Hilary Term [2013] UKSC 5

On appeal from: [2012] EWCA Civ 808

JUDGMENT

VTB Capital plc (Appellant) v Nutritek

International Corp and others (Respondents)

before

Lord Neuberger, President

Lord Mance

Lord Clarke

Lord Wilson

Lord Reed

JUDGMENT GIVEN ON

6 February 2013

Heard on 12, 13 and 14 November 2012

Appellant Mark Howard QC

Paul McGrath QC

Iain Pester

Tony Singla

(Instructed by Herbert

Smith Freehills LLP)

2nd Respondent Michael Lazarus

Christopher Burdin

(Instructed by SJ Berwin

LLP (up to 1st December

2012) and Fried, Frank,

Harris, Shriver & Jacobson

(London) LLP (from 1st

December 2012))

4th Respondent Mark Hapgood QC Stephen Rubin QC James McClelland

(Instructed by by SJ Berwin LLP (up to 1st December 2012) and Fried, Frank, Harris, Shriver & Jacobson

(London) LLP (from 1st December 2012))

LORD MANCE

Introduction

1. The appellant, VTB Capital plc (VTB), is incorporated and registered, and authorised and regulated as a bank, in England. It is majority-owned by JSC VTB Bank (VTB Moscow), a state-owned bank based in Moscow. The first, second and fourth respondents are, respectively, Nutritek International Corp (Nutritek), Marshall Capital Holdings Ltd (Marcap BVI), both British Virgin Islands companies, and Mr Konstantin Malofeev, a Russian businessman resident in Moscow said to be the ultimate owner and controller of both, as well as of the third respondent, Marshall Capital LLC (Marcap Moscow), a Russian company which has not been served.

2. The present case arises from a Facility Agreement dated 23 November 2007 (the Facility Agreement) entered into between VTB and a Russian company, Russagroprom LLC (RAP), under which VTB advanced some US$225,050,000 to RAP. The advance was primarily to enable RAP to buy six Russian dairy companies and three associated companies (the dairy companies) from Nutritek. After making three interest payments (and no payments of capital), RAP defaulted on the loan in November 2008. VTB believes the security provided for the loan to be worth only in the region of US$32m to US$40m.

3. VTBs case is that it was induced in London to enter into the Facility Agreement, and an accompanying interest rate swap agreement, by misrepresentations made by Nutritek, for which the other respondents are jointly and severally liable. The misrepresentations alleged are, first, that RAP and Nutritek were not under common control, and second, that the value of the dairy companies was much greater than they were in fact worth. VTBs case is that the misrepresentations were fraudulent.

4. In order to bring proceedings in tort in England against any of the respondents, VTB required permission to effect service on them out of the jurisdiction. Permission was obtained from Master Winegarten on 11 May 2011. The first, second and fourth respondents were served, and applied to set aside the service. In response, VTB applied for leave to amend its particulars of claim to add a contractual claim, seeking to hold the respondents liable for breach of the Facility Agreement and interest rate swap, on the basis that RAPs corporate veil could in the circumstances be pierced and the respondents held liable as persons behind the borrowing. The respondents application to set aside succeeded and Page 2

VTBs application to amend failed before Arnold J, and the Court of Appeal upheld his decision on both points, albeit by reasoning in some respects different.

5. As to service out, it is common ground, in the light of the decisions below, that VTB has a serious issue to be tried in tort against each of the respondents, and a good arguable case that its tort claims fall within CPR Part 6, PD 6B, para 3.1(9)(a), on the basis that they led to VTB sustaining damage within the jurisdiction. But both courts below held that VTB failed to show that England was clearly or distinctly the appropriate forum for resolution of VTBs tort claims. As to piercing the corporate veil, both courts have held that, although such a principle exists, no basis exists in the present circumstances for applying it to hold the respondents liable on a Facility Agreement or interest rate swap, into which they are alleged to have induced VTB to enter by deceit.

