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Reflecting the increasing volume of fraud cases before the
English court, there have been a plethora of significant rulings
handed down during the course of this year. One of particular
note concerns an extension of the ability to lift the corporate
veil, which arose in the case of Gransci Shipping Corporation
and Others -v- Stephanovs [2011] EWHC 333. In that case
the Defendant was made liable under a contract to which it was not
a party. The decision therefore raises some fundamental
points of contractual law.
In Gransci, the Claimants asserted that the court should
pierce the corporate veil in circumstances where a number of
corporate defendants were used by the Defendant (and the other
beneficial owners controlling them), as a device for a fraud on the
Claimants. The Claimants went on to assert that if the
corporate veil was lifted, the Defendant should be made a party to
the charterparties which the Claimants had been caused to enter
into with the corporate defendants.
As to whether to lift the corporate veil, the Judge referred to
the leading decisions in this field, including the seminal decision
of Trustor AB -v- Smallbone; in which Sir Andrew
Morritt VC held that "in my judgment the court is entitled
to pierce the corporate veil and recognise the receipt of the
company as that of the individual in control of it, if the company
was used as a device or facade to conceal the true facts, thereby
avoiding or concealing any liability of those
individuals". The Judge concluded that that was
precisely what had taken place on the facts before him in
Gransci and the fraudulent activity could not have been
said to be outside the ordinary business of the company, when the
company was set up for that very purpose.
Having found that there were grounds for the corporate veil to be
lifted, the Judge then went on to consider the point as to whether
in such circumstances the Defendant should be jointly and severally
liable under the charter party.
It was the Claimants' case that, having found that the
corporate veil should be pierced, it followed that the Defendant
("the puppeteer") should therefore be jointly and
severally liable under the contracts to which the corporate
defendants ("the puppets") were a party. There was,
however, no reported case, where the veil having been pierced, the
"puppeteer" had been treated as a party to the
"puppets'" contract with the Claimants. Burton
J reviewed a number of the leading decisions, some of which had
touched on the possible consequences of lifting the veil but
ultimately this had not been relevant to the outcome. The
Judge ruled that there was no good reason of principle or
jurisprudence why the victim cannot enforce the agreement against
both the puppet company and the puppet which, all the time, was
pulling the strings. The Judge added that, although the
puppeteer can be made liable as a party to the contract, as a
matter of public policy he should not be able to enforce the
contract.
The particularly interesting aspect of this ruling is that, if
subsequently followed, this would give rise to the potential that
third parties (the puppeteers) become parties to contracts to which
they were not privy and consequently to the
jurisdiction/arbitration clauses in those contracts. This
would mean that such third-parties could arbitrate on and become
additional defendants to an arbitration and liable to claims in
such proceedings.
An application to lift the corporate veil has always been an
avenue open to claimants against unscrupulous defendants but only
where the evidence was particularly strong and never previously
posed as a ground upon which the puppeteer could be made subject to
the contract between the "puppet" and the claimant.
The ruling of Burton J in Gransci raises that prospect and
it will be interesting to see whether this decision is successfully
appealed or it is followed in subsequent rulings.
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