But in Prest this was achieved via a different route. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. It is not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. Ireland et al, ‘The Conceptual Foundations of Modern Company Law’ [1987] JLS 149 Day, ‘Skirting around the issue: the corporate veil after Prest v Petrodel’ [2014] LMCLQ 269. handed down a seminal judgment on the law of corporate veil, Prest v Petrodel Resources Ltd and Others [2013] UKSC 34, in which Lord Sumption proposed the evasion and concealment principles. Prest v Petrodel Resources Limited 15. The principle is mainly familiar in the context of contracts and other consensual arrangements, in which the effect of fraud is to vitiate consent so that the transaction becomes voidable ab initio. The first is the ‘evasion principle’; the second is the ‘concealment principle’. Lord Sumption gave the first judgment. The background facts. Prest was of particular interest because of the legal cross-over between family law and corporate law. That can seem however, as a let out for judges who wish to come to a specific conclusion. The difficulty in this case was that the husband and the companies were abroad in places which might not give direct effect to English orders. The ruling in Prest follows on the heels of the same Court's decision a few months ago in VTB Capital Plc v Nutritek International Corp, [2013] UKSC 5, which we discussed extensively in previous posts here, here and here. 161. Part I – Prest 2. Key Words Piercing/lifting the corporate veil Prest v Petrodel Resources Ltd Salomon v A. Salomon Corporate personality Gilford Motors v Horne. This appeal arises out of proceedings for financial remedies following a divorce between Michael and Yasmin Prest. He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. This does not involve piercing the veil, although it might be described as “lifting” it. It is a very specific statutory power to order one spouse to transfer property to which he is legally entitled to the other spouse. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. By way of example: however simple the structure of Beagle Limited – 1 issued share; 1 owner (Mr Pink) who is also the director - it has a legal life of its own. This has been said to put an end to what has been described as a “cheat’s charter”, following the Court of Appeal’s decision that those assets could not be considered the husband’s. The authorities show that there are limited circumstances in which the law treats the use of a company as a means of evading the law as dishonest for this purpose. But … When I read the “evasion principle” enunciated in Prest v Petrodel Resources Ltd [2013] UKSC 34, I was struck by its similarities to the latest Boyband earworm. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality. 92. 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. Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34 (12 June 2013) March 22, 2018/in Company /Private Law Tutor. Lord Clarke concurred. This article examines the judicial approach to the corporate veil post-Prest v Petrodel Resources Ltd. Lord Mance emphasised that future possible situations where the veil could be pierced should not be foreclosed. However the decision, given by a panel of seven justices, is also of importance to commercial lawyers as the Supreme Court considered the doctrine of piercing the corporate veil and has effectively limited the circumstances in which it can be invoked to cases of evasion where: “a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.”. The other justices concurred in Lord Sumption’s analysis but did add some thoughts of their own on various issues. He rejected the husband had done anything improper relating to the companies to allow piercing the corporate veil. These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. However, there are three points to be made about that formulation. I find it difficult to understand how that can be done unless the company is a mere nominee holding the property on trust for the husband, as we have found to be the case with the properties in issue here. The relatively short and significant judgment in the Supreme Court case of Prest v Petrodel Resources Ltd has gathered vociferous interest from academics and practitioners. Most advanced legal systems recognise corporate legal personality while acknowledging some limits to its logical implications. They may simply be examples of the principle that the individuals who operate limited companies should not be allowed to take unconscionable advantage of the people with whom they do business. This article examines the judicial approach to the corporate veil post-Prest v Petrodel Resources Ltd. The intention will normally be that the spouse in control of the company intends to retain a degree of control over the matrimonial home which is not consistent with the company's beneficial ownership. where a person who owns and controls a company is said in certain circumstances to be identified with it in law by virtue of that ownership and control. I think this is a shame. Because Mr Prest’s properties were worth £37.5 million, Mrs Prest’s fair award was valued at £17.5m. The evasion principle is different in that if no piercing takes place, the separate legal personality will defeat the right or frustrate its enforcement. Equitable remedies, such as an injunction or specific performance may be available to compel the controller whose personal legal responsibility is engaged to exercise his control in a particular way. Stripping Away the Veil of Deceit: Prest v Petrodel. PREST V PETRODEL RESOURCES LIMITED: 2013 UKSC 34 ... (“the evasion principle”). Both sides of the profession were affected differently. Lord Sumption divided the pre-existing fraud/façade/sham cases into two new principles: the “evasion principle” and the “concealment principle”. On the contrary, that is what incorporation is all about.... 