Posted by Alison Cartin on 23/06/2013. "Piercing the corporate veil" is an expression rather indiscriminately used to describe a number of different things. There is a statutory power to set aside certain dispositions made with the intention of defeating a claim for financial provision or property adjustment in section 37 of the Matrimonial Causes Act 1973. Because Mr Lipman owned and controlled Alamed Ltd, he was in a position specifically to perform his obligation to the plaintiffs by exercising his powers over the company. In In re Darby [1911] 1 KB 95, on the other hand, the liquidator of a creditor company was permitted to go behind the separate personality of a debtor company registered in Guernsey in order to obtain a remedy personally against its promoters who had fraudulently creamed off the profit from the sale by the Guernsey company to the creditor company of a worthless licence to run a slate quarry in Wales.92. Section 23 provides for periodical and lump sum payments to a spouse or for the benefit of children of the marriage. Connell J made such an order in Green v Green [1993] 1 FLR 326. In Secon Serv Sys Inc v St Joseph Bank & Trust Co, 855 F2d (7th Cir, 1988), 406, 414, Judge Easterbrook in the US Court of Appeals described the doctrine as "quite difficult to apply, because it avoids formulating a real rule of decision. It does not follow that JM Horne & Co Ltd was to be identified with Mr Horne for any other purpose. In addition, PRL was the legal owner of five residential properties in the United Kingdom and Vermont is the legal owner of two more. Prest v Petrodel Resources Ltd – What will be the impact of the Supreme Court decision today? The evasion principle is different. This is the second case in the space of a few months when the doctrine has been invoked before this court on what are, on any view, inappropriate grounds. He nevertheless concluded that a wider jurisdiction to pierce the corporate veil was available under section 24 of the 1973 Act. It had been bought in March of that year for £48,650 in Michel's name. 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. The courts have tended to recoil from some of the fiercer parts of this statement, which appear to convert open-ended speculation into findings of fact. Flat 310, Pavilion Apartments was bought in the name of Vermont for £635,000. endstream endobj 21 0 obj <>stream Three of these companies, PRL, Upstream and Vermont, all incorporated in the Isle of Man, are the respondents in this court. I conclude that the husband was the beneficial owner of these two properties.51. 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. I agree that the appeal should be allowed for the reasons given by Lord Sumption, supplemented in their essence by Lord Neuberger.98. The court ruled in the course of the hearing that leave would be refused. This appeal arises out of proceedings for financial remedies following a divorce between Michael and Yasmin Prest. They did not think that Parliament had legislated for the setting up of limited liability companies in order that sole traders should be able to conduct their businesses on limited liability terms. It is a fair inference from all these facts, taken cumulatively, that the main, if not the only, reason for the companies' failure to co-operate is to protect the London properties. h�b```f``r �|+@(������`��� LO9:8:�$����<>�S}o�sн PRL was the legal owner of the matrimonial home, which was bought in the name of the company in 2001 but was found by the judge to be held for the husband beneficially. The judge was entitled to take account of the husband's ownership and control of the companies and his unrestricted access to the companies' assets in assessing what his resources were for the purpose of section 25(2)(a). It held that the nature of their dealings gave rise to ordinary equitable claims against both. It may engage what I have called the concealment principle, but that simply means that the court must ascertain the truth that he has concealed, as it has done. These considerations are not a licence to engage in pure speculation. But for the court to deploy its authority to authorise the appropriation of the company's assets to satisfy a personal liability of its shareholder to his wife, in circumstances where the company has not only not consented to that course but vigorously opposed it, would, as it seems to me, be an even more remarkable break with principle.42. In these cases, there is no public policy imperative justifying piercing the corporate veil. The Supreme Court ordered that seven disputed properties, owned by companies controlled by Mr Prest, be transferred to Mrs Prest in partial satisfaction of their £17.5 million divorce settlement. In any event, it seems to me that the decision in Gilford Motor that an injunction should be granted against the company was amply justified on the basis that the company was Horne's agent for the purpose of carrying on the business (just as his wife would have been, if he had used her as the "cloak"); therefore, if an injunction was justified against Horne, it was justified against the company. Facts. On this point, the case took the same course in the Supreme Court [2013] UKSC 5; [2013] 2 WLR 398, which dismissed VTB Capital's appeal. However, the decisions can fairly be said to have rested on the doctrine if one takes the language of the judgments at face value. This keeps people in the dark about the legal consequences of their acts ... ". Judges in the United States have also been critical, even though the doctrine has been invoked and developed to a much greater extent than in this jurisdiction. 