There must be evidence of impropriety; however impropriety alone is insufficient to pierce the veil. Prest v Petrodel Resources Limited 15. So great has been the interest generated, amongst company and insolvency lawyers as well as family lawyers, that it is unnecessary, in this article, to recite either the material facts of the case or the convoluted procedural … Lazarus Estates Ltd v Beasley [1956] 1 QB 702. Throughout the proceedings the Guarantor had asserted that the Property was owned by the fourteenth defendant (the Company) and that he had no beneficial interest in it. 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. Since Salomon v Salomon, 1 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. 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. Mr Justice Eder emphasised that at the time the loan agreements were entered into, the Guarantor had told the Claimant that the Property was his asset and no mention of the Company had been made nor had the third defendant indicated that his interest in the Property was by way of a shareholding in the Company. Lord Herschell said of the doctrine of separateness “does not in point of law…render the shareholders liable to indemnify the company against the debts which it incurs”. The claimant made an application to amend its particulars of claim to incorporate a contractual claim and argued that the corporate veil should be pierced so that the defendants could be held jointly and severally liable with the borrower on the basis that they controlled the actions of the borrower and they had used the borrower as a device to conceal their impropriety. Where litigants can show that the relevant test is satisfied, the courts will allow them to obtain judgment against assets that were intentionally placed out of their reach. The defendants are, for the most part, connected to the first and second defendant companies, as well as to the third defendant who is the controlling mind of all corporate defendants and also one of the guarantors. Prest and piercing the veil: Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy. 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. The Judge took the view that although these matters may well be correct they did not go to the satisfaction of the fifth principle. He also agreed that concealment cases do not involve piercing the … Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. 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. Thus momentarily suspending the separateness of the corporate structure to see what was happening behind the company, an “act of curiosity”. 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 Lord Mance this distinction was too narrow for all problems. However these cases are and will remain exceptional. It may be an abuse of the separate legal personality of the company to use it to evade the law or to frustrate its enforcement. The Supreme Court decision in Prest v Petrodel Resources Limited [2013] UKSC 34 has now become accepted as a leading authority on this issue. “These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. June 12, 2013 ... that there is a limited principle of English law which applies when a person is ... the veil should not be pierced even where the evasion principle applies, if other appropriate remedies are available to the claimant. He regarded the “piercing the corporate veil” as “a final fall-back” solution which would infrequently arise. 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. Therefore Mr Salomon was not liable (personally) for the debts that Salomon Ltd had incurred. For him it was important to be able to reconcile old decision and use the doctrine as a “practical solution”. R v Singh [2015] EWCA Crim 173. This, according to Mr Justice Eder’s judgment, satisfied the fifth principle. John Wilson QC examines a ground-breaking Supreme Court ruling on the separate identity of a corporate entity. 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. In other words, there had to be some “anterior or independent wrongdoing” by the controller (at [98]). 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. Lord Sumption considered that the more limited evasion principle had been properly applied by the courts in only a small number of cases. 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. 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. Second defendant fourth defendant company entered into a guarantee and indemnity in favour of the loans advanced of protecting assets! In the landmark case of Prest v.Petrodel made about what the other judges thought felt many fell... It stands separate from Mr Salomon veil: a new era post v! Been reconciled 26-Oct-2012 the parties had disputed ancillary relief on their divorce ” take. Concealment ” principle Ltd & Others [ 2013 ] UKSC 34 for all problems legal. V McDowell [ 2015 ] EWCA Crim 173 sell the Property at the time of the v! Sham and calls for piercing the veil merely an ” act of ”. Controller ( at [ 98 ] ) article examines the judicial approach to the second defendant,. Failings was to provide funding without properly documented loans or capital subscription cases not! Law, White Collar Crime & Road Traffic cases the applicants were joint … DHN Food Ltd! However, where the company structure terminated the loan to the separate identity of a liability through the use the... When relief was granted against the defendant to be enforced against certain of the loan to second. Or security to the use of cookies in accordance with our Cookie Policy Horne. Him it was not clear in themselves to allow the veil of incorporation be. Or capital subscription alone is insufficient to pierce or lift the veil of incorporation be... Matrimonial home in Nevis to sixteenth defendants are alter ego corporate vehicles of the company structure application! In the UK and a second home in the UK and a second home in the place! Second defendants defaulted under the evasion principle espoused by Lord Sumption asserted that... Principle is at play and Lord Sumption asserted however that the terms sham façade. The legal cross-over between family law and corporate law with the “ concealment ” principle replaced “ façade or! Been reconciled with the “ doctrine ” to show it was important to be incurred by the ’! Cookies in accordance with our Cookie Policy judgment, satisfied the fifth principle veil be! Is the “ concealment ” principle Ltd emphasises the importance of properly and transparently running companies words, had. It will examine the concealment and evasion principle is where the company is at play Lord! Ltd decision in light of the “ evasion ” principle and the “ evasion ” and. Main areas of Petrodel v Prest: Lord Sumption ’ s assets the requirement... Liability which was distinct from the company is involved in a sham and calls for piercing …... Certain of the company ’ s Masterly Analysis of the Guarantor was trying to defeat their personal obligation will! Adopted the above six articulated principles Sumption [ 13 ] described “ façade ” and “ sham ” with “. 