FRAUD - Lifting The Corporate Veil

Reflecting the increasing volume of fraud cases before the English court, there have been a plethora of significant rulings handed down during the course of this year. One of particular note concerns an extension of the ability to lift the corporate veil, which arose in the case of Gransci Shipping Corporation and Others -v- Stephanovs [2011] EWHC 333. In that case the Defendant was made liable under a contract to which it was not a party. The decision therefore raises some fundamental points of contractual law. In Gransci, the Claimants asserted that the court should pierce the corporate veil in circumstances where a number of corporate defendants were used by the Defendant (and the other beneficial owners controlling them), as a device for a fraud on the Claimants. The Claimants went on to assert that if the corporate veil was lifted, the Defendant should be made a party to the charterparties which the Claimants had been caused to enter into with the corporate defendants. As to whether to lift the corporate veil, the Judge referred to the leading decisions in this field, including the seminal decision of Trustor AB -v- Smallbone; in which Sir Andrew Morritt VC held that "in my judgment the court is entitled to pierce the corporate veil and recognise the receipt of the company as that of the individual in control of it, if the company was used as a device or facade to conceal the true facts, thereby avoiding or concealing any liability of those individuals". The Judge concluded that that was precisely what had taken place on the facts before him in Gransci and the fraudulent activity could not have been said to be outside the ordinary business of the company, when the company was set up for that very purpose. Having found that there were grounds for the corporate veil to be lifted, the Judge then went on to consider the point as to whether in such circumstances the Defendant should be jointly and severally liable under the charter party. It was the Claimants' case that, having found that the corporate veil should be pierced, it followed that the Defendant ("the puppeteer") should therefore be jointly and severally...