35. But although we have already seen the usual flurry of articles in response to the Supreme Court’s decision in Prest v Petrodel Resources (2), I have detected a certain degree of reservation – even on the part of some of the lawyers involved. 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. [...] They have led judges of the Family Division to adopt and develop an approach to company owned assets in ancillary relief applications which amounts almost to a separate system of legal rules unaffected by the relevant principles of English property and company law. 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). The evasion principle is where a company is interposed for the purpose of defeating or frustrating a legal right. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. Because Munby J had rejected these possibilities in Ben Hashem v Al Shayif[9] his order must have been incorrect. I should first of all draw attention to the limited sense in which this issue arises at all. Fraud unravels everything. Prest (Appellant) v Petrodel Resources Limited & Others (Respondents) [2013] UKSC 34 . Thus, it would presumably apply equally to a person who transfers assets to a spouse or civil partner, rather than to a company. concealment principle is, in fact, not an instance of piercing the veil but is the principle that “the interposition of a company…so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming their identity is legally relevant”. If someone did try to frustrate a claim, the MCA 1973 section 37 made provision for setting aside certain dispositions. [23] Similar confusion was also noted in US corporate law and in academic reviews. JUDGMENT GIVEN ON . 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. Ownership and control were not in themselves sufficient to pierce the corporate veil. Also see Lady Hale’s distinction in … Given that there had been very, if any, reported instances of the corporate veil being pierced even before the Prest v Petrodel decision, it seems even less likely that the doctrine will be successfully invoked now, other than in the clearest of cases. John Wilson QC of 1 Hare Court analyses the Supreme Court’s judgment in the landmark case of Prest v Petrodel and considers its implications for family lawyers. When the history of the corporate veil is written, the year 2013 will perhaps be given as much prominence as the year 1897. Thorpe LJ (a former judge of the Family Division) dissented, and said the following. BACKGROUND TO THE APPEAL . Fraud cuts through everything. The case concerned a very high value divorce.. To … He said there was only a limited power to pierce the corporate veil, namely when people were under an existing legal obligation which is deliberately evaded. There is a range of situations in which the law attributes the acts or property of a company to those who control it, without disregarding its separate legal personality. 2 Clarke described the principle of ‘veil-piercing’ as a doctrine.6 Lord Walker, however, was reluctant in adopting such terminology.7 8He doubted the existence of an independent doctrine of ‘veil-piercing’, since there were no clear examples supporting its existence. He also noted that in many instances it will not be necessary to order the companies to transfer assets because the husband can be ordered to transfer the shares in the companies (paragraph 40). Another was to take funds from the companies whenever he wished, without right or company authority. One of these principles is that the law defines the incidents of most legal relationships between persons (natural or artificial) on the fundamental assumption that their dealings are honest. Please click the 'Read More' link below to view our Cookie Policy, how we use them on our site and how to change your cookie settings. He agreed that Munby J in Ben Hashem v Al Shayif[25] was correct that the veil could only be pierced where all other possibilities were exhausted. The evasion principle was the court disregarding the corporate veil if there was a legal right against the person in control of it, which existed independently of the company’s involvement, and a company was interposed so that the separate legal personality of the company would defeat the right or … 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. Whilst both Prest v Petrodel and Akzo Nobel appear to be decided on specific principles it is just as easy to say that they have been decided on fact specific grounds. Property legally vested in a company may belong beneficially to the controller, if the arrangements in relation to the property are such as to make the company its controller's nominee or trustee for that purpose. They can conveniently be called the concealment principle and the evasion principle. The argument is that that is a power which can, because the husband owns and controls these companies, be exercised against the companies themselves. 