It was of key interest as it was a legal cross over between family law and company law. The case of Prest v Petrodel Resources Limited and Others UKSC 34 has been a battle, through the English High Court, Court of Appeal and Supreme Court, between the principles of corporate integrity on the one hand and fairness on divorce on the other, as much as between Mr and Mrs Prest and the companies in which Mr Prest had an interest. 6. 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. The barrier between the company’s assets and those of its members is known as the ‘veil of incorporation’. You understand and agree that transmitting information to Brown Rudnick by e-mail does not establish an attorney-client relationship. Family lawyers always get very excited about decisions handed down by the Supreme Court; after all, they don’t come very often. © 2021 Brown Rudnick LLP. 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). 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). Analysis is undertaken of the judgment in Prest and of how judges have adapted and applied this judgment in subsequent cases. Also see Lady Hale’s distinction in … Heard on 5 and 6 March 2013 Facts. In Prest v Petrodel at para. Background . The trial judge had rejected both of these possibilities on the facts and therefore the Court of Appeal gave judgment for the husband. 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 other justices concurred in Lord Sumption’s analysis but did add some thoughts of their own on various issues. INTRODUCTION Rogers AJA in a New South Wales case commented "there is no common, underlying principle, which underlies the occasional decision of the courts to pierce the corporate veil". Supreme Court’s decision in Prest v Petrodel Resources Ltd with a view to determining whether the decision is a step towards the abolition of piercing the corporate veil doctrine. Nevertheless, the decision does retain a certain amount flexibility, given the overriding aim of the doctrine to prevent the abuse of a legal mechanism, which abuse may take many forms. The wife was successful in her application to set aside these dispositions; the court concluding that the transfers were a sham. In relation to the arguments concerning piercing the corporate veil, the court relied upon the evasion principle as set out in the decision of the SC in Prest v Petrodel Resources Ltd UKSC 34. Recent decisions such as Adams v Cape Industries plc and Prest v Petrodel Resources Ltd have reaffirmed the principle in Salomon. 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). 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. Prest was of particular interest because of the legal cross-over between family law and corporate law. 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. Abstract. He rejected the husband had done anything improper relating to the companies to allow piercing the corporate veil. In the clearest support for Prest, Deputy District Judge Carlson stated: “I apprehend that although not binding in our courts in Hong Kong, this decision will be followed here. Lord Neuberger analysed cases when the veil had been lifted in the past, concluding that it had been unnecessary in light of the facts of most cases. The appeal concerns the position of a number of companies belonging to the Petrodel Group which were wholly owned and controlled by Michael Prest, the husband. 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. basis on which parties deal with companies. The judge held that he could not pierce the corporate veil at common law so as to hold that the properties were in reality held by Mr. Prest as the companies’ separate legal personality must be respected. The divorcing couple, Mr and Mrs Prest, were wealthy. 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. others (Respondents) before . He had set up number of companies. The implications of Prest v Petrodel Resources Limited' (News and Publications, 2013) accessed 20 th December 2015 25 Ibid 26 [1939] 4 All ER (Ch) 27 Shepherd N, 'Petrodel v Prest: cheat's charter or legal consistency?' Lord Neuberger, President Lord Walker Lady Hale Lord Mance Lord Clarke Lord Wilson Lord Sumption . The same point applies to Jones v Lipman, para 135. 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. Piercing the corporate veil – a limited principle under English law: Prest v Petrodel, Authors: In 2013, the case of Prest v Petrodel [2013] UKSC 34 left the family law fraternity debating and divided. Mrs. Prest had joined these companies to the application and sought a transfer of the properties. Yasmin Prest. Analysis The phrase ‘piercing the corporate veil’ has been much misused. 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. to the principle that a company is a separate legal entity from its shareholders. 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. Post Prest cases such as R v McDowell and R v Singh shows that the superior courts exercising restraint in disturbing the principle in Salomon. The court was asked as to the power of the court to order the transfer of … 12 June 2013 . PREST V PETRODEL RESOURCES LIMITED: 2013 UKSC 34 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). 