The other Lords generally agreed with Lord Sumption. In Prest v Petrodel [2013] UKSC 34 the English Supreme Court undertook a review of the principles of English law which determine in what circumstances, if any, a court may set aside the separate legal personality of a company from its members and attribute to its members the legal consequences of the company’s acts. . John Wilson QC examines a ground-breaking Supreme Court ruling on the separate identity of a corporate entity. In the 24 hours since the Supreme Court published its landmark decision in Prest v Prestodel Resources Ltd & Others ("Prest") there has been a tsunami of commentary upon its consequences. This allowed a judgment obtained against the defendant to be enforced against certain of the company’s assets. Only where it can be proved that the corporate structure is being used to conceal or avoid a liability will the protection ordinarily provided by the corporate veil be at risk. This was explained by Lord Sumption where he stated: “Mr Horne’s personal creditors would not, for example, have been entitled simply by virtue of the facts found by Farwell J, to enforce their claims against the assets of the company.”[28] In the case of Jones v Lipman[29]similarly, the judge decreed specific performance against both Mr Lipman against Mr Lipman on the concealment principle. The Court of Appeal decided that it would be contrary to principle and authority and therefore not appropriate to pierce the corporate veil to effect a contractual claim from the claimant against those alleged to be controlling the defendant companies, where those being pursued were not a party to that contract. Mr Justice Eder said that “the court will only pierce the veil so far as is necessary to provide a remedy for the particular wrong which those controlling the company have done. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. The first requirement of control was satisfied on this basis. In addition, the Guarantor was trying to sell the Property at the time of the freezing injunction application. In both Lipman and Horne the controllers of the companies had both accrued personal liability which was distinct from the company’s. The case is of great significance. Lord Herschell said of the doctrine of separateness “does not in point of law…render the shareholders liable to indemnify the company against the debts which it incurs”. The documents included a letter that the Guarantor had written to the Claimant prior to the funds being advanced attaching a net worth statement from a Greek certified public accountant that showed one of the Guarantor’s assets as a “residence in Fulham, 3,500,000 USD”. One of the most persuasive factors considered by Mr Justice Eder when considering the fifth principle was that the documentary evidence showed the Guarantor to be the ultimate owner and controller of the Company. But … The borrower subsequently defaulted on the loan. Mrs Prest appealed to the Supreme Court. The judgment of the Supreme Court in Prest v Petrodel Resources Ltd [2013] UKSC 34 was eagerly anticipated by family and corporate lawyers alike. [8] Perhaps it can be argued that this is not even a doctrine, but a thing that all have struggled to categorise. This has why the doctrine has faced so much criticism. The leading judgment was given by Lord Sumption, who observed that the law relating to the circumstances in which it would be permissible for the courts to pierce the corporate veil was characterised by “inadequate reasoning”. Mr Justice Eder emphasised that at the time the loan agreements were entered into, the Guarantor had told the Claimant that the Property was his asset and no mention of the Company had been made nor had the third defendant indicated that his interest in the Property was by way of a shareholding in the Company. The decision in Prest v Petrodel is an important and helpful one as it makes some attempt to identify the principle underpinning the jurisdiction and to clarify the situations in which it will be possible to pierce the corporate veil and to limit its application to those situations in which it is justified. Lord Sumption in the Supreme Court embarked upon a survey of the cases in this area in order to avoid the uncertainty and to discover the principle that underpins the “doctrine’s” invocation. The judgement in Prest therefore clarified that piercing the corporate veil would only be possible when company law had been used to evade liability, although this alone would not be enough, and that even where such impropriety had arisen, it would usually be possible to apply another area of law in order to grant a remedy, in this case the application of trust principles to ensure Mrs Prest was entitled to a beneficial interest in the properties. The Claimant made an application for summary judgment for a declaration that Company was the alter ego corporate vehicle for the Guarantor and that the corporate veil should be pierced to allow the judgment obtained against him to be enforced against any or all assets belonging to the Company. This was recently demonstrated where a subsidiary company was no longer in existence and the court imposed a duty of care on the parent company for the health and safety of the employees of its subsidiary (Chandler v Cape Plc [2012]). [5] With this in mind, to pierce or lift the veil of incorporation would be to find the shareholders liable. In the Claimant’s application, it maintained that, had it been presented with these facts, it would not have considered advancing the loans without sufficient security from the Company, which would allow the Claimant to pursue the Company and ultimately enforce a judgment against the Property in the event of default. It will then look at how the Supreme Court saw the origins of the “doctrine”. The implications of Prest v Petrodel Resources Limited' (News and Publications, 2013) accessed 20 th December 2015 25 Ibid 26 [1939] 4 All ER (Ch) 27 Shepherd N, 'Petrodel v Prest: cheat's charter or legal consistency?' Criminal Law, White Collar Crime & Road Traffic