Canada: The Second Opinion: The UK Supreme Court Addresses A Host Of Conflict Of Laws Issues

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

What law should a Court apply when determining whether to pierce the corporate veil of a foreign corporation?  How much deference should an appellate Court give to a lower Court's findings regarding the appropriate jurisdiction to adjudicate a case?  What law applies to transnational tortious misrepresentations?  These are among the many conflict of laws issues addressed by the UK Supreme Court recently in VTB Capital plc v. Nutritek International Corp.  The decision in VTB is relevant to the evolving conflict of laws jurisprudence in Canada.

Although very nuanced, the salient jurisdictional facts of the VTB case are, briefly stated, as follows.  VTB Captial plc ("VTB") is a bank incorporated in England.  VTB entered into various "loan" agreements with Russagroprom LLC ("RAP"), a Russian company, to finance RAP's acquisition of various Russian companies from Nutritek International Corp. ("Nutritek").  RAP defaulted on the loan.  VTB alleged that it entered into the agreements as a result of misrepresentations in England.  A businessmen resident in Russia called Mr. Malofeev ("Malofeev") was alleged to be the controlling owner of Nutritek, and two other corporations — one a British Virgin Island corporation ("Marcap BVI") and the other a Russian corporation ("Marcap Russia").  VTB alleged that Malofeev, Marcap BVI and Marcap Russia were jointly and severally liable for the misrepresentations.

After being served with the claim outside of England, Nutritek, Marcap BVI and Malofeev moved in the English courts to set aside service.  The judge at first instance ruled that England was not the appropriate forum to adjudicate VTB's claims.  The Court of Appeal agreed.  The UK Supreme Court, in a close 3-2 ruling, ultimately upheld these decisions.

In the course of its decision, the UK Supreme Court made some important comments regarding various conflict of laws issues.

First, the Court cautioned that a jurisdiction hearing should not become so extensive such that it risks turning into the "putative trial itself", particularly as the Court can only make preliminary findings at this stage.  Of note, the Court noted that a defendant is not obliged to advance a positive case on the merits when contesting the issue of the Court's jurisdiction.

Second, the Court affirmed that appellate Courts should generally not interfere with a lower court's ruling regarding the appropriate forum, absent significant error.  This ruling is reminiscent of the Supreme Court of Canada's recent remarks in Van Breda.

Third, the Court ruled that tortious misrepresentations are governed by the law of the jurisdiction in which they are ultimately received and relied upon – a principle that is often applied by Canadian courts.  The Court ruled that this is the case even if the misrepresentations have flowed through an intermediary before reaching their ultimate recipient.

Fourth, the Court posed various alternatives regarding the law which should govern the issue of piercing a foreign corporation's veil – the law of incorporation, the law of the forum, or the law of a contract connected to the piercing of the veil issue.  Although not ultimately deciding the issue, the Court hinted that more than one choice of law rule may apply to the issue.

The disagreement between the majority and minority speeches turned on the weight to be given to the governing law of the tort and non-exclusive jurisdiction clauses (referring to English courts) in the agreements.  The majority ruled that these factors are not conclusive and indeed have little weight in the context of the instant case.  The minority were prepared to give significant weight to the fact that the tort at the heart of the dispute was governed by English law and also cited the non-exclusive jurisdiction clauses as pointing toward England as the appropriate forum.

The hard-fought battle in VTB and the split result demonstrate that conflict of laws jurisprudence has still not achieved the measure of predictability so valued by clients and the extent of judicial discretion involved in determining the appropriate forum for a dispute.  Nonetheless, the case contains some important rulings and judicial remarks which will help to shape the developing Canadian jurisprudence.

Earlier posts on the VTB case can be accessed here and here.

The McCarthy Tétrault Opinions Group consists of members of the firm's litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions.  The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.

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