He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. 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.”. You understand and agree that transmitting information to Brown Rudnick by e-mail does not establish an attorney-client relationship. I think this is a shame. I should first of all draw attention to the limited sense in which this issue arises at all. 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. 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. 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 … 92. Analysis is undertaken of the judgment in Prest and of how judges have adapted and applied this judgment in subsequent cases. 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. They can conveniently be called the concealment principle and the evasion principle. In so far as it is based on "fraud unravels everything", as discussed by Lord Sumption in para 18, the formulation simply involves the invocation of a well-established principle, which exists independently of the doctrine. Lord Neuberger emphasised that piercing the corporate veil should be the last resort. He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. The Supreme Court’s unanimous decision was given by Lord Sumption JSC, although the rest of their Justices also voiced their opinions on the issues raised and in particular on the doctrine of piercing the corporate veil. In this case the reality is plain. It is not an abuse to cause a legal liability to be incurred by the company in the first place. 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 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. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd[1] decision in light of the corporate veil doctrine. They had married in 1993 and divorced in 2008. Key Words Piercing/lifting the corporate veil Prest v Petrodel Resources Ltd Salomon v A. Salomon Corporate personality Gilford Motors v Horne. 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). It describes the process, but provides no guidance as to when it can be used. He did not comply with orders for full and frank disclosure of his financial position, and the companies did not file a defence. This doctrine goes back to the 1897 case of Salomon v A Salomon & Co Ltd, and any exceptions to this rule are limited. The … The applicants were joint trustees in bankruptcy of a man (the "Bankrupt"). 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 UK Supreme Court has released an important new judgment addressing the ability of judges to "pierce the corporate veil": Prest v Petrodel Resources Ltd, [2013] UKSC 34.. There can be many instances where injustice or the “wrong result” can be caused by the application of strict doctrines. Of course, structures can be devised which give a different impression, and some of them will be entirely genuine. According to Lord Sumption, the principle applies when a person is under an existing legal obligation or liability or is subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under … The court therefore had jurisdiction to make a transfer order. 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. For specific statutory purposes, a company's legal responsibility may be engaged by the acts or business of an associated company. Thus, it would presumably apply equally to a person who transfers assets to a spouse or civil partner, rather than to a company. There are two principles which it has been used in connection with. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. This was described by Lord Sumption in the case of Prest v Petrodel Resources Ltd [2013] UKSC 34 as the "evasion principle". But in Prest this was achieved via a different route. The first is the ‘evasion principle’; the second is the ‘concealment principle’. [...] 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. The trial judge had rejected both of these possibilities on the facts and therefore the Court of Appeal gave judgment for the husband. 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 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. 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. 34. The same point applies to Jones v Lipman, para 135. It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement. But where, say, the terms of acquisition and occupation of the matrimonial home are arranged between the husband in his personal capacity and the husband in his capacity as the sole effective agent of the company (or someone else acting at his direction), judges exercising family jurisdiction are entitled to be sceptical about whether the terms of occupation are really what they are said to be, or are simply a sham to conceal the reality of the husband's beneficial ownership. 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 3 to resolve the “never ending story” 4 of when the corporate veil can be pierced. I conclude that there is a limited principle of English law which applies when 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 Facts. 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. 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. The Supreme Court’s decision The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. 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 … 16. 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). Another was to take funds from the companies whenever he wished, without right or company authority. Lord Sumption gave the first judgment. 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. I conclude that there is a limited principle of English law which applies when 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. Kosmopoulos v. Constitution Insurance Co. "UK divorce ruling removes protection from some offshore assets", "Oil tycoon's wife warns husbands should 'beware' after landmark divorce victory", "Supreme court rules against oil trader in divorce case", https://en.wikipedia.org/w/index.php?title=Prest_v_Petrodel_Resources_Ltd&oldid=993671061, Supreme Court of the United Kingdom cases, United Kingdom corporate personality case law, Creative Commons Attribution-ShareAlike License. These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. This article examines the judicial approach to the corporate veil post-Prest v Petrodel Resources Ltd. 