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 … This was the main basis on which the judge found that the matrimonial home was held on trust for the husband from its acquisition in 2001. He then formed a company, JM Horne & Co Ltd, named after his wife, in which she and a business associate were shareholders. Accordingly, if piercing the corporate veil has any role to play, it is in connection with evasion.62. The argument is that that is a power which can, because the husband owns and controls these companies, be exercised against the companies themselves. Decisions in which it was assumed that the doctrine existed and it was applied to the facts, but where the result could have been arrived at on some other, conventional, legal basis, and therefore it was wrongly concluded that it applied (see para 62 above). Before parting with this case, I will only record my surprise that the companies were given permission to appeal on such undemanding terms. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage upon its dissolution. The judge found that the purchase price was also derived from PRL. They were liable to account only if the true facts were that the company had received the money as their agent or nominee. 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. The background to these proceedings is extensive and, indeed, is well known to those who practise family law, in consequence of an earlier sequence of appeals which brought the case before the Supreme Court (Prest v Petrodel Resources Ltd. [2013] UKSC 34; [2013] 2 AC 415). For specific statutory purposes, a company's legal responsibility may be engaged by the acts or business of an associated company. The background to these proceedings is extensive and, indeed, is well known to those who practise family law, in consequence of an earlier sequence of appeals which brought the case before the Supreme Court (Prest v Petrodel Resources Ltd. [2013] UKSC 34; [2013] 2 AC 415). hޜ�wTT��Ͻwz��0�z�.0��. Many cases will fall into both categories, but in some circumstances the difference between them may be critical. They were married in 1993, and during the marriage the matrimonial home was in England, although the husband was found by the judge to have been resident in Monaco from about 2001 to date. 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.18. This has significant practical implications. The case was decided on its facts, but at p 96, Lord Keith, delivering the leading speech, observed that "it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere facade concealing the true facts."21. He was "able to procure their disposal as he may direct, based again on his being the controller of the companies and the only beneficial owner." The sole shareholder or the whole body of shareholders may approve a foolish or negligent decision in the ordinary course of business, at least where the company is solvent: Multinational Gas & Petrochemical Co v Multinational Gas & Petrochemical Services Ltd [1983] Ch 258. 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. In the present case, Moylan J held that he could not pierce the corporate veil under the general law without some relevant impropriety, and declined to find that there was any. There is a public interest in spouses making proper provision for one another, both during and after their marriage, in particular when there are children to be cared for and educated, but also for all the other reasons explored in cases such as Miller v Miller [2006] UKHL 24, [2006] 2 AC 618. The judge found that the matrimonial home was held by PRL on trust for the husband, but he made no corresponding finding about the seven other properties and refused to make a declaration that the husband was their beneficial owner. For what they are worth, the accounts for both years show a substantial turnover and large balances. In her section 25 statement, she gives evidence of her belief that he was their beneficial owner, supported in some cases by admittedly inconclusive reasons for that belief. Secondly, a transfer of this kind will ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets of the marriage. Decisions in which it was assumed that the doctrine existed, and it was wrongly concluded that it applied on the facts;iii. This is the issue which the judge felt that he did not need to decide. The judge did not make any finding about whether the properties of the corporate respondents were held in trust for the husband, except in the case of the matrimonial home in Warwick Avenue, which he found to be beneficially his. The judge rejected his excuse that he was in bad health, and found that he was "unwilling rather than unable to attend court." I refer to the husband because the husband is usually the economically dominant party, but of course the same applies to the economically dominant spouse whoever it is.46. The first systematic analysis of the large and disparate body of English case law was undertaken by a strong Court of Appeal in Adams v Cape Industries plc [1990] Ch 433 (Slade, Mustill and Ralph Gibson LJJ). 