VTB Capital Plc v Nutritek International Corp [2013]
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VTB Capital Plc v Nutritek International Corp [2013] UKSC 5, [2013] 2 AC 337 is a significant English company law case that deals with the concept of piercing the corporate veil for fraud. The case, along with the later decision in Prest v Petrodel Resources Ltd [2013], played a crucial role in restating the English company law position regarding the piercing of the corporate veil.
VTB Capital plc claimed that Nutritek International Corp, its parent company, and a director named Konstantin Malofeev fraudulently misrepresented the value of dairy companies being sold to Russagroprom LLC. VTB was providing a $225 million loan to Russagroprom to facilitate the purchase of these dairy companies. VTB argued that it was misled into believing that Russagroprom was not already under common control with Nutritek. VTB sought to hold the owner of Nutritek, Marshall Capital Holdings, Marshall Capital LLC, and Konstantin Malofeev jointly liable due to their control over Nutritek. Russagroprom later defaulted on the loan, and only $40 million was recovered. VTB attempted to amend the claims to pierce the veil of Russagroprom and hold the defendants liable under the loan agreement.
The High Court refused permission to amend and serve the proceedings out of the jurisdiction, citing that England was not demonstrated to be the appropriate forum. The freezing injunction against Malofeev was discharged. The Court of Appeal dismissed the appeal, with Lloyd LJ giving the judgment. Rimer LJ and Aikens LJ concurred.
The Supreme Court dismissed the appeal. Lord Mance delivered the leading judgment, stating that England was not the appropriate forum. The Court found errors in the interpretation of applicable law but maintained the ultimate conclusion. Lord Neuberger gave a concurring judgment on piercing the corporate veil, expressing reservations about extending the principle.
The Court considered the issue of piercing the corporate veil but concluded that it was unnecessary to decide definitively. The argument for piercing the corporate veil was characterised as an extension of existing law. Lord Neuberger expressed reservations about piercing the corporate veil, stating that a strong justification would be required for such an extension. He highlighted the potential inconsistency with the principle in Salomon v A Salomon & Co Ltd [1897], where a legally incorporated company is treated as an independent person with its own rights and liabilities.
Lord Neuberger also noted that the concept of abusing the corporate structure may not add substance to the debate and could be an illegitimate extension of circumstances where the veil can be pierced. The Court emphasised that, even if the veil could be pierced, the facts of the case did not support the notion that Russagroprom was used as a facade to conceal true facts. The proposed extension of the veil-piercing principle lacked a strong justification and was contrary to authority and principle.
Lord Wilson concurred with the majority but expressed reluctance to accept an overarching argument that English law recognises no principle allowing the corporate veil to be lifted. He suggested that defining the circumstances in which the veil may be lifted was challenging. Lord Clarke dissented on the question of the appropriate forum but reserved comments on the corporate veil for a future case. Lord Reed dissented on the issue of the appropriate forum and agreed with Lord Neuberger's concerns about piercing the veil, stating there were strong reasons against it.
In summary, the Supreme Court, while not definitively resolving the issue of piercing the corporate veil, expressed skepticism about extending the principle and highlighted the need for a strong justification in such cases. The decision emphasised the importance of considering the specific facts and circumstances surrounding the alleged misuse of the corporate structure.
VTB Capital plc claimed that Nutritek International Corp, its parent company, and a director named Konstantin Malofeev fraudulently misrepresented the value of dairy companies being sold to Russagroprom LLC. VTB was providing a $225 million loan to Russagroprom to facilitate the purchase of these dairy companies. VTB argued that it was misled into believing that Russagroprom was not already under common control with Nutritek. VTB sought to hold the owner of Nutritek, Marshall Capital Holdings, Marshall Capital LLC, and Konstantin Malofeev jointly liable due to their control over Nutritek. Russagroprom later defaulted on the loan, and only $40 million was recovered. VTB attempted to amend the claims to pierce the veil of Russagroprom and hold the defendants liable under the loan agreement.
The High Court refused permission to amend and serve the proceedings out of the jurisdiction, citing that England was not demonstrated to be the appropriate forum. The freezing injunction against Malofeev was discharged. The Court of Appeal dismissed the appeal, with Lloyd LJ giving the judgment. Rimer LJ and Aikens LJ concurred.
The Supreme Court dismissed the appeal. Lord Mance delivered the leading judgment, stating that England was not the appropriate forum. The Court found errors in the interpretation of applicable law but maintained the ultimate conclusion. Lord Neuberger gave a concurring judgment on piercing the corporate veil, expressing reservations about extending the principle.
The Court considered the issue of piercing the corporate veil but concluded that it was unnecessary to decide definitively. The argument for piercing the corporate veil was characterised as an extension of existing law. Lord Neuberger expressed reservations about piercing the corporate veil, stating that a strong justification would be required for such an extension. He highlighted the potential inconsistency with the principle in Salomon v A Salomon & Co Ltd [1897], where a legally incorporated company is treated as an independent person with its own rights and liabilities.
Lord Neuberger also noted that the concept of abusing the corporate structure may not add substance to the debate and could be an illegitimate extension of circumstances where the veil can be pierced. The Court emphasised that, even if the veil could be pierced, the facts of the case did not support the notion that Russagroprom was used as a facade to conceal true facts. The proposed extension of the veil-piercing principle lacked a strong justification and was contrary to authority and principle.
Lord Wilson concurred with the majority but expressed reluctance to accept an overarching argument that English law recognises no principle allowing the corporate veil to be lifted. He suggested that defining the circumstances in which the veil may be lifted was challenging. Lord Clarke dissented on the question of the appropriate forum but reserved comments on the corporate veil for a future case. Lord Reed dissented on the issue of the appropriate forum and agreed with Lord Neuberger's concerns about piercing the veil, stating there were strong reasons against it.
In summary, the Supreme Court, while not definitively resolving the issue of piercing the corporate veil, expressed skepticism about extending the principle and highlighted the need for a strong justification in such cases. The decision emphasised the importance of considering the specific facts and circumstances surrounding the alleged misuse of the corporate structure.
