Supreme Court decision on ancillary relief in Prest v Petrodel Resources Ltd [2013] 2 A.C. 415. By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy. 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 case was originally heard in the family court as an application for ancillary relief by the wife her divorce case. He rejected the husband had done anything improper relating to the companies to allow piercing the corporate veil. 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]. Prest and piercing the veil: Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. The court therefore had jurisdiction to make a transfer order. It must be further evidenced that the impropriety is linked to avoidance or concealment of a liability through the use of the company structure. 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”. Appeal allowed unanimously. 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. The judgment of the Supreme Court in Prest v Petrodel Resources Ltd [2013] UKSC 34 was eagerly anticipated by family and corporate lawyers alike. The Claimant made demands on the first and second defendants and subsequently terminated the loan agreements. 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. Rather than simply putting the principle to one side temporarily, the court denies the Salomon principle, altogether. DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852. [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. Obtaining Security For Costs Against an Opponent, Covid Business Interruption Insurance Ruling January 2021, Quantifying Damages Awards in Defamation Cases. The case concerned a very high value divorce.. Piercing the corporate veil: a new era post Prest v Petrodel. 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. When Lord Sumption analysed Gilford Motor Co v Horne[27]he contended that relief against Mr Horne the controller of the company under the concealment principle. . This allowed a judgment obtained against the defendant to be enforced against certain of the company’s assets. 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. 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. 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. March 22, 2018/in Company /Private Law Tutor. 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). Lord Neuberger took the view that in both Horne and Lipman only the concealment principle came into play, so there was no requirement to “pierce the corporate veil.” Lord Lord Neuberger felt this was a useful tool for the judiciary. 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”. His lordship went on to observe that this principle had been affirmed Trustor AB v Smallbone (No 2) in which it was also established that the dishonesty must involve company law being used as a sham or façade to disguise the true ownership of property. He also agreed that concealment cases do not involve piercing the … 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. Owners have historically relied on this structure to provide themselves with the security that a corporate veil exists to protect assets owned by other entities in the event that unjust attempts are made to pierce it. Prest v Petrodel Resources Ltd UKSC 34 This is the key case where SC considered the issue of whether the court possesses a general power to pierce the corporate veil in the case where these specific legal principles do not apply. 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. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd decision in light of the corporate veil doctrine. It intersects two main areas of The funds were used by the Russian borrower, a company, to facilitate acquisitions from the first defendant which was a British Virgin Islands company, owned and operated from Russia. The Judge took the view that although these matters may well be correct they did not go to the satisfaction of the fifth principle. 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 … 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. 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. In his words the distinction should not be “definitively adopted unless and until the court has heard detailed submissions upon it.”[26]. On the other hand the company Alamed Ltd was also a party to the specific performance on the evasion principle, and reference was made to the decision in Horne. Here the House of Lords held that a company was effectively separate from Mr Salomon. It is not an abuse to cause a legal liability to be incurred by the company in the first place. Some commentators have asserted that the decision in Prest is to be “welcomed” as although it does confirm that the Salomon principle remains as a cornerstone of UK company law, it also recognises that there will be circumstances in which the veil can be pierced in order to grant a remedy. Whether or not the company was incorporated with deceptive intent, the courts will want to see that it was being used as a facade at the time of the relevant transaction(s) and a remedy will only be provided in respect of the particular wrong that has been committed. Lord Sumption[13] described “façade” and “sham” as “protean” terms. It will examine the concealment and evasion principle espoused by Lord Sumption. Introduction. It is not clear sometimes which principle is at play and Lord Sumption felt many cases fell into both concealment and evasion. Prest was of particular interest because of the legal cross-over between family law and corporate law. 