The Legal Implications of the UKs Supreme Court's - Essay Example

? Number: The legal implications of the UK’s Supreme Court's decision in VTB Capital plc v. Nutritek International Corp & Others [2012] by reference to the principle of corporate personality and the law on lifting the corporate veil Introduction VTB Capital plc v. Nutritek International Corp & Others is one of the historical commercial cases that have several implications in law, especially the law on corporate personality and the law on the lifting of the corporate veil. The petition case of VTB Capital plc v. Nutritek International Corp & Others was founded on two issues of noteworthiness in commercial law. VTB Capital plc is an England integrated and regulated bank, although it is majority owned by the Russian government bank. VTB got into a contract loan accord with RAP; a Russian company, where VTB loaned $ 225 million to enable RAP purchase several Russian dairy entities from Nutritek. 1 RAP failed to pay on the loan, prompting VTB to bring a court action alleging that it had been fraudulently induced to come into a credit contract by Nutritek. VTB claimed that Nutritek and RAP presented themselves as if they were not under common control while indeed they were. Moreover, both companies represented the price of the dairy companies at a higher value that their real value. VTB claimed that these representations were false since the RAP and Nutritek were owned by a Russian businessman Malofeev. VTB claimed that Nutritek was liable as VTB relied on false information offered by Nutritek to enter into a contract with RAP. The two principle issues that have legal implications were: 1. Jurisdiction issue on whether VTB ought to be given authorization to supply actions out of the court’s authority. VTB held that the conditions in which deception involving foreign parties, but concerning to frauds apparently perpetrated in England ought to be heard by the English bench. 2. Piercing the corporate veil where VTB wanted to treat Malofeev as a contracting party to the loan agreement. This meant that Malofeev would be jointly and severally accountable with RAP. Appropriate forum One of the outstanding legal implications in VTB v. Nutritek & Others [2012] case is that; the Supreme Court has established a precedent that decisions on the forum will hardly be re-opened for appeal. This resulted from the strong words of the Supreme Court’s president lord Neuberger on claim parties having to set up mini trials on preliminary issues like jurisdiction. Lord Neuberger asserted that it is purely inconsistent for parties to bring high costs upon themselves, and use up countless days in court on a jurisdiction hearing. His counsel to appellate courts to be vigilant in disheartening appellants from arguing the advantages of evaluative interlocutory verdict made by a judge reinforces this fact.2 Lord Neuberger held that such re-openings would be allowed when a judge has made a noteworthy principle error only. The court of appeal refused VTB authorization to serve its claim out of the jurisdiction, noting that the law governing the supposedly tort claims was the Russian law. The Supreme Court upheld jurisdiction decision by referring to the case of Spiliada Maritime Corpn v Cansulex Ltd ([1987] AC 460)3. The Spiliada case set that the burden of proof is left on the claimant. Therefore, VTB had to establish that the English courts were indeed the right forum for the action trial. VTB claimed that there was a strong presumption in favor of English jurisdiction because the action of tort happened in England, referring to Berezovsky v Michaels (2000) case and the Albaforth (1984).4 The Supreme Court ruled against VTB holding that VTB was using an unhelpful approach by referring to “presumption” as this was setting the bar too high. The court held that it has to consider all factors as set by the common rule standard on jurisdiction as set in the Spiliada case. The ruling has the legal implication of giving clarity on the relationship involving the Albaforth and the Spiliada that the case of Berezovsky v Michaels had left prone to reservation.5 Thus, it is clear that the Spiliada test is superior to Berezovsky v Michaels as it requires the court to establish which forum between competing forums is most suitable. Berezovsky test presumes jurisdiction depending on the place of commission alone, which the Supreme Court said was too simplistic. Corporate veil and corporate personality A properly incorporated company is a legal person separate from its owners. A corporation has the right and liabilities similar to those of a natural person. Any legal responsibility sustained by the corporation is restricted to the corporation. Moreover, legal responsibility does not stretch to company controllers and owners. In the same way, every charge brought upon by the owners is restricted to them and does not stretch to the company. This concept is referred to as the law on corporate personality. According to Salomon v A Salomon and Co ltd (1897) case; a company attains a separate and distinct legal personality, which is different from its members. 