contractual damages against the controller. A claim in deceit is not converted into a contractual claim merely because the company was used in the alleged fraud.

For service out of the jurisdiction, the claimant must establish a serious issue to be tried, a good arguable case within a jurisdictional gateway, and that England is clearly or distinctly the appropriate forum. The court may reject an application where the natural forum is elsewhere and substantial justice can be obtained there.

VTB alleged that it had been induced by fraudulent misrepresentations to lend approximately US$225 million to Russagroprom LLC. It brought claims in deceit and conspiracy against Nutritek, related companies and Mr Malofeev, and sought to amend its claim so as to hold non-parties to the Facility Agreement contractually liable by piercing the corporate veil.

VTB also sought to maintain permission to serve the proceedings outside the jurisdiction and continue a worldwide freezing order against Mr Malofeev. The applications raised issues concerning veil piercing, applicable law, loss, jurisdiction, forum non conveniens, risk of dissipation and material non-disclosure.

1. Contract claim. The proposed amendment was refused. The court distinguished sham transactions from veil-piercing cases. Gilford Motor Company Ltd v Horne and Jones v Lipman involved equitable relief against companies used to prevent enforcement of an independent liability of the controller.
2. Trustor AB v Smallbone (No 2) did not establish a general rule that control and impropriety permit the controller to be treated as liable on the company’s contract. Its principle concerned knowing receipt and, more generally, equitable remedies such as injunctions and accounts.
3. The court agreed with the reasoning in Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia (No 2), Ben Hashem v Ali Shayif, Dadourian Group International Inc v Simms and Lindsay v O’Loughnane. The relevant wrongdoing must be anterior or independent of the company, and contractual damages against the controller would be inconsistent with the tortious fraud claim in this case.
4. Antonio Gramsci Shipping Corp v Stepanovs was not followed. The court considered that it disregarded privity of contract and extended veil piercing beyond its proper equitable basis. VTB’s proposed contractual claim was therefore unsustainable.
5. Service out and applicable law. Under section 11(2)(c) of the Private International Law (Miscellaneous Provisions) Act 1995, the most significant elements of the alleged deceit and conspiracy occurred in Russia. Section 12 did not displace that conclusion. Russian law was therefore applicable.
6. Even assuming English law applied, VTB had a serious issue to be tried against Mr Malofeev and had suffered an immediate and direct loss when it advanced money against inadequate security. The Participation Agreement did not novate the Facility Agreement to VTB Moscow and did not prevent VTB from claiming its loss.
7. Russia was the natural forum. The parties, negotiations, witnesses, documents, alleged misrepresentations, underlying assets and economic impact were predominantly connected with Russia. VTB did not establish a real risk that substantial justice could not be obtained there.
8. Freezing order. The evidence did not establish a real risk of dissipation. In any event, VTB had deliberately failed to disclose the role of Dalford and the additional fees and equity interest obtained through it. The worldwide freezing order was discharged.

Permission to amend was refused, permission to serve out was set aside, and the freezing order was not continued or re-granted.

First-instance applications in the High Court (Chancery Division). The court refused the amendment, set aside permission to serve out, and discharged the worldwide freezing order.