In order to understand the circumstances where the court will pierce/lift the corporate veil it is essential to have a firm grasp of the concept of “the veil” itself. [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. It will then look at how the Supreme Court saw the origins of the “doctrine”. Mrs Prest appealed to the Supreme Court. They owned a substantial matrimonial home in the UK and a second home in Nevis. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. Another was to take funds from the companies whenever he wished, without right or company authority. 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”. Appeal to the Supreme Court by a wife concerning properties vested in several companies and whether they could be treated in ancillary relief proceedings as beneficially belonging to the husband. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd[1] decision in light of the corporate veil doctrine. 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. The Claimant obtained a judgment against the third defendant (the Guarantor), in the hope that it could be enforced against a residential property (the Property) declared by the Guarantor as one of his assets prior to the loan being advanced. Ottolenghi describes this as merely an”act of curiosity”, which is the “least offensive to the separate entity theory”. Here the House of Lords held that a company was effectively separate from Mr Salomon. 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. 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 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. It will examine the concealment and evasion principle espoused by Lord Sumption. 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. 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]. There must be evidence of impropriety; however impropriety alone is insufficient to pierce the veil. In that case it was held by Moylan LJ that although there was no general principle by which the corporate veil could be pierced, this was possible under section 24(1)(a) of the Matrimonial Causes Act. Abstract. 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”. 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]). [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. It remains the unfortunate position that although Prest has limited the doctrine by confirming that it is only to be used as a remedy of last resort, a future decision will be required to confirm exactly when the doctrine may be applied. 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. 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. 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 other words, there had to be some “anterior or independent wrongdoing” by the controller (at [98]). 03 October 2013. 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. It intersects two main areas of My tenant has moved out leaving possessions in my property – what can I do? The Supreme Court unanimously overturned the Court of Appeal’s decision. Prest v Petrodel Resources Ltd UKSC 34, [2013] R v McDowell [2015] EWCA Crim 173. 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. ... replaced “façade” or “sham” with the “concealment” principle and the “evasion” principle. 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. 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. In addition, the Guarantor was trying to sell the Property at the time of the freezing injunction application. It is described by Lord Mance as “a metaphor”[11] while Lord Walker said “it is not a doctrine at all, in the sense of a coherent principle or rule of law. [8] Perhaps it can be argued that this is not even a doctrine, but a thing that all have struggled to categorise. . March 22, 2018/in Company /Private Law Tutor. Shipowners frequently and legitimately structure their group companies by incorporating single purpose vehicle companies as vessel-owning entities. 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. 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. Here it seems to me that the particular wrong which [the Guarantor] has done, is that he has mis-used the company as a device, in effect, or is now seeking to do that.” On this basis Mr Justice Eder found that the Claimant was entitled to a declaration that it could lift the corporate veil as far as the Property was concerned and that any judgment against the Guarantor could be enforced against the Property. Then a concluding remark will be made about what the other judges thought. It must be further evidenced that the impropriety is linked to avoidance or concealment of a liability through the use of the company structure. Appeal allowed unanimously. The concept of the corporate veil, also known as the Salomon Principle, separate legal personality amongst other names,[2] was established in Salomon v Salomon[3]. 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. [12], The use of terms such as “veil”, “mask”, “façade” and “sham” are terms that have failed to provide certainty. 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. 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. 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. control it gained considerable publicity in Prest v Petrodel Resources Ltd & Others UKSC 34.The case played out some of the historical tensions between the Family and … 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. Lord Sumption[13] described “façade” and “sham” as “protean” terms. 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. 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