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. A company may be a façade even though originally incorporated without deceptive intent. Sir Michael Birt endorsed this more restrictive test and concluded that in the circumstances of the case there was no basis for piercing the corporate veil. 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. 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". the concealment and evasion principles which demarcate the boundary lines of the veil-piercing doctrine. 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. 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… ” (emphasis added). 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. PREST. 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 same legal incidents will not necessarily apply if they are not. 18. Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34 (12 June 2013) March 22, 2018/in Company /Private Law Tutor. 52. It is a very specific statutory power to order one spouse to transfer property to which he is legally entitled to the other spouse. Prest (Appellant) v Petrodel Resources Limited & Others (Respondents) [2013] UKSC 34 . Lord Sumption divided the pre-existing fraud/façade/sham cases into two new principles: the “evasion principle” and the “concealment principle”. [16] Or to abrogate a right derived from a legal status, such as marriage. 9 Min read. 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. But … control it gained considerable publicity in Prest v Petrodel Resources Ltd & Others [2013] UKSC 34.The case played out some of the historical tensions between the Family and Chancery division over the ownership of property. To … 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. 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. others (Respondents) before . Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. By clicking the "Agree" link below, you acknowledge that (i) Brown Rudnick has no obligation to maintain the confidentiality of any information you submit to Brown Rudnick unless Brown Rudnick already represents you or Brown Rudnick later agrees to represent you; thus, if you are not a client, information you submit to Brown Rudnick by e-mail may be disclosed to others and (ii) you have read and understand the Brown Rudnick Terms of Use and Privacy Policy and that you agree to be bound by the terms and conditions of such Terms of Use and Privacy Policy. 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. 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. Key Words Piercing/lifting the corporate veil Prest v Petrodel Resources Ltd Salomon v A. Salomon The evasion principle: The court may only pierce the veil when a company’s corporate personality is exploited to enable its controlling shareholder to evade an existing obligation. These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. [1], Ms Yasmin Prest claimed under Matrimonial Causes Act 1973 sections 23 and 24 for ancillary relief against the offshore companies solely owned by Mr Michael Prest. Also see Lady Hale’s distinction in … Piercing the corporate veil – a limited principle under English law: Prest v Petrodel, Authors: 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. This is Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34 (12 June 2013) March 22, 2018/in Company /Private Law Tutor. Facts 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. Background . It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement. [20] In Canada, "[t]he law on when a court may … '[lift] the corporate veil' … follows no consistent principle". But it has been applied altogether more generally, in cases which can be rationalised only on grounds of public policy, for example to justify setting aside a public act such as a judgment, which is in no sense consensual, a jurisdiction which has existed since at least 1775. He held that this would cut across statutory schemes of company and insolvency law (paragraph 41). 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. The concealment principle is, he says “legally banal and does not involve piercing the corporate veil at all”. Prest v Petrodel Resources Limited 15. Attorney advertising. 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. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd[1] decision in light of the corporate veil doctrine. 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. 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”. In any event, the formulation is not, on analysis, a statement about piercing the corporate veil at all. 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. If you would like to discuss becoming a client, please contact one of Brown Rudnick's attorneys to arrange for a meeting or telephone conference. In the majority's view, this conflicted with Salomon v A Salomon & Co Ltd, as affirmed in Woolfson v Strathclyde Regional Council and Adams v Cape Industries plc. He noted that in other Commonwealth countries there was also little consensus. The Supreme Court has confirmed that a court can in very limited circumstances pierce the corporate veil. Neil Micklethwaite, [21] In New Zealand, "'to lift the corporate veil' … is not a principle. The case concerned a very high value divorce.. The Supreme Court has just handed down its judgment in the landmark case of Prest v.Petrodel. On the contrary, that is what incorporation is all about…, 35. 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. 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. Prest v. Petrodel [2013] UKSC 34. 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. 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 Salomon principle, the veil of incorporation can be pierced to fix the one man with corporate liabilities or to treat the company's assets as assets available to meet the one man's liabilities (VTB Capital Pic v Nutri tek International Corp;11 Prest v Petrodel Resources Ltdn). 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). Properly speaking, it means disregarding the separate personality of the company. 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. 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