9 Min read. A veil could be pierced only for the purpose of depriving the company or its controller of the advantage they would otherwise obtain from the company’s separate legal personality. The value of the judgement was not in question, as the courts had already ruled the husband – a Nigerian oil tycoon – would have to pay his wife £17.5m, largely due to his conduct during the case, and he was not arguing over this. There had been no evidence that Mr Prest had set up the companies to avoid any obligations in these divorce proceedings, so there was no ground for piercing the corporate veil. The Facts. This decision, in my own humble view, positively fizzes with possibilities. The court therefore had jurisdiction to make a transfer order. 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. Neil Micklethwaite, [4] In reviewing the law as it relates to piercing the corporate veil, he noted the following principles:[5], In that regard, he found that piercing was justified, not under the general principles,[6] but by virtue of the Act. [17] Or to disapply a statutory time bar which on the face of the statute applies. Properly speaking, it means disregarding the separate personality of the company. I would be surprised if that were not often the case. It is not an abuse to cause a legal liability to be incurred by the company in the first place. The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. It was of key interest as it was a legal cross over between family law and company law. The Supreme Court has clarified that it is not an abuse of the separate corporate personality to cause a legal liability to be incurred by the company in the first place or to rely upon the fact that the legal liability was incurred by the company rather than the company’s controller, which is the very essence of incorporation. By V. Niranjan. Examples are the provisions of the Companies Acts governing group accounts or the rules governing infringements of competition law by "firms", which may include groups of companies conducting the relevant business as an economic unit. They had married in 1993 and divorced in 2008. Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34 (12 June 2013) March 22, 2018/in Company /Private Law Tutor. The first is the ‘evasion principle’; the second is the ‘concealment principle’. Thank you for your interest in Brown Rudnick. Prest v Petrodel Resources Ltd & ors [2013] UKSC 34. The applicants were joint trustees in bankruptcy of a man (the "Bankrupt"). We use cookies on our website. Introduction. It may be possible in the future to establish further situations in which the corporate veil should be pierced but this will be very difficult in view of Lord Sumption’s judgment. But what the cases do have in common is that the separate legal personality is being disregarded in order to obtain a remedy against someone other than the company in respect of a liability which would otherwise be that of the company alone (if it existed at all). The concealment principle is, he says “legally banal and does not involve piercing the corporate veil at all”. In many, perhaps most cases, the occupation of the company's property as the matrimonial home of its controller will not be easily justified in the company's interest, especially if it is gratuitous. I am not sure whether it is possible to classify all of the cases in which the courts have been or should be prepared to disregard the separate legal personality of a company neatly into cases of either concealment or evasion. One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. The relatively short judgment in the United Kingdom Supreme Court case of Prest v Petrodel Resources Ltd1 (herein, Prest) has garnered vociferous interest from academics and practitioners. With the evasion principle the company's involvement is a sham and the court "pierces the corporate veil." Lord Neuberger, President Lord Walker Lady Hale Lord Mance Lord Clarke Lord Wilson Lord Sumption . Introduction. He did not comply with orders for full and frank disclosure of his financial position, and the companies did not file a defence. