Fountain Court members have been involved in a recent case of great importance concerning international fraud litigation. Following a five-day hearing the Court of Appeal have upheld Mr Justice Arnold’s decision to decline jurisdiction over a $350 million fraud claim brought by VTB Capital Plc against Russian entrepreneur Mr Konstantin Malofeev. The Court of Appeal also held that a $200 million worldwide freezing order had been wrongly granted and should be discharged with an order that the cross-undertaking for damages be enforced.
VTB claimed that it had been deceived into entering a corporate finance loan facility with a Russian company, RAP. It brought tort claims against Mr Malofeev and others in deceit and conspiracy and sought to ‘pierce the corporate veil’ of RAP so as to hold Mr Malofeev personally liable under the loan contract. In support of this latter argument the Claimant relied upon the recent decision of Burton J. in Antonio Gramsci Shipping Corp v Stepanovs  EWHC 333 (Comm).
The Court of Appeal has now delivered a 64 page judgment in which it:
(1) Conducted a comprehensive survey of the authorities on “piercing the corporate veil” and (overruling Burton J’s decision in Gramsci) held that a claimant could not pierce the corporate veil so as to make a “puppet master” contractually liable under contracts entered into by his corporate “puppet”.
(2) Declined jurisdiction in relation to the claims in tort, accepting Mr Malofeev’s submissions that, even though some aspects of the alleged tort were said to have been carried out in England, the natural forum was Russia.
(3) Held that the worldwide freezing order had been wrongly granted and should be discharged with an order for the enforcement of the cross-undertaking in damages against VTB.
The Court of Appeal denied VTB permission to appeal to the Supreme Court but continued the WFO temporarily while permission was sought from that Court. An application to the Supreme Court for permission is pending.
The appeal was expedited and Mr Iain Milligan QC of 20 Essex Street led James McClelland before the Court of Appeal.
Mr Rubin QC and James McClelland are currently instructed to oppose VTB’s application for permission to appeal to the Supreme Court.