Conflict of laws - Challenge to jurisdiction - Civil and commercial matters
Antonio Gramsci Shipping Corporation and others v Recoletos Ltd and others: Queen's Bench Division, Commercial Court (Mr Justice Teare): 12 July 2012
The claimants brought a claim against five offshore companies (the corporate defendants). Both claims arose out of what the claimants contended was a fraudulent scheme by which the corporate defendants had chartered a number of vessels owned by the claimants on charterparties at less than the market rate and sub-chartered the vessels at the market rate thereby depriving the claimants of the difference between the market rate and the charter rates, and keeping the profits for themselves.
The profits were to be used to enable the 7th defendant, L, and others to purchase shares in a Latvian Shipping Company, the parent company of the claimants. The jurisdiction in respect of the claim against the corporate defendants was established in that the charterparties provided for English jurisdiction. The claimants sought summary judgment on a claim for restitution of the profits unlawfully diverted, and on the basis that the charterparties were void or unlawful. The claimants subsequently obtained judgment against the corporate defendants following their failure to make the required payment into court.
The claimants sought, in addition, to make L and another defendant, S, liable for the diverted profits on the basis that they, along with others, had used the corporate defendants as a device for the purposes of diverting. The claimant contended that, in those circumstances, they were entitled to pierce the corporate veil and hold them jointly and severally liable with the corporate defendants. It was submitted that S and L were the true parties to the charterparties. S's application challenging the jurisdiction of the English court was dismissed. L applied to the court to challenge the jurisdiction of the court to hear and determine the claims brought by the claimants against him.
The issues for determination were: (i) whether there was a good arguable case that L was a beneficial owner and controller of the corporate defendants; (ii) whether the claimants were entitled to raise the corporate veil so that L (and the other beneficial owners of the corporate defendants) might be revealed as the true parties to the charterparties including the jurisdiction clause contained within them; (iii) whether jurisdiction could be established by virtue of article 23 of Council Regulation (EC) 44/2001 (on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) (the Brussels Regulation), namely whether L had indicated his willingness to be sued in the English court; and (iv) whether jurisdiction could be established under article 24 of the Brussels Regulation by virtue of a series of applications issued by L in which he had sought findings that the claimants had acted in contempt of court, in particular in respect of a freezing order.
The claimants adduced evidence that L had induced them to contract with the corporate defendants on terms which included a jurisdiction clause in favour of the English court. There was not direct evidence that L had himself expressed or indicated any willingness to be tried in the English court. In respect of issue (i) consideration was given to Canada Trust v Stolzenberg (the Canada Trust gloss)  1 All ER 318, which stated the test for establishing a 'good arguable case'. In respect of issue (ii), consideration was given to VTB Capital PLC v Nutriek and others (VTB)  All ER (D) 147 (Jun), which overruled Antonio Gramsci Shipping Corporation v Stepanovs (Gramsci)  1 All ER (Comm) 293. The latter case held that there was no good reason of principle or jurisprudence why a victim cold not enforce an agreement against both the 'puppet' company and the 'puppeteer' who, at the time, had been pulling the strings.
The court ruled: (1) It was settled law that the test for 'a good arguable case' was that one side had a much better argument on the material available. That the court was satisfied, or as satisfied as could be, having regard to the limitations which an interlocutory process imposed that factors existed which allowed the court to take jurisdiction (see  of the judgment).
In the instant case, the court was bound to apply the 'Canada Trust gloss' whilst being careful not to prejudice the determination of the factual issue at trial. In a case where there was, in the main, a conflict of evidence which could not be resolved without appearing to conduct a pre-trial review, it was particularly important that the court asked itself whether factors existed which allowed the court to take jurisdiction. In the instant case, the issue was whether L had been a party to that scheme as one of the beneficial owners and controllers of the corporate defendants.
There were weaknesses in the evidence of both parties. The evidence relied upon by the claimants appeared to have sufficient strength (assuming the claimants’ argument on the law was correct) to allow the court to take jurisdiction notwithstanding that, by reason of the conflict of evidence and the limitations imposed by the interlocutory process, the court was unable to conclude that the claimants had the better of the argument (see -,  of the judgment). Canada Trust Co v Stolzenberg (No 2)  1 All ER 318 applied.
(2) The veil piercing authorities did not go to the length of treating the puppet company as other than a legal person that was formally distinct from the puppeteer. It was settled law that Gramsci did not represent a principled development of the law in respect of veil piercing. The veil-piercing cases showed that the principle was, in its application, a limited one. The authorities did not go to the length of treating the 'puppet' company as other than a legal person that was formally distinct and separate from the puppeteer (see  of the judgment).
The court was bound to follow the decision of the Court of Appeal in VTB. It had to follow that the claimants, even if they established their factual case, could not show that they had a good arguable case against L on the law. Their case against him was based upon him being party to the charterparties and to the jurisdiction clause contained in them. However, although that case was supported by the decision in the S's case, that decision had been clearly overruled as wrong in law (see  of the judgment). The corporate veil would not be pierced (see ,  of the judgment). VTB Capital plc v Nutritek International Corp  All ER (D) 147 (Jun) applied; Antonio Gramsci Shipping Corporation v Stepanovs  1 All ER (Comm) 293 not followed.
(3) The national law determined who was party to the jurisdiction agreement whereas European Union law determined whether there had been sufficient 'consensus' between the parties identified by the national law. 'Consensus' in article 23 of the Brussels Regulation required a claimant to show that a defendant had clearly and distinctly consented to the alleged jurisdiction agreement. Such consensus had to be established on the facts (see ,  of the judgment).
The claimants were unable to establish jurisdiction pursuant to article 23 of the Regulation. In circumstances where, on the evidence adduced by the claimants, L had induced the claimants to contract with the corporate defendants on terms which included a jurisdiction clause in favour of the English court but where there had been no evidence that L had himself expressed or indicated any willingness (public or otherwise) that claims brought against him by the claimants might be tried in the English court, there was no arguable case that L has indicated his willingness to be sued in the English court so as to give rise to the sort of consensus required by article 23.
Just as it was not permissible to raise the corporate veil to reveal L as party to the charterparties and to the jurisdiction clause within them, so it was not possible to raise the corporate veil to reveal L as a person expressing his willingness to submit to the jurisdiction of the English court (see ,  of the judgment). The court did not have jurisdiction over L pursuant to art 23 of the Brussels Regulation (see  of the judgment). Antonio Gramsci Shipping Corporation v Stepanovs  1 All ER (Comm) 293 considered.
(4) The claimants knew that L was challenging the jurisdiction of the court. In those circumstances his complaints of alleged misconduct concerning the freezing order would be regarded by the well-informed bystander as limited to that and not extending to an acceptance that the court had jurisdiction to determine the claimants’ claim against him. For those reasons, the court did not have jurisdiction pursuant to article 24 of the Brussels Regulation (see ,  of the judgment). The court did not have jurisdiction over L pursuant to article 24 of the Brussels Regulation (see  of the judgment).
Simon Rainey QC, Robert Thomas QC and Natalie Moore (instructed by Clyde & Co) for the claimants; Anthony de Garr Robinson QC and Laurence Emmett (instructed by Pinsent Mason LLP) for L.