Antonio Gramsci Shipping Corp & Ors v Stepanovs

A corporate veil may be pierced where a company is deliberately used as a fraudulent device or façade to conceal the involvement and liability of those controlling it. Necessity is not a precondition to pleading or pursuing such a claim at the outset. Where wrongdoers jointly control a creature company, each may be treated as being in material control. The puppeteer may, on the facts, be liable as a party to the puppet company’s contract, although public policy may prevent the puppeteer from enforcing it. English law determines the identity of the parties to a jurisdiction agreement; EU law determines whether the required consensus and formalities are established. Article 24 jurisdiction arises from an appearance in the instant action, not an earlier action. On a jurisdiction challenge involving mixed fact and law, the claimant must show a good arguable case; a pure question of law must be decided by the court.

The claimants, ship-owning companies associated with the Latvian Shipping Company, alleged that the defendant and other beneficial owners had used corporate defendants as vehicles to divert chartering profits through a sub-chartering scheme. The claim sought to pierce the corporate veil and hold the defendant jointly and severally liable under charterparties containing an English exclusive jurisdiction clause.

The defendant challenged jurisdiction and the continuation of a freezing order. The issues included veil piercing, control, necessity, contractual liability, election, separability, the identity of the parties and consensus under Article 23 of the Judgments Regulation, and submission under Article 24.

1. Application dismissed. The defendant’s application to set aside service for want of jurisdiction was dismissed. The freezing order was continued until trial.
2. The court held that there was a good arguable case that the corporate defendants had been established and used as fraudulent devices to conceal the defendant’s involvement. The relevant wrongdoing was the fraudulent misuse of the corporate structure, rather than merely fraudulent conduct by a company.
3. Control need not be sole control. Where several wrongdoers act with a common purpose and materially control the creature company, the veil may be pierced against one or all of them.
4. Necessity is not a fetter on a veil-piercing claim. The fact that a trial judge may ultimately find another personal remedy available does not make the claim demurrable at the outset. Veil piercing remains exceptional, but the claimant need not plead or prove necessity in limine.
5. There was no good reason in principle why the victim could not enforce the puppet company’s contract against both the company and the puppeteer. The puppeteer could be liable as a party to the contract, while public policy could prevent the puppeteer from enforcing it.
6. The claims against puppet and puppeteer were not alternative claims. The company remained liable and did not disappear when the puppeteer was identified. The claimants had not elected by obtaining judgment against the corporate defendants.
7. The jurisdiction clause was separable from the substantive contract. That did not require separate agreement to a standard jurisdiction clause where the defendant was otherwise identified as a party to the contract.
8. English law determined whether the defendant, as alleged undisclosed puppeteer or alter ego, was a party to the contract. EU law then governed whether consensus concerning the jurisdiction clause was clearly and precisely established. The claimants had a good arguable case on consensus.
9. Article 24 did not confer jurisdiction. The defendant had not entered an appearance in the instant action, and an appearance in an earlier action could not suffice.
10. The good arguable case test required the claimant to show a much better argument than the defendant, rather than merely a 51 per cent probability. A pure issue of law was for the court to decide, whereas issues of fact or mixed fact and law were assessed by the good arguable case standard.