Puppet on a string

Since the House of Lords decision in Salomon v Salomon & Co [1897], it has been a fundamental principal of company law that a company has a separate legal personality. This means that shareholders are not normally liable for the acts or omissions of a company. However, the court will ‘pierce the corporate veil’ where the corporate structure has been used for the purposes of a fraud or as a device to avoid an existing contractual or legal obligation.

In Antonio Gramsci Shipping Corp & ors v Stepanovs [2011], Burton J considered the circumstances in which the corporate veil can be pierced. He then went on to provide guidance on two issues on which there was no previous authority, namely:

  1. whether the corporate veil could be pierced so as to render a ‘puppeteer’ shareholder a party to a contract entered into by a ‘puppet’ company; and, if so,
  2. whether the shareholder would be bound by an exclusive jurisdiction clause in that contract.


The claimants were 30 ‘one-ship’ companies incorporated in several offshore jurisdictions and all in the ultimate beneficial ownership of the Latvian Shipping Company (LSC). The claimants alleged that a group (consisting of the defendant and four others) of senior executives of LSC (the senior executives) masterminded a scheme whereby the claimants’ ships were chartered to numerous companies in their own control (the corporate defendants) and then sub-chartered to third parties at a much higher rate. The effect of the scheme was fraudulently to siphon substantial profits out of LSC’s shipping business. The claimants estimated their losses as being in the region of $100m.

The claimants initially brought proceedings against the corporate defendants and applied for summary judgment. Gross J gave the corporate defendants permission to defend the action but only on condition (in effect) that they paid $40m into court. The corporate defendants failed to comply with that condition and judgment was entered against them.

The senior executives, including the defendant, were effectively in control of the tanker fleet department at LSC and were, in large part, responsible for the decisions to charter the ships. In his judgment, Gross J said that there was ‘a real and prima facie cogent case to answer that the claimants’ corporate opportunities were diverted’, and:

‘It is difficult to avoid the conclusion that the “masterminds” behind the scheme… knew enough as to the transactions involved to expose them to a real and cogent case of dishonesty.’

The claimants then sought to ‘pierce the corporate veil’ and to hold the defendant jointly and severally liable with each of the corporate defendants in respect of their losses. They issued proceedings in England and obtained a freezing injunction against the defendant. The defendant disputed the jurisdiction of the English court and applied to set aside the service of the claim form. This article discusses Burton J’s judgment on that application. As this was an interim jurisdictional hearing, the claimants only had to establish that they had a good arguable case that the English court had jurisdiction to hear the dispute, as opposed to needing to prove this on the balance of probabilities. Nevertheless the judge’s conclusions provide helpful guidance on some difficult and important areas of the law.


The claimants sought to rely on English jurisdiction clauses contained in the standard form charterparties between them and the corporate defendants. They argued that the corporate veil should be pierced with the result that the defendant should be treated as a party to the charterparties and bound by the exclusive jurisdiction clauses contained in them. These arguments raised three main issues:

  1. whether this was a situation in which the corporate veil could be pierced;
  2. if so, whether the effect of piercing the corporate veil was that the defendant was ‘liable as a party’ to the charterparties; and
  3. if so, whether the defendant could be said to have agreed to the jurisdiction of the English court for the purposes of EU Regulation 44/2001 (the Regulation).


The English courts will only allow the corporate veil to be pierced in very limited circumstances. It is not enough to show that some impropriety has taken place or that piercing the corporate veil is in the interests of justice. As Sir Andrew Morritt VC said in Trustor AB v Smallbone & ors [2001]:

‘Companies are often involved in improprieties. Indeed, there was some suggestion to that effect in Salomon… but it would make undue inroads into the principle of Salomon‘s case if an impropriety not linked to the use of the company structure to avoid or conceal liability for that impropriety was enough.’

Therefore a claimant seeking to pierce the corporate veil must show that the corporate structure itself has been used as a means of perpetrating a fraud. Thus, in Jones v Lipman [1962], Russell J allowed the veil to be pierced where the company in question was:

‘The creature of the first defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity.’

In his skeleton argument, counsel for the defendant, Richard Millett QC, had argued that it was only possible to pierce the corporate veil where the relevant company or companies were in the sole control of the alleged wrongdoer. He submitted that the claimants could not satisfy this criterion because the corporate defendants were controlled by all of the senior executives, and not just by the defendant.

This point was not seriously pursued at the hearing but the judge (Burton J) dealt with it nevertheless. He accepted that situations may arise where the alleged wrongdoer does not have sufficient control of a company for it to be possible to say that the alleged wrongdoer is the alter ego of that company. However, where, as here, there are several wrongdoers who, between them, control the relevant company with a common purpose, the corporate veil could be lifted against each of the wrongdoers individually or against all of them collectively.

The defendant also argued that the court could only pierce the corporate veil where this was necessary to provide claimants with an effective remedy. Although not spelt out in the judgment, the defendant’s argument was presumably that, as the claimants had already obtained judgment against the corporate defendants, there was no need to pierce the veil to enable the claimants to pursue the defendant as well. The defendant relied in particular on a statement of Warren J in Dadourian Group International Inc v Simms & ors [2006] that:

‘In all of the cases where the court has been willing to pierce the corporate veil, it has been necessary or convenient to do so to provide the claimant with an effective remedy to deal with the wrong which has been done to him and where the interposition of a company would, if effective, deprive him of that remedy.’