6 As such, it makes contracts, sue and be sued, own property and infinite life beyond that of its members. As such, the shareholders cannot be sued to enforce contracts to where the corporation is a contract party. This was reinforced in the case of Ord v Belhaven (1998)7. In extraordinary cases, the English bench will act to lift the veil, and will not preserve the separate identities of the company and its owners. Lifting the corporate veil is the major exception to the concept of limited liability. It is worth noting that although a company is a corporate legal entity, a company can only act through agents that make it. Lifting the veil thus implies to attributing liability of a company to its controllers or attributing the liability of controllers to the company. One legal implication arising from VTB v. Nutritek & Others (2012) relating to the law on corporate veil is that plaintiffs will not be allowed to go for corporate structures in a bid to enforce jurisdiction accords. This followed the unanimous decision by the Supreme Court that lifting the corporate veil to take a third party as a co-contracting party was against common law principle and authority.8 Therefore, it is essential pertinent for commercial contracting parties to carry out due care and attentiveness while contracting with foreign parties. It is also necessary to incorporate the eventual ownership structure while contracting with foreign parties. Corporate veil is lifted in some instances, especially when the corporate structure is used as a facade or sham to cover wrongdoings. VTB argued that Malofeev should be prosecuted jointly and severally with RAP and Nutritek as he controlled both. However, this application was turned down by the Supreme Court on the foundation that the case was an interlocutory petition; furthermore, VTB could not make it in any case. Malofeev held that the court could not lift the veil as VTB assertion was an unprincipled annex of the principle. 9 The judge recognized that the ability to lift the veil is ambiguous because it runs up against the classic principle of separation of legal personalities stipulated in the Salomon case. The lifting is also ambiguous in that it has been described as a remedial action in some cases while in initiated by the finding of a sham in others. The principle of the corporate veil was contentiously extended in the Alliance Bank JSC v Aquanta Company (2011)10 and Antonio Gramsci Shipping Corp v Stepanovs (2011) cases. In Gramsci case, lord Burton asserted that the corporate curtain had to be lifted in order to sanction company directors to be prosecuted under the corporation’s contract as though they were parties to the contract. Gramsci entailed a deceptive shipping charter party plot, which caused in substantial indecision in commercial law. The reason is that it is largely viewed as an over annex of the legal principle to give justice on a fairly tremendous set of facts. The Supreme Court explicitly overruled Gramsci contending that it was unwarranted to extend the principle in the current case. 11 The court held that if the defendant was treated as a contracting party, it would set a strange and objectionable conclusion and precedent that Malofeev & Co has unsuspectingly become parties to the agreement. In verity, Malofeev, Nutritek and RAP did not intend it to be so at the time of contract. The court held that the principle and the law on separate personality set out in Salomon’s case should prevail. The law on separate personalities was also upheld in the case of Adams v Cape Industries plc (1990). The legal implication of this case is that Gramsci decision of extending corporate veil on the basis of fairness was left to be decided in the future. In case another issue arises in the future where the plaintiff wants the court to lift a corporate veil, the judge has to act with the utmost discretion. The reason is that the Supreme Court in the VTB case doubted on the exactness of the verdict in the Gramsci case. The judge will need to evaluate the facts arising from the case and put the ambiguities identified above arising from the lifting of the corporate veil doctrine. Bibliography Armour, J, The Anatomy of Corporate Law: A Comparative and Functional Approach. Oxford, Oxford University Press, 2009. Colleier, B, Common Law Principles Applicable to Lifting The Corporate Veil In Malaysia And Singapore, nd, Accessed on 11 June 2013 from< http://www.austlii.edu.au/nz/journals/CanterLawRw/1998/4.pdf>. Corentin, K, The corporate personality and the possibility to lift the veil, 2009, Accessed on 11 June 2013 from< http://www.legavox.fr/blog/corentin-kerhuel/corporate-personality- possibility-lift-veil-230.htm#.Ubbcv9h4rZ4>. Forji, G.A, The veil doctrine in company law, 2007, Accessed on 11 June 2013 from< http://www.llrx.com/features/veildoctrine.htm>. Global corporate law, VTB v Nutritek: Piercing the Corporate Veil: UK Supreme Court Preview, 2012, Accessed on 11 June 2013 from< http://globalcorporatelaw.wordpress.com/2012/11/09/VTB-v-nutritek-piercing-the- corporate-veil-uksc-live-12-14-november-2012/>. Hilary Term H, Judgment: VTB Capital plc (Appellant) v Nutritek International Corp and others (Respondents), 2013, Accessed on 11 June 2013 from< http://www.supremecourt.gov.uk/decided-cases/docs/UKSC_2012_0167_Judgment.pdf> McLaughlin, S, Unlocking Company Law 2nd Edition. UK, Taylor & Francis, 2013. McNAIR Chambers, UK Supreme Court Rules Corporate Veil Cannot Be Pierced In VTB v. Nutritek, 2013, Accessed on 11 June 2013 from< http://www.mcnairchambers.com/media/documents/201303/UK_SUPREME_COURT_R ULES_CORPORATE_VEIL_CANNOT_BE_PIERCED_IN_VTB_v_5thMarch2013.pdf >. Ross, C, The corporate veil remains drawn: VTB Capital Plc v Nutritek International Corp, 2013, Accessed on 11 June 2013 from< http://www.lexology.com/library/detail.aspx?g=c399bd90-c4cd-4e0a-b627- 584a1022d5ae>. Sealy, L, and Worthington, S, Cases and Materials in Company Law, Oxford, Oxford University Press, 2007. The Lawyer, The importance of VTB v Nutritek, 2013, Accessed on 11 June 2013 from< http://www.thelawyer.com/the-importance-of-VTB-v-nutritek/3000647.article>. Read More