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.”. 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. The Supreme Court unanimously overturned the Court of Appeal’s decision. Lord Sumption asserted that this was the position adopted by Lord Neuberger in VTB, although he argued that due to the fact that the court in that case had not needed to pierce the veil, it could not be used as authority in Prest. The question of when the courts will be prepared to “pierce the corporate veil” and disregard Salomon has quizzed judges, lawyers and academics. My tenant has moved out leaving possessions in my property – what can I do? Appeal from – Petrodel Resources Ltd and Others v Prest and Others CA 26-Oct-2012 The parties had disputed ancillary relief on their divorce. Since Salomon v Salomon, it has been well established in UK law that a company has a separate personality to that of its members, and that such members cannot be liable for the debts of a company beyond their initial financial contribution to it. He regarded the “piercing the corporate veil” as “a final fall-back” solution which would infrequently arise. They owned a substantial matrimonial home in the UK and a second home in Nevis. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. Introduction. Another was to take funds from the companies whenever he wished, without right or company authority. 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. Facts: Mr Prest was an oil-trader. In order to show that a corporate structure has been used as a device to conceal impropriety, the impropriety must first be identified to the court. One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. The three companies, each in the substantial ownership of the husband, challenged the orders made against them saying there was no jurisdiction to order their property to be conveyed to the . Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. The evasion principle is different in that if no piercing takes place, the separate legal personality will defeat the right or frustrate its enforcement. Then a concluding remark will be made about what the other judges thought. The first and second defendants defaulted under the loan agreements. It will then examine how the old corporate veil cases have been reconciled. In this case it should be noted that although the matrimonial home itself was also owned by one of the companies, it was established in the Court of Appeal that this was held on trust for Mrs Prest and did not form part of the appeal to the Supreme Court. Easterbrook and Fischel, “Limited Liability and the Corporation” (1985) 52 Univ Chicago L Rev 89, Farrar, “Fraud, Fairness and Piercing the Corporate Veil” (1990) 16 Can Bus LJ 474, C Mitchell, in “Lifting the Corporate Veil in the English Courts: An Empirical Study” (1999) 3 Co Fin & Ins LR 15, Ireland, P., ‘The Triumph of the Company Legal Form, 1856-1914’, in Adams, J., (ed), Essays for Clive Schmitthoff, (1983), p.30, Neyers “Canadian Corporate Law, Veil-Piercing, and the Private Law Model Corporation” (2000) 50 Univ Toronto LJ 173, Michael “To Know a Veil” (2000) 26 J Corp Law 41, Payne, J., ‘Lifting the corporate veil: a reassessment of the fraud exception’, [1997], Cambridge Law Journal, 284, Ottolenghi, S., ‘From Peeping behind the corporate veil to ignoring it completely’, [1990] 53 MLR 338, Ramsay and Noakes, “Piercing the Corporate Veil in Australia” (2001) 19 C & SLJ 250, [2] Ireland, P., ‘The Triumph of the Company Legal Form, 1856-1914’, in Adams, J., (ed), Essays for, [8] Easterbrook and Fischel, “Limited Liability and the Corporation” (1985) 52 Univ Chicago L Rev 89; Farrar, “Fraud, Fairness and Piercing the Corporate Veil” (1990) 16 Can Bus LJ 474; C Mitchell, in “Lifting the Corporate Veil in the English Courts: An Empirical Study” (1999) 3 Co Fin & Ins LR 15; Neyers “Canadian Corporate Law, Veil-Piercing, and the Private Law Model Corporation” (2000) 50 Univ Toronto LJ 173; D Michael in “To Know a Veil” (2000) 26 J Corp Law 41; and Ramsay and Noakes, “Piercing the Corporate Veil in Australia” (2001) 19 C & SLJ 250, [18] “(i) Ownership and control of a company were not enough to justify piercing the corporate veil; (ii) The court cannot pierce the corporate veil, even in the absence of third party interests in the company, merely because it is thought to be necessary in the interests of justice; (iii) The corporate veil can be pierced only if there is some impropriety; (iv) The impropriety in question must…be linked to the use of the company structure to avoid or conceal liability; (v) To justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is (mis)use of the company by them as a device or façade to conceal their wrongdoing; and (vi) The company may be a façade even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions.”, [23] [2012] 2 Lloyds Rep 313, see paras 79—80, [24] Ottolenghi, S., ‘From Peeping behind the corporate veil to ignoring it completely’, [1990] 53 MLR 338. Abstract. 