Burton J disagreed with this statement, commenting that ‘what Warren J said seems to me plainly not to be the case’. He went on to refer to several cases where the court had pierced the corporate veil, notwithstanding the fact that an effective remedy could have been obtained against the relevant company. Burton J said that, as piercing the veil is an exceptional remedy, it may be open to a judge to decline to do so on the grounds that it is not necessary in a particular case. This did not mean, however, that a claimant always had to prove at the beginning of a claim that it was necessary to pierce the corporate veil. In the judge’s words, necessity was not a ‘fetter’ on a claim to pierce the corporate veil that needed to be ‘pleaded or proved in limine‘.

Having rejected the defendant’s arguments on control and necessity, the judge concluded that Gramsci was an appropriate case to pierce the corporate veil. Describing it as the ‘seminal passage’, Burton J quoted the following comment from Sir Andrew Morritt VC in Trustor:

‘In my judgment the court is entitled to “pierce the corporate veil” and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or façade to conceal the true facts, thereby avoiding or concealing any liability of those individual(s).’

Burton J was clear that, on the claimants’ case (which was sufficient at this interim stage), this was exactly what had happened. The corporate defendants were set up for the specific purpose of abusing the corporate structure to enable the senior executives to perpetrate the fraud and had no independent or non-fraudulent existence of their own.


The claimants’ case was that, as a result of the piercing of the veil, the defendant was jointly and severally liable under the 63 charterparties into which the corporate defendants had entered. However, there had been no previous case in which the effect of piercing the corporate veil had been to make a shareholder a party to a contract entered into by a company. This led the defendant to argue that piercing the veil was a ‘question of remedy only’. In other words, the effect of piercing the veil was, according to the defendant, to enable the court to make a particular order (such as an injunction or an order to pay damages) against a shareholder. It did not go so far as to actually place the shareholder in the company’s contract.

Burton J agreed with the claimants. In his view, there was no rule of jurisprudence or policy why the ‘victim cannot enforce the agreement against both the puppet company and the puppeteer who all the time was pulling the strings’. Burton J went on to say that the reverse was not the case; the puppeteer cannot, as a matter of policy, enforce the agreement against the victim, although the ‘puppet’ company can still do so.


Where, as here, parties to a dispute are domiciled in an EU member state, the question of whether the English courts have jurisdiction to hear that dispute is governed by Regulation 44/2001. Article 23 of the Regulation deals with exclusive jurisdiction clauses and provides that:

  1. ‘If the parties, one or more of whom is domiciled in a member state, have agreed that a court or the courts of a member state are to have jurisdiction to settle any disputes… that court or those courts shall have jurisdiction… Such an agreement conferring jurisdiction shall be either:
    • in writing or evidenced in writing.’

As has been seen, the judge concluded that there was a good arguable case that the corporate veil could, as a matter of English law, be pierced so as to make the defendant a party to the charterparties. The defendant argued, however, that the identity of the parties to the contract should, for the purposes of Article 23, be decided by reference to European law and that this would produce a different result.

Burton J disagreed. He considered the authorities, including the pivotal Coreck Maritime (Judgments Convention/Enforcement of Judgments) [2001] in some detail and concluded that the question of whether a party was an original party to a jurisdiction clause was to be decided by English law.

Having identified the parties to the charterparties as the claimants, the defendant and the corporate defendants, the next question was whether there was sufficient consensus between the parties for the purpose of Article 23. It was common ground that this was to be decided by EU law.

The defendant argued that there was no agreement, for the purposes of Article 23, between him and the claimants that disputes arising out of the charterparties should be subject to the jurisdiction of the English court. The claimants did not, at the time the charterparties were entered into, know about the defendant. Furthermore, the defendant had only agreed to the corporate defendants being sued in England, not to being sued there himself.

The judge rejected this argument. The test was whether the parties ‘clearly and precisely’ consented to the alleged jurisdiction clause. This did not mean, however, that the consensus needed to be ‘simultaneous’. There did not need to be a contract providing that the English courts would have jurisdiction to hear the dispute. Nor did there (contrary to the statement of Lewison J in Knorr-Bremse Systems for Commercial Vehicles Ltd v Haldex Brake Products GmbH [2008]) need to be a written record of the parties who were agreeing to the jurisdiction of the English courts. It would be sufficient that one party unilaterally indicated its consent to being sued in a particular jurisdiction and for that consent to be ‘accepted’ by the other party subsequently bringing proceedings in the relevant jurisdiction.

Therefore, in Gramsci, the necessary consensus could be established on the basis that either:

  1. the defendant was, as the alter ego of the corporate defendants, a party to the charterparties containing the exclusive jurisdiction clauses; or
  2. there was consent by the corporate defendants, and hence their alter ego, the defendant, to being sued in England and the claimants had confirmed or created the necessary consensus by suing on the jurisdiction clauses in the charterparties.

There was, therefore, a good arguable case that there was sufficient consensus between the parties.


  • The corporate veil can be pierced so as to make a ‘puppeteer’ shareholder a party to a contract entered into by a ‘puppet’ company.
  • For the purposes of Article 23 of Regulation 44/2001, the identity of the parties to a contract is determined by reference to English law (not European law).
  • Consent to being sued in the English courts can, for the purposes of Article 23 of the Regulation above, be given unilaterally and accepted by another party bringing proceedings in England on the basis of that consent.