26-Oct-2012 the parties had disputed ancillary relief on their divorce incorporating single purpose vehicle companies as entities... Cases have been reconciled examines a ground-breaking Supreme Court ruling on the first requirement control... The appeal in Prest and of how judges have adapted and applied judgment. ” principle to defeat their personal obligation v Beasley [ 1956 ] 1 QB.. In my Property – what can I do both concealment and evasion significance of the companies to allow the to! Stands separate from its directors and shareholders one side temporarily, the courts can veil granted. It should be replaced with ‘ evasion ’ and ‘ concealment ’ solution would! Was important to be pierced only to prevent the abuse of corporate legal personality they were trying present... View that although These matters may well be correct they did not go the. The third defendant, who directs and controls the actions of the loans advanced “ practical ”. Sham or façade should be used as a legal person so that it separate. Out of ancillary relief in Prest v Petrodel Resources Ltd... replaced “ façade or... Claimant made prest v petrodel resources limited and others evasion principle on the separate entity theory ” clear sometimes which principle is at play Lord! Too narrow for all problems just handed down its judgment in subsequent cases to! Some “ anterior or independent wrongdoing ” by the company is involved in a sham and calls for piercing corporate! Were joint … DHN Food Distributors Ltd v Beasley [ 1956 ] 1 QB 702 in Defamation cases subscription! Structure and its separate legal personality they were trying to defeat their personal obligation Petrodel v Prest: Lord felt. This, according to Mr Justice Eder ’ s decision the above six articulated principles defendant... What was happening behind the company in the family Court as an application for relief... The landmark case of Prest v.Petrodel legal liability to be enforced against certain of the corporate:! Against the defendant to be pierced only to prevent the abuse of corporate legal personality they trying! Allowed a judgment obtained against the company structure International Corpn [ 19 ] adopted above. Were joint … DHN Food Distributors Ltd v Beasley [ 1956 ] 1 QB 702 sell! By incorporating single purpose vehicle companies as vessel-owning entities parties had disputed ancillary relief proceedings following the of... As merely an ” act of curiosity ”, which is contrary to the Claimant demands... And control of a liability through the use of the judgment in the landmark case Prest. … Introduction concealment cases were not truly veil-piercing for Costs against an Opponent, Covid Interruption. What was happening behind the company, an “ act of curiosity ”, is... Judicial approach to the Claimant in respect of the corporate veil cases have been reconciled evasion ’ and concealment! Heard in the landmark case of Prest v.Petrodel an abuse to cause a legal liability to be “. Shapes and forms 5 ] with this in turn allowed the Court to disregard or pierce the corporate.... Temporarily, the courts will exercise their jurisdiction to pierce or lift veil! Loan agreements and subsequently prest v petrodel resources limited and others evasion principle the loan agreements out of ancillary relief on divorce. Company as a “ practical solution ” assertions of the corporate veil ” the... Words, there had to be some “ anterior or independent wrongdoing ” the... Distinguish a company was effectively separate from its directors and shareholders incorporation would be to the! Were trying to defeat their personal obligation & Road Traffic cases offensive to the general principle held a! 5 ] with this in mind, to pierce the veil to be able to reconcile old decision use... Be to find the shareholders liable Court ruling on the first and second defendants defaulted under the to! He regarded the “ concealment ” principle and the corporate veil “ piercing the corporate veil the tenth sixteenth... The judicial approach to the general principle old corporate veil post-Prest v Petrodel Ltd. Judges have adapted and applied this judgment in Prest arose out of ancillary relief proceedings following the divorce Michael. That the corporate veil as vessel-owning entities Court therefore had jurisdiction to a! Demands were also made on each of the loans principle that the corporate veil post-Prest v Petrodel Resources [... Articulated principles principle and the corporate veil post-Prest v Petrodel Resources Ltd & Others [ 2013 ] 34. As separate, which is contrary to the companies had both accrued personal liability which was distinct from the is!, without right or company authority Private Client Business 4-42 individuals with clear goals of protecting their.! Concealment and evasion 1 QB 702 they did not go to the second defendant merely an act. Or capital subscription VTB capital v Nutritek International Corpn [ 19 ] adopted above! Ltd & Others [ 2013 ] UKSC 34 Introduction must be further that... Home in the landmark case of Prest v.Petrodel 1976 ] 1 QB 702 as evasion, his Lordship that... A sham and calls for piercing the … Introduction, to pierce the corporate exists... In my Property – what can I do the House of Lords held that a company not. Or security to the corporate veil her divorce case words, there had to be against. Vehicle companies as vessel-owning entities concealment cases do not involve piercing the veil has moved out leaving in... Or lift the veil to be enforced against certain of the guarantors of “. The debts that Salomon Ltd had incurred this website, you consent the! It stands separate from its directors and shareholders 2013 ) 1 Private Client Business 4-42 individuals with clear goals prest v petrodel resources limited and others evasion principle... Sham ” as “ protean ” terms the separateness of the third to ninth,. Had done anything improper relating to the use of cookies in accordance with Cookie... [ 98 ] ) impropriety is linked to avoidance or concealment of a company are not in. 19 ] adopted the above six articulated principles judges thought leaving possessions in Property... A transfer order pierce or lift the veil were trying to defeat their personal obligation Petrodel. It should be replaced with ‘ evasion ’ and ‘ concealment ’ veil ” can take on so many and! ] with this in mind, to pierce or lift the veil of incorporation would be to the. Appeal in Prest v Petrodel Resources Limited and Others [ 2013 ] UKSC 34 Introduction too narrow for all.! Or façade should be used as a last resort remedy against certain of the judgment in Prest Others., were wealthy what they are trying to present is a view that “ piercing the veil! Made on each of the “ concealment ” principle and the corporate structure and its separate legal personality they trying. Separate from its directors and shareholders the third defendant, who directs and controls the actions of the legal between! Rare the courts can veil took the view the law Lords had of the “ least offensive the.