The "corporate veil" between the separate personality of a company and its shareholders can be pierced, but not so as to make them all party to a contract to which only one had in fact agreed.
Piercing the corporate veil has had a lively but mixed judicial treatment. Although a number of decisions have pierced the corporate veil, it has been doubted whether it in fact exists as a separate doctrine because many of the cases can be explained in other ways. By contrast, two recent decisions had used this doctrine to bind both company and shareholder to a contract to which only one had agreed.
In VTB Capital PLC -v- Nutritek International Corp. & Others  EWCA Civ 808 the Court of Appeal has clearly decided that the corporate veil can be pierced under English law but equally clearly that this cannot have the effect of making the company or shareholder party to a contract to which only the other was party.
The assumed (and simplified) facts
VTB lent a large sum to a Russian company, RAP, to fund the purchase of Nutritek. It did so on the basis of a representation by Nutritek that it and RAP were independent. In fact, they were under common ownership or control, exercised through a network of companies, "pursuant to a common design". The representation was also given by the ultimate beneficial owner of Nutritek and the various companies through which he exercised his control of both RAP and Nutritek. When RAP subsequently defaulted on the loan, VTB brought proceedings to recover the balance from the ultimate beneficial owner and companies through which he exercised his ownership and control of RAP. In addition to the contractual liability to repay the loan, the facility agreement included a clause conferring jurisdiction on the English Courts and the case came to the Court of Appeal as a challenge to that jurisdiction.
The corporate veil can be pierced, but this cannot create a contractual liability or enable a contractual jurisdiction clause to be enforced, except against the actual contracting party.
English Courts may pierce the corporate veil with the result that "the puppet company and the controlling puppeteer are to be closely identified, an identification that will or may be regarded as justifying the grant of a judicial remedy against the puppet as well as the puppeteer, if only on the basis that it will be just and convenient to do so. They do not, however, go to the length of treating the puppet company as other than a legal person that is formally distinct and separate from puppeteer".
The Court of Appeal analysed the two decisions of Burton J at First Instance (Antonio Gramsci Shipping Corporation & Others -v- Stepanovs  EWHC 333 (Comm) and Alliance Bank JSC -v- Aquanta Corporation & Others  EWHC 3281 (Comm)) holding that the corporate veil could be pierced so as to impose contractual liability.
The Court concluded, however, that "no authority… supports the proposition that, once the veil is pierced, the court either does or can… proceed in consequence to a holding either that the puppet company was a party to the puppeteers contract or vice versa".
Further, the Court of Appeal also rejected the suggestion that "even if founded on mistaken reasoning, Gramsci and Alliance anyway represent a principled development of the law that this court should adopt".
Where Does This Leave Corporate Veil Piercing?
Establishing jurisdiction will be more difficult. The victim cannot rely upon a contractual jurisdiction clause, except against the nominal contracting party.
Nonetheless, piercing the corporate veil is now clearly established in an appropriate case. Questions, however, remain: when is it appropriate and what will it mean?
The Court of Appeal served up something of a smorgasbord of formulations of the circumstances in which it will be appropriate to pierce the corporate veil. Ownership and control are necessary, but not themselves sufficient. There must be "impropriety", but it must be "in the nature of an independent wrong that involves a fraudulent or dishonest misuse of the corporate personality the company for the purposes of concealing the true facts".
The basis on which this jurisdiction will be exercised is less clear. The Court of Appeal said that "any order made in consequence of such veil piercing is by way of the exercise by the court of the discretionary jurisdiction". Its explanation of the grant of injunctive relief in the absence of a contractual cause of action in such cases as Gilford -v- Home Motors  1 Ch 935, was simply that, "it was regarded by the court is just and convenient to do so … the court was prepared … to grant discretionary, equitable relief against both the contract breaker and the company he was using to perpetrate his own continuing breaches".