Cases. The relevant tests that must be met before the corporate veil may be pierced (Hayshem v Shayif & Anor [2008]) and which have been applied by the courts (VTB Capital Plc v Nutritek International Corp and others [2012] and Caterpillar Financial Services (UK) Limited v Saenz Corp Limited), can be summarised as follows: A number of documents, including those that confirmed that the Guarantor was receiving bank documents on behalf of the Company, showed that the Guarantor was controlling and directing the actions of the Company. In doing so, the Supreme Court has ordered divorced husband, Michael Prest, to transfer to his former wife, Yasmin Prest, properties held by companies owned and controlled by him, as part of a £17.5m divorce award. The question of when the courts will be prepared to “pierce the corporate veil” and disregard Salomon has quizzed judges, lawyers and academics. Private Law Tutor © 2018 All Rights Reserved. Petrodel v Prest: Lord Sumption’s Masterly Analysis of the Corporate Veil. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. Nor can the veil be pierced, where there is no unconnected third party, purely on the basis that to do so would be in the interests of justice. In light of the documentary evidence the Judge decided that the assertions of the Guarantor were not credible. For him it was important to be able to reconcile old decision and use the doctrine as a “practical solution”. [18] The court would then be minded to “pierce the corporate veil” in exceptional circumstances for the purposes of providing a remedy for the improper act that those controlling the company had done. Ownership and control of a company are not sufficient in themselves to allow the veil to be pierced. So great has been the interest generated, amongst company and insolvency lawyers as well as family lawyers, that it is unnecessary, in this article, to recite either the material facts of the case or the convoluted procedural … He pointing out that there exists an array of principles that achieve the same result and one of these is “the law defines the incidents of most legal relationships between persons (natural or artificial) on the fundamental assumption that their dealings are honest.” [15] He cites Lord Denning in Lazarus Estates Ltd v Beasley [16] who states: “Fraud unravels everything”. Therefore Mr Salomon was not liable (personally) for the debts that Salomon Ltd had incurred. They owned a substantial matrimonial home in the UK and a second home in Nevis. This is very different. Moylan J, in the Family Division of the High Court, held that Mr Prest had the ability to transfer the properties in practice, so he was “entitled” to them under MCA 1973 s 24(1)(a). [33] Lastly Lord Clarke was of the view that the distinction had not been the subject of submissions and it would have to be before it was fully adopted. What they are trying to present is a view that “piercing the corporate veil” can take on so many shapes and forms. It is important that the above six articulated principles, which result in the “piercing of the corporate veil”, only be used where all other, more traditional, were not suitable in the circumstances. The courts are often presented with the question of whether a company is an independent legal entity in cases where litigants are trying to recover from opponents and it is discovered that the contracting party is a brass plate company with no assets but part of a larger, profitable group. It is not an abuse to rely upon the fact (if it is a fact) that a liability is not the controller’s because it is the company’s.”[30] Lord Sumption endorsed Munby J in Ben Hashem v Al Sharif and then stated that the “piercing the corporate veil” doctrine is an important although has a limited place in English law.[31]. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34; [2013] All ER (D) 90 (Jun), is a landmark case which is of considerable interest to corporate and insolvency lawyers, as well as family lawyers. Piercing the corporate veil – No Such Doctrine, Surprisingly Lord Neuberger said[6] that there never existed a clear invocation “of the doctrine” of “piercing the corporate veil” in 80 years since it was thought-out in Gilford Motor Co Ltd v Horne[7]. This essay will argue the decision has done little to fault the Salomon principle. The Matrimonial Causes Act 1973, s24 gives the court the power to order one party to the marriage to transfer any property to which he or she is “entitled” to the other … Family lawyers always get very excited about decisions handed down by the Supreme Court; after all, they don’t come very often. This article examines the judicial approach to the corporate veil post-Prest v Petrodel Resources Ltd. Despite this confusion in the law, Lord Sumption asserted that the position established in Adams v Cape Industries, is that the doctrine of veil piercing required some dishonesty on the part of the company member and was not simply a device that could be employed to ensure justice in a particular case. Lord Sumption[13] described “façade” and “sham” as “protean” terms. Patten LJ asserted that this practice “amounts almost to a separate system of legal rules unaffected by the relevant principles of English property and company law” and must cease. However, when relief was granted against the company this occurred under the evasion principle, and the corporate veil pierced. Lazarus Estates Ltd v Beasley [1956] 1 QB 702. In the weeks preceding the Supreme Court’s decision in Petrodel Resources Ltd v Prest, 1 the case was the subject of much attention and commentary, both in the media and legal circles. Prest and piercing the veil: Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. By V. Niranjan. The evasion principle on the other hand was when the people behind the company were using it separateness to evade a legal responsibility they themselves had personally. This in turn allowed the court to disregard or pierce the corporate veil. The courts have demonstrated that the veil will not be pierced where, despite the presence of