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Court Underlines Reluctance to Pierce Corporate Veil

In a ruling which emphatically reveals the reluctance of the English courts to pierce the corporate veil, the Court of Appeal (the Court) has declined jurisdiction to determine claims against a foreign businessman despite allegations that he used ‘puppet’ companies to perpetrate a major international fraud.

ship2The appellant, a shipping company, claimed that a number of offshore companies (the companies) had been used by the businessman as vehicles to enter into a series of fraudulent charter parties which resulted in diversion of profits and substantial loss.

The charter parties contained English jurisdiction clauses although the businessman was not himself a party to them. The appellant submitted that the English courts nevertheless had jurisdiction to entertain its claim under article 23 of EC regulation 44/2001 (the Brussels Regulation) on the basis that the businessman was the controller of the companies which had been established for the purposes of fraud.

The High Court had declined jurisdiction to hear the matter. However, in challenging that decision, the appellant argued that the businessman had used the companies as a device or façade to conceal wrongdoing and should be regarded as having consented to jurisdiction although he was not a party to the contracts.

In dismissing the appeal, the Court observed that the corporate veil may only be pierced in circumstances where a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.

On the appellant’s own case, the businessman had not expressed or indicated any willingness that claims brought against him by other contracting parties should be tried in England. Far from authorising the companies to contract on his behalf, he had specifically sought to avoid this by interposing the companies between himself and the appellant.