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. Private Law Tutor © 2018 All Rights Reserved. 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”. 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. Where there has been concealment of liability, he argued, there will be no need to pierce the corporate veil because, as Lord Neuberger agreed, all that would be required would be to look behind the veil to establish the true actors. 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. The Supreme Court decision in Prest v Petrodel Resources Limited [2013] UKSC 34 has now become accepted as a leading authority on this issue. However, the distinction between them both remains crucial because it will ultimately lead to the court to “rightly or wrongly”, to pierce the corporate veil. This, according to Mr Justice Eder’s judgment, satisfied the fifth principle. 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 applicants were joint … Munby J surveyed non-family and family cases on “piercing the corporate veil” in the case ofBen Hashem v Al Sharif [17] and from there articulated six principles to be applied in “piercing the corporate veil” type cases. Family lawyers always get very excited about decisions handed down by the Supreme Court; after all, they don’t come very often. 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 both Lipman and Horne the controllers of the companies had both accrued personal liability which was distinct from the company’s. Thus concealment was only used when the controllers of a company were concealing their identity and the court was quite ready to look behind the “façade”, to discover the truth. Mrs Prest contended that her husband’s wealth vastly exceeded this and argued that properties held by several companies which Mr Prest “wholly owned and controlled” were in reality owned by him. 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. 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. But by involving the company’s separateness they have effectively to evade responsibility evokes the evasion principle and thus leads to the “piercing the corporate veil”. Ottolenghi describes this as merely an”act of curiosity”, which is the “least offensive to the separate entity theory”. Ownership and control of a company are not sufficient in themselves to allow the veil to be pierced. This in turn allowed the court to disregard or pierce the corporate veil. By using the corporate structure and its separate legal personality they were trying to defeat their personal obligation. 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. In a landmark judgment delivered on 12 June 2013 in the case of Prest v Petrodel Resources Ltd and Others1, the United Kingdom Supreme Court (UKSC) reviewed the law relating to piercing the corporate veil. In order for the evasion principle to come into play the controller of the company had to use the characteristics of the company’s separateness to evade a personal liability. In light of the documentary evidence the Judge decided that the assertions of the Guarantor were not credible. This decision highlights that although very rare the courts will exercise their jurisdiction to pierce the corporate veil. 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. [12], The use of terms such as “veil”, “mask”, “façade” and “sham” are terms that have failed to provide certainty. Thus cconcealment is where the company is a “façade” and warrants as Ottolenghi[24] describes is merely “‘Peeping behind the Veil’, or lifting the veil is where the court temporarily suspends the Salomon Principle to determine who is behind it, who controls the company. The case of Caterpillar Financial Services (UK) Limited v Saenz Corp Limited, Mr Karavias, Egerton Corp & Others ([2012] EWHC 2888 (Comm), 5 September 2012, Mr Justice Eder) is one of the exceptional cases in which the court exercised its discretion to pierce the veil. This essay will argue the decision has done little to fault the Salomon principle. Those names might be familiar to some of those reading theses notes as the actions of multi-millionaire oil tycoon Mr Prest received the attention of the national media between 2008 and 2011. “These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. Therefore when Prest came before the Supreme Court this was an opportunity for the Law Lords to clarify this precise question although it was not wholly relevant in deciding the case. Analysis is undertaken of the judgment in Prest and of how judges have adapted and applied this judgment in subsequent cases. Although the Prest case does make it clear that veil piercing will only be appropriate where there has been evasion of liabilities and where no other remedy of law will provide an appropriate remedy, as shown above, the judgment gives no indication of precisely the circumstances in which the veil may still be pierced and thus the decision should be seen only as contributing further to the uncertainties surrounding this area of law. The law in this area has been rife with conflicting principles and many commentators felt that the Supreme Court decision in Prest v Petrodel provided a unique opportunity to resolve the issue of when the corporate veil can be pierced.