VTB Capital plc v Nutritek International Corp [2013] UKSC 5

Facts

• The dispute involved a loan contract between VTB Capital plc and a company controlled by Mr. Konstantin Malofeev.
• VTB Capital alleged that Mr. Malofeev orchestrated a scheme to avoid repayment of the loan by transferring assets from the borrower to related entities.
• VTB argued that the corporate veil should be pierced to hold Mr. Malofeev personally liable for the debt in question.

Issues

1. Whether the court can disregard the corporate veil to assign personal liability for a company's debts where the controlling individual allegedly misused the corporate structure.
2. Under what circumstances the corporate veil may be ignored in English law.
3. Whether it is sufficient to show a company was a mere 'front' or whether intentional evasion of existing legal duties is necessary.

Decision

• The Supreme Court held that a court may only pierce the corporate veil in narrowly defined circumstances.
• The “evasion principle” applies only where there is misuse of the corporate structure specifically to evade or frustrate an existing legal obligation or enforceable right.
• It is not enough that the company was a ‘front’ or merely controlled by the individual in question.
• The court clarified that forming a company to avoid future potential liabilities does not meet the necessary threshold.
• On the facts, the court rejected VTB’s arguments and declined to pierce the corporate veil to impose personal liability on Mr. Malofeev.

Legal Principles

• The principle of separate legal personality, established in Salomon v A Salomon & Co Ltd [1897] AC 22, remains fundamental.
• The "concealment principle" allows courts to identify the real actors behind a company without disregarding corporate personality.
• The "evasion principle", a true exception, permits piercing the corporate veil only to prevent a person from evading existing legal responsibilities by misusing the company structure.
• Simple control or use of companies as ‘fronts’ is insufficient; there must be proof of using the corporate form to avoid, defeat, or frustrate an existing legal duty or right.
• The decision clarifies and narrows the circumstances in which the remedy of piercing the corporate veil may be available in English law.

Conclusion

The Supreme Court in VTB Capital plc v Nutritek International Corp strictly limited the circumstances under which the corporate veil may be pierced, confirming that only the deliberate misuse of a company to evade existing legal obligations will justify such intervention, thereby reaffirming the importance of the separate legal personality principle in company law.