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. But on the footing that he was wrong about the ambit of section 24(1)(a), it does need to be decided now. Lawrence LJ, who gave the fullest consideration to the point, based his view entirely on Mr Horne's evasive motive for forming the company. The effect of the decision is encapsulated at pp 30-31, where Lord Halsbury LC said that a "legally incorporated" company "must be treated like any other independent person with its rights and liabilities appropriate to itself ..., whatever may have been the ideas or schemes of those who brought it into existence". The separate personality and property of a company is sometimes described as a fiction, and in a sense it is. Section 45 gave the court power, when granting a decree of divorce on the ground of the wife's adultery, to settle such property for the benefit of the husband and/or the children of the marriage. In the present case, the difficulty is aggravated by the fact that the last financial statements, which are not obviously unreliable, are more than five years old. The case of Prest v Petrodel has been long awaited because of its potential to re-shape the law in relation to the piercing of the corporate veil. They may result simply from the potency of an injunction or other court order in binding third parties who are aware of its terms. If it does not exist, it does not exist anywhere. r(��s}IQ>��Z�� :pZ��`�K��XM To date, the matrimonial home has been transferred to her but only subject to a pre-existing charge in favour of BNP Paribas to secure a debt of undisclosed amount. Cf. Indeed Parliament has decided to legislate to this effect in specified and limited circumstances with protection for third parties, in provisions such as section 37 of the Matrimonial Causes Act 1973 and section 423 of the Insolvency Act 1986.LADY HALE (with whom Lord Wilson agrees)84. Jackie Wells, head of our family law team, comments on the issues and impact of this landmark Supreme Court decision. Lord Hanworth did not explain why the injunction should issue against the company, but I think it is clear from the judgments of Lawrence and Romer LJJ, at pp 965 and 969, that they were applying the evasion principle. Or to disapply a statutory time bar which on the face of the statute applies: Welwyn Hatfield Borough Council v Secretary of State for Communities and Local Government [2011] 2 AC 304. Partly for that reason, the proceedings although in form adversarial have a substantial inquisitorial element. It is also clear from the cases and academic articles that the law relating to the doctrine is unsatisfactory and confused. In Australia, in Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549, 567, Rogers AJA in the New South Wales Court of Appeal observed that "there is no common, unifying principle, which underlies the occasional decision of courts to pierce the corporate veil", and that "there is no principled approach to be derived from the authorities". The decision in Prest v Petrodel is not entirely unexpected. However, this was not a distinction that was discussed in the course of the argument and, to my mind, should not be definitively adopted unless and until the court has heard detailed submissions upon it. Having read what Lord Sumption says in his judgment, especially in paras 17, 18, 27, 28, 34 and 35, I am persuaded by his formulation in para 35, namely that the doctrine should only be invoked 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".82. On closer analysis of cases mentioned in subpara (iii) above, it does not appear to me that the facts and outcomes in Gilford Motor and Jones provide much direct support for the doctrine. Oh, Veil-Piercing (2010) 89 Texas Law Review 81, 84 says that "[t]he inherent imprecision in metaphors has resulted in a doctrinal mess".78. It had been found at the earlier stage of the litigation that Introcom was "simply a vehicle Mr Smallbone used for receiving money from Trustor", and that the company was a "device or facade" for concealing that fact. This article first examines the implications of Petrodel from a family law perspective and goes on to consider the use of FICs as vehicles for separating control and ownership in a tax-efficient manner. Prest v Petrodel – a new court approach to corporate structures Background Prest v Petrodel was a “big money” divorce case, concerning assets worth in excess of £17.5million. As Rimer J observed, "the introduction into the story of such a creature company is... insufficient to prevent equity's eye from identifying it with Mr Dalby." The most important of those cases are discussed by Lord Sumption in paras 20-3 5 above. It empowers the court to order one party to the marriage to transfer to the other "property to which the first-mentioned party is entitled, either in possession or reversion". Lord Neuberger, Lord Walker, Lady Hale, Lord Mance, Lord Clarke, Lord Wilson, Lord Sumption. (3) The companies might be regarded as holding the properties on trust for the husband, not by virtue of his status as their sole shareholder and controller, but in the particular circumstances of this case. It appears to me that such a clear and limited doctrine would not fall foul of at least most of the strictures which have been made of the doctrine. In these circumstances it is not strictly necessary for this Court to add further general comments on the vexed question of piercing the corporate veil. Among other arguments, it was suggested that it was present in the United States by virtue of the fact that a wholly owned subsidiary was incorporated and carried on business there. On that footing, the company received the money on Mr Smallbone's behalf. The only directly relevant evidence given by Mr Murphy in his affidavit is a bald assertion that the companies are the sole beneficial owners of the shareholdings and the properties, but he declined to appear for cross-examination on it. I expressed a similar view in VTB Capital plc v Nutritek International Corpn [2013] 2 WLR 378 and adhere to it now. The rather curious chain of title before that is summarised above. In the converse case, where it is sought to convert the personal liability of the owner or controller into a liability of the company, it is usually more appropriate to rely upon the concepts of agency and of the "directing mind".93.