wrongdoing, the impropriety was not linked to the use of the corporate structure as a device or facade to conceal or avoid liability, nor will the courts pierce the veil merely because the interests of justice so require (Adams v Cape Industries Plc [1990]). A further net worth statement provided by the same accountant 16 months later also identified the Guarantor’s assets to include a “residence in Fulham” with a current value of US$3.2 million. The issue for the Supreme Court was how to ensure that, particularly in cases of divorcing spouses and in single-man companies, company law could not be used as a tool to conceal assets or avoid liability in relation to those assets, whilst maintaining the integrity of the Salomon principle. Prest v Petrodel Resources Limited 15. The claimant was unable to recover the loan by way of the security provided and alleged that fraudulent misrepresentation by the first defendant induced it to enter into the facility agreement and that the other defendants were jointly liable. The eighth and ninth defendants, individuals, both provided guarantees in respect of the loan to the second defendant. [32] Lady Hale was doubtful if the “doctrine” could be encapsulated into a neat distinction of concealment and evasion, but that these form part of a broader principle to act with honestly in business. The Claimant made demands on the first and second defendants and subsequently terminated the loan agreements. Appeal allowed unanimously. However, where the relevant test has been satisfied, the courts can  veil. Lord Neuberger cited C Mitchell, in “Lifting the Corporate Veil in the English Courts: An Empirical Study”[14] observes that “courts have often used conclusory terms to express their decisions on the point, which for all their vividness tell us nothing about the reasoning which underpins these decisions.”. He ordered Mr Prest to transfer to the wife six properties and an interest in a seventh which were held in the name of two of the husband’s companies. This case is an illustration of how the court may apply the "evasion principle", a principle identified in the decision of the Supreme Court in the case of Prest v Petrodel Resources Ltd, in piercing the corporate veil. In this case, the court recognised that there may be times in which it is appropriate to pierce the veil and ignore a company’s separate … HFW acted for Caterpillar Financial Services in a successful application for summary judgment in respect of a declaration that a company was an alter ego corporate vehicle of the defendant. Lord Sumption[9] also refers to the “piercing the corporate veil” as an exception to the age old principle laid down in Salomon v A Salomon & Co Ltd [10] at the same time Lord Neuberger and Lord Clarke make reference to it being a “doctrine”. Indeed, one rather cynical commentator has argued that Lord Sumption “almost seemed relieved” that the veil could not be pierced in Prest because it meant he did not need to determine the “definitive” circumstances in which the veil may be pierced in the future. He also agreed that concealment cases do not involve piercing the … It will present the view the Law Lords had of the “doctrine” to show it was not clear. The case concerned a very high value divorce.. Lord Sumption distinguished the concealment and evasion principle: “The concealment principle is legally banal and does not involve piercing the corporate veil at all. The Supreme Court has recently given judgment in the case Prest (Appellant) v Petrodel Resources Limited and others (Respondents), following an appeal from the Court of Appeal. Prest was of particular interest because of the legal cross-over between family law and corporate law. Here the House of Lords held that a company was effectively separate from Mr Salomon. In all of the case that Lord Sumption considered his view was that the correct consideration was that relief in all cases was being provided by the courts under the concealment principle and not the evasion principle. Lord Sumption felt that the authorities showed that there was a set of circumstances in which the company was used as a vehicle of evading the law as dishonest for the purpose. The decisions Lord Sumption highlighted illustrated a broader principle that “governs cases in which the benefit of some apparently absolute legal principle has been obtained by dishonesty”. Piercing the corporate veil: a new era post Prest v Petrodel. Having obtained permission to serve out of the jurisdiction, the claimant was granted a worldwide freezing order against the fourth defendant, which the claimant alleged controlled the first and second defendants. Another was to take funds from the companies whenever he wished, without right or company authority. Lord Neuberger, who gave the court’s judgment on piercing the corporate veil in VTB Capital, agreed with Lord Sumption that cases fall into two types, concealment and evasion. June 12, 2013 ... that there is a limited principle of English law which applies when a person is ... the veil should not be pierced even where the evasion principle applies, if other appropriate remedies are available to the claimant. It was evidenced that the first defendant was residing at the Property and using the address for the registration of and correspondence for a number of other companies. Ottolenghi describes this as merely an”act of curiosity”, which is the “least offensive to the separate entity theory”. However these cases are and will remain exceptional. By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy. In his words the distinction should not be “definitively adopted unless and until the court has heard detailed submissions upon it.”[26]. Caterpillar Financial Services (UK) Limited (the Claimant) advanced loans to the first and second defendant companies for the purpose of the acquisition and construction of two yachts. He had set up number of companies. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd[1] decision in light of the corporate veil doctrine. 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