6. VTB now appeals by permission of the Supreme Court on both points, which I will consider in turn.

Appropriate forum - the basis of the claims

7. Both the alleged misrepresentations on which VTB relies originated in Russia, but they reached VTB in London (very probably via VTB Moscow), and were relied upon by VTB there when it gave formal agreement to the Facility Agreement and interest rate swap there. Further, VTB sustained its loss by disbursing money in and from London, although, as will appear, it was in fact covered by VTB Moscow against any loss which it might otherwise make on the loan. In these circumstances, I address the question of the appropriate forum on the basis that, contrary to the conclusion of the judge and Court of Appeal, the law governing the alleged tort of deceit is English rather than Russian law. In summary, this is because England is the place where the events constituting the tort occurred, within the meaning of section 11(1) of the Private International Law (Miscellaneous Provisions) Act 1995 and the respondents have not shown under section 12 that the significance of the factors connecting the tort with Russia is such that it is substantially more appropriate for Russian rather than English law to apply to determine the issues arising in this case. Whether the same applies to the alleged tort of conspiracy was not the focus of detailed submissions on this appeal and appears to me more doubtful. The conspiracy was to commit the deceit, but since both are based on a common design allegedly formed in Russia, that is a point that cuts both ways. I am however content to proceed on the basis that the conspiracy was, like the deceit, governed by English law, since ultimately in my view it makes no difference to the result.

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8. It is relevant in the light of the above to examine the pleaded basis for the allegations of deceit and conspiracy. Each of these alleged torts depends upon an allegation that the first respondent, Nutritek, made false representations as part of a common design and conspiracy with the other respondents to defraud VTB: amended particulars of claim, paras 27(f) and (g). They acted in concert pursuant to a common design: amended particulars of claim, para 67(a). The nominal owner of Nutritek was the second respondent, Marcap BVI. Marcap BVI through another company owned and controlled Marshall Capital LLC (Marcap Moscow), and it is pleaded that Marcap through Marcap BVI had de facto control of and beneficially owned in part Nutritek (amended particulars of claim, para 68(a); see also para 55) and that The whole transaction under which VTB was defrauded was co-ordinated by Marcap (para 68(d)). Marcap is defined as the Marshall Capital group of companies (para 3). These pleaded formulations no doubt point to the reality that the affairs of Nutritek were controlled in Moscow, by Marcap Moscow through Marcap BVI, and, consistently with this, Marcap Moscows offices and personnel feature prominently in the history of the transaction: see e.g. amended particulars of claim, paras 30 and 69 and para 19 below.

9. It follows that, even though the tort of deceit was itself committed in England, the alleged tortious responsibility of all the respondents depends upon its being established that they were party to a common design. On the facts of this case, it is also clear that any common design is alleged to have been and must have been formed in Russia. That is where Mr Malofeev and Marcap Moscow are based and it is Marcap who co-ordinated the transaction under which the fraud allegedly occurred and through Mr Malofeev as Marcap BVIs agent that the Court of Appeal held that there was a good arguable case against Marcap BVI: see judgment, para 127. As to Nutritek that was, like Marcap BVI, a British Virgin Islands company, but it was principally owned by two Russian companies (see amended particulars of claim, para 2(a)), it was managed in Russia, no doubt through Marcap Moscow, and the approach relating to the proposed sale and facility agreement was made on its behalf to VTB Moscow by Mr Malofeev. The principal witnesses from all three respondents who have been served in relation to the alleged torts will come from Russia.

10. The conclusion that the alleged tort of deceit is governed by English law is very relevant to the question of the appropriate forum, and I am prepared to assume that the alleged tort of conspiracy is also governed by English law. However, assuming English law to govern both alleged torts, no one suggests that this is decisive of the appropriate forum. For reasons I have already indicated, the common design on which VTBs tortious claims depend is thoroughly Russian.

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The legal principles regarding appropriate forum

11. The appeal was originally presented to the Supreme Court as raising a significant issue regarding the nature and extent of the relevance of the governing law and the way in which this should be expressed. The suggestion was that a conclusion that the tort was committed in England gave rise to a strong presumption in favour of an English forum. It was submitted that the Court of Appeal had unjustifiably diluted this. It appears clear that it was only before the Court of Appeal that the suggestion was evidently first advanced. The judges judgment makes no reference at all to the line of authority represented by Cordob