VTB Capital Plc v Nutritek International Corp & Ors

Factual and Procedural Background

The Appellant (“Plaintiff”), an English-incorporated and regulated bank (Company A), advanced about USD 225 million to a borrower (Company E) under a Facility Agreement dated 23 November 2007. The money was paid from the Plaintiff’s London account to the borrower’s London account and then immediately transferred to the seller of several dairy businesses (Company B). The borrower defaulted after three interest payments and the security proved to be worth only a small fraction of the loan.

The Plaintiff alleges that it was fraudulently induced in The Capital to enter into the Facility Agreement and an associated interest-rate swap by misrepresentations that (i) the borrower and the seller were not under common control and (ii) the dairy businesses were worth far more than their true value. The alleged misstatements are attributed to Company B, two other offshore entities (Company C and Company D) and an individual Russian businessman (“Defendant”).

Permission to serve the tort claim out of the jurisdiction was granted ex parte. The served Defendants applied to set aside service; the Plaintiff simultaneously sought to amend its pleadings to add contractual claims on the basis that the borrower’s corporate veil could be pierced. Judge [First Instance] set aside service and refused the amendment. The Court of Appeal upheld both rulings—although on somewhat different reasoning—and the Plaintiff appealed to the Supreme Court.

Legal Issues Presented

1. Whether England (“The State”) or Russia (“Another State”) is the clearly appropriate forum for adjudicating the Plaintiff’s deceit and unlawful-means conspiracy claims.
2. Whether English or Russian law governs the alleged torts under the Private International Law (Miscellaneous Provisions) Act 1995.
3. Whether the corporate veil of the borrower can be pierced so as to render the Respondents contractually liable under the Facility Agreement and swap.
4. Whether a worldwide freezing order (“WFO”) against the individual Defendant should remain in force.

Arguments of the Parties

Plaintiff's Arguments

• The misrepresentations were received and relied upon in The Capital; the loan was disbursed there and loss was suffered there, so the torts were committed in The State.
• English law therefore governs under s.11 of the 1995 Act; no s.12 displacement is justified.
• The Facility Agreement is governed by English law and contains an English jurisdiction clause, evidencing the parties’ intention that disputes be resolved in The State.
• The corporate veil can be pierced because the borrower was a façade deployed to perpetrate fraud; the Defendants should be deemed co-contractors.
• Continuing the WFO is necessary to prevent dissipation of assets.

Defendants' Arguments

• The centre of gravity of the alleged fraud is Russia: negotiations, decision-making and most witnesses are located there.
• Russian law governs, or at least the differences between English and Russian law will require expert evidence in any forum, so governing law is neutral.
• Piercing the corporate veil is impermissible in principle, or, if it exists, the facts here do not justify it.
• No real risk of asset dissipation exists; the WFO is oppressive.

Table of Precedents Cited

Court's Reasoning and Analysis

Forum. A majority of the Supreme Court (Judge Mance, Judge Neuberger, Judge Wilson) held that the Plaintiff had not shown England to be clearly the appropriate forum. Although the tort was committed in The State, substantial preparatory acts, witnesses and documents were in Another State; the common design giving rise to liability was also formed there. The governing-law factor was discounted because factual issues predominated and Russian courts could apply English law if necessary.

A minority (Judge Clarke and Judge Reed) found legal errors in the lower courts’ approach. They concluded that (i) English law unquestionably governed under s.11 of the 1995 Act, (ii) no displacement under s.12 was justified, (iii) the place of commission of the tort and the English jurisdiction clause combined to make The State the natural forum. On their view, service out should have stood.

Piercing the Corporate Veil. The Court unanimously rejected the proposed amendment. Judge Neuberger (with whom all agreed on this point) held that treating the individual Defendant and his companies as co-contracting parties would be an impermissible extension of the veil-piercing doctrine. Even if such jurisdiction existed, the pleaded facts (control and misrepresentation) fell outside any recognised category.

Freezing Order. Since jurisdiction was declined, the WFO had to be discharged. Even had jurisdiction been exercised, Judge [First Instance] had found independent reasons (lack of dissipation risk and material non-disclosure) for refusing continuation.

Holding and Implications

Majority Holding: APPEAL DISMISSED. The set-aside of service out, refusal to amend, and discharge of the freezing order were all upheld.

Implications:

• Re-affirms that a claimant must still demonstrate that England is clearly the appropriate forum even where the tort was committed and loss suffered here.
• Confirms judicial caution in expanding veil-piercing; fraudulent inducement alone will not render non-parties contractually liable.
• Highlights risk that interlocutory freezing relief may remain in force for long periods pending appeals; courts signalled the need for restraint.
• No new precedent was set on the substantive tort or on veil-piercing, but the decision clarifies the weight to be accorded to governing law and jurisdiction clauses within forum disputes.