High Court refuses to let the corporate veil be pierced to allow contractual claims against non-contracting parties - declines to follow Antonio Gramsci Shipping Corp v Oleg Stephanovs
An excellent note from Allen & Overy on the recent High Court judgment in VTB Capital v Nutritek International, in which the court:
“concluded that the corporate veil could not be pierced to allow a contractual law claim for damages, as distinct from an equitable remedy, whenever a company is used as a device or façade to conceal the true facts. The judgment contains a useful analysis of the key authorities on piercing the corporate veil as well as a criticism of the recent Gramsci v Stephanos decision where the court thought that there was a good arguable case that a non-contracting beneficial owner of a corporate defendant should be bound by the jurisdiction clause contained in a contract between the claimant and the corporate defendant”.
The analysis of authorities on piercing the corporate veil is at paragraphs 69 to 102 of the judgment.
A&O’s comment is:
“Comment: Arnold J’s decision is significant not only because of the very thorough analysis of the authorities on piercing the corporate veil doctrine but also because of its detailed criticism of the Gramsci judgment, holding that the approach of Burton J was wrong. Before Gramsci there were no reported cases in which the puppeteer had been placed into the shoes of the puppet in a contractual relationship entered into by the puppet. In previous cases the corporate veil had only been pierced to impose equitable remedies on a “puppet” in order to prevent a puppeteer from evading contractual liability, not to enforce a contract against a non-contracting puppeteer.
It remains to be seen whether the approach adopted by Burton J in Gramsci will be adopted in the future, however the decision of Arnold J (also a first instance decision) perhaps suggests not.”
As both judgments are first instance decision, it may be that the Court of Appeal will take this forward.
UPDATE 25 June 2012: The High Court’s approach in VTB Capital v Nutritek International has been upheld by the Court of Appeal, and so Gramsci has been overruled on this point. The Court of Appeal judgment is here (review of relevant case law on piercing the corporate veil at paragraphs 40 to 96).
UPDATE 6 February 2013: The Supreme Court has upheld the Court of Appeal’s decision and refused to let the corporate veil be lifted to allow a contractual claim againts a non-contracting party, as we discuss here.
Friendly Corporate PSL
To subscribe for our free weekly update e-mail, click here.