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever…". His Lordship considered that the failure of the husband and the companies to cooperate with the ancillary relief proceedings and to provide proper disclosure suggested that proper disclosure of the facts would have revealed the properties to be beneficially owned by the husband (paragraph 47). It is not an abuse to cause a legal liability to be incurred by the company in the first place. the concealment and evasion principles which demarcate the boundary lines of the veil-piercing doctrine. The legal team representing Prest stated that 'the decision is of major importance not only for family law and divorcing couples, but also for company … Lady Hale (with whom Lord Wilson agreed) and Lords Mance and Clarke agreed with Lord Sumption’s judgment but wished to reserve the position as to whether it would be possible to pierce the corporate veil other than in cases of evasion, although they sounded a warning that any other exception would not be easy to establish (paragraphs 92, 102 & 103). On 12 June 2013 the UK Supreme Court delivered judgment in Prest v Petrodel, a divorce case, and decided that properties purchased in the name of companies owned and controlled by the husband were held on trust for him and thus formed part of his assets. If the law permits him so to do it defeats the Family Division judge's overriding duty to achieve a fair result. The evasion principle is somewhat different in that it presupposes that there is a legal right against a person in control of a company which exists independently of the company and where a company is then interposed as a separate legal personality to defeat that legal right. That was only possible because the companies were wholly owned and controlled by the husband and there were no third party interests. On Lord Sumption's analysis in Gilford Motor Co v Horne relief was granted against Mr Horne on the concealment principle and against "his" company on the evasion principle. But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company. What we have in this case is a desire to disregard the separate legal personality of the companies in order to impose upon the companies a liability which can only be that of the husband personally. The Court of Appeal overturned the judge’s decision and held the properties could not be transferred unless the corporate personality was being abused by the husband for an improper purpose, or the assets were held on trust for the husband. And if the formulation is intended to go wider than the application of "fraud unravels everything", it seems to me questionable whether it would be right for the court to take the course of arrogating to itself the right to step in and undo transactions, save where there is a well-established and principled ground for doing so. Further, at least in some cases where it may be relied on, it could probably be analysed as being based on agency or trusteeship especially in the light of the words "under his control". So, MCA 1973 section 24 did not give judges power to order Mr Prest to transfer property that he was not entitled to in law. 64. Of course in so operating them husband ignored all company law requirements and checks. 65. 136 - see Gencor and Trustor cases re piercing the veil to impose liability on the company for the controller’s liability as Mrs Prest sought in Prest v Petrodel. 17. However, he held that in applications for financial relief ancillary to a divorce there was a wider jurisdiction to pierce the corporate veil under section 24 of the Matrimonial Causes Act 1973. © 2021 Brown Rudnick LLP. Also as he said in VTB Capital plc v Nutritek International Corp[26] it is wrong to foreclose all future possibilities of piercing the veil. "[22] In South Africa, "[t]he law is far from settled with regard to the circumstances in which it would be permissible to pierce the corporate veil". Lord Sumption then went on to consider whether the companies could be considered to hold the properties on trust for Mr. Prest and held that they could. Lord Sumption gave Gilford v Horne and Jones v Lipman as examples of proper application … [18] These decisions (and there are others) illustrate a broader principle governing cases in which the benefit of some apparently absolute legal principle has been obtained by dishonesty. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34; [2013] All ER (D) 90 ... the concealment principle and the evasion principle, lay behind the words “façade” and “sham”. Some of the previous case law on piercing the corporate veil had given the impression that the doctrine could be used to hold a party liable where no liability existed and where it was no secret that a company was being used and indeed that was what was intended, but where one party was trying to get round the fact that they did not have a direct cause of action against the party standing behind the company. The impropriety must be linked to the use of the company structure to avoid or conceal liability. Even where there was no unconnected third party interest the veil could not be pierced only because it is necessary in the interests of justice. [10] Patten LJ commented on other Family Division cases leading to similar results. 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 … Background . 52. or ‘pierced’, however it can be said that courts will now only pierce the corporate veil where the ‘evasion principle’ has been established (Prest v Petrodel Resources). It describes the process, but provides no guidance as to when it can be used. For specific statutory purposes, a company's legal responsibility may be engaged by the acts or business of an associated company. On appeal from: [2012] EWCA Civ 1395 . There can be many instances where injustice or the “wrong result” can be caused by the application of strict doctrines. 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. others (Respondents) before . Moreover, three other important issues raised in the aftermath of Petrodel are discussed with a view towards clarifying the scope of veil-piercing: the single economic entity doctrine, statutory veil-piercing and the doctrine of corporate This page was last edited on 11 December 2020, at 21:21. PREST V PETRODEL RESOURCES LIMITED: 2013 UKSC 34 . The Supreme Court has confirmed that a court can in very limited circumstances pierce the corporate veil. The Supreme Court has just handed down its judgment in the landmark case of Prest v.Petrodel. In Prest, ... Mujih E, 'Piercing the corporate veil as a remedy after Prest V Petrodel resources Ltd: Inching towards Abolition' [2016] Westlaw 17,17. These examples illustrate the breadth, at least as a matter of legal theory, of the concept of abuse of rights, which extends not just to the illegal and improper invocation of a right but to its use for some purpose collateral to that for which it exists. You may delete and block all cookies from this site, but parts of the site will not work. [20] In Canada, "[t]he law on when a court may … '[lift] the corporate veil' … follows no consistent principle". Richard Todd QC and Stephen Trowell (later joined by Daniel Lightman) acted for Mrs Prest throughout. The relatively short and significant judgment in the Supreme Court case of Prest v Petrodel Resources Ltd has gathered vociferous interest from academics and practitioners.It was of key interest as it was a legal cross over between family law and company law. Lord Sumption reviewed the cases on piercing the corporate veil and held that the principle that a court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused is well established in the authorities and is consistent with the general approach of English law to the problems raised by the use of legal concepts to defeat mandatory rules of law (paragraph 27). This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd[1] decision in light of the corporate veil doctrine. Analysis Mrs Prest said they held legal title to properties that he beneficially owned, including a £4m house at 16 Warwick Avenue, London. This did invoke property concepts with established meanings, and did not mean something different in matrimonial proceedings. The case concerned a very high value divorce.. The Supreme Court has recently issued a decision confirming that English law permits a claimant to ignore the separate legal identity of a company, and "pierce the corporate veil" in certain circumstances. This essay will argue the decision has done little to fault the Salomon principle. The famous case of Salomon v A Salomon & Co established the core principle of company law that a company has separate legal personality distinct from that of its owner(s). He held that this would cut across statutory schemes of company and insolvency law (paragraph 41). Of course, structures can be devised which give a different impression, and some of them will be entirely genuine. Lazarus Estates Ltd v Beasley [1956] 1 QB 702 Prest v Petrodel Resources Ltd UKSC 34, [2013] R v McDowell [2015] EWCA Crim 173 R v Singh [2015] EWCA Crim 173 Salomon v Salomon [1896] UKHL 1 Trustor AB v Smallbone (No 2) [2001] EWHC 703 VTB Capital plc v Nutritek International Corp [2013] UKSC 5 Woolfson v Strathclyde Regional Council [1978] UKHL 5 In any event, the formulation is not, on analysis, a statement about piercing the corporate veil at all. He rejected the husband had done anything improper relating to the companies to allow piercing the corporate veil. The evidence was obscure, but this was because of Mr Prest’s obstruction and mendacity. The seminal decision of the UK Supreme Court in Prest v Petrodel Resources Ltd [2013] 3 WLR 1 ... concealment principle and the evasion principle. Prest and piercing the veil: Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. 16. The controller may be personally liable, generally in addition to the company, for something that he has done as its agent or as a joint actor. But it has a variety of specific principles which achieve the same result in some cases. The Court of Appeal, with Rimer LJ and Patten LJ in the majority, allowed an appeal by the companies. The Family Division’s practice of treating the assets of companies substantially owned by one party to the marriage as available for distribution under MCA 1973 section 24(1)(a) was beyond the jurisdiction of the court unless the corporate personality of the company was being abused. At para [28]: “The concealment principle is legally banal and does not involve piercing the corporate veil at all. The same legal incidents will not necessarily apply if they are not. Mrs. Prest appealed to the Supreme Court. In this case the reality is plain. Lord Neuberger emphasised that piercing the corporate veil should be the last resort. 18. So long as the marriage lasted, the husband's companies were milked to provide him and his family with an extravagant lifestyle. Prest v Petrodel Resources Ltd [2013] UKSC 34. The principle was stated in its most absolute form by Denning LJ in a famous dictum in Lazarus Estates Ltd v Beasley:[15], "No court in this land will allow a person to keep an advantage which he has obtained by fraud. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. 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