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. These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. the husband was the beneficial owner of the shares purportedly transferred to his business associates, and that the company held its assets on trust for the husband; the value of the shareholding and the known assets of the company were to be included in the asset pool for assessment of the wife’s ancillary relief application; and. shareholders.3 4In Prest v Petrodel Resources Ltd and others (Prest), Lord Sumption, Lady Hale, Lord Wilson and Lord Mance described ‘veil-piercing’ as a ‘well-established’ principle,5 while Lord Neuberger and Lord Final-year LL.B students at the City University of Hong Kong. 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. The case is also noteworthy in that the judge decided to proceed with the ancillary relief hearing in the husband’s absence, with the husband, whose solicitors had only recently come off the record, having written to the court on the eve of the hearing to advise that, for medical reasons, he would not appear at the hearing. As Lord Sumption noted (paragraph 34), it is not an abuse 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 controller. there was a real risk of dissipation of further company monies at the instance and behest of B. But fiction is the whole foundation of English company and insolvency law i.e. The issue was whether those properties could be brought into the calculation of the matrimonial assets. In part satisfaction of this sum, the judge ordered three Petrodel group companies to transfer the seven properties in question to Mrs Prest. Neil Micklethwaite, The seminal decision of the UK Supreme Court in Prest v Petrodel Resources Ltd 3 WLR 1 (“Prest”) has clarified the law on corporate veil piercing by (a) jettisoning vague phrases such as “justice of the case” and metaphors such as This raises an interesting issue about the possibility of parallel claims in tort (where the contract is with the company) as a way around the Salomon principle. It was established, inter alia, that Mr Prest was the Para. At issue was whether the family courts can pierce the corporate veil when assets are owned beneficially by a company, but controlled by one of the spouses. Para. Many of the assets (primarily properties in London) were held by overseas companies controlled by the husband. ... Jersey: Case Update: Prest V Petrodel Resources Limited: 2013 UKSC 34 30 July 2013 . 3 As such, no consistent rule or principle has emerged to guide whether or not a court should pierce the corporate veil. the company should not, however, have concurrent liability with the husband in making the lump sum payment to the wife. It will present the view the Law Lords had of the “doctrine” to show it was not clear. The case of Prest v Petrodel Resources Limited and Others [2013] UKSC 34 has been a battle, through the English High Court, Court of Appeal and Supreme Court, between the principles of corporate integrity on the one hand and fairness on divorce on the other, as much as between Mr and Mrs Prest and the companies in which Mr Prest had an interest. VTB Capital plc v Nutritek International Corp [2013] UKSC 5, [2013] 2 AC 337 is an English company law case, concerning piercing the corporate veil for fraud.. In Prest v Petrodel Resources Ltd [2013] 3 WLR 1, Lord Sumption narrowly confined veil-piercing at common law to those cases where a controller had used a company under his control to evade a pre-existing legal liability. Mr. Prest was the sole owner of numerous offshore companies. A limited company has a separate legal personality from its members, or shareholders. ... Jersey: Case Update: Prest V Petrodel Resources Limited: 2013 UKSC 34 30 July 2013 . In Prest v Petrodel Resources Ltd UKSC 34, the UK Supreme Court has recently reviewed the English law in this area, concluding that the Court has … However, courts have still been willing to ignore the Salomon principle, most notably in Chandler v Cape plc [6] . He held that this would cut across statutory schemes of company and insolvency law (paragraph 41). However, there is st… The decision in Prest overhauled the court’s previous precedent… In Prest v Petrodel Resources Ltd Lord Sumption and Lord Neuberger stated that lifting the corporate veil could only be used when applying the evasion principle, provided it is necessary to do so. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. The applicants were joint … By continuing to use this site you consent to our use of cookies in accordance with our Cookie Policy. The evasion principle is where a company is interposed for the purpose of defeating or frustrating a legal right. Mr and Mrs Prest (who had dual British and Nigerian citizenship) had their matrimonial home in London but it was determined by the court that Mr Prest was based in Monaco. Attorney advertising. This was certainly how parties had attempted to use the doctrine, such as in the VTB v Nutritek case for example, where an attempt was made to pierce the corporate veil and make another party liable on a contract. 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). 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. The decision is therefore of great interest to family lawyers. Following the commencement of divorce proceedings, the husband purported to transfer his shares in the company to a business associate based in Taiwan, via an intermediate transfer to a business associate in Hong Kong. The circumstances in which property held by a company can be attributed to those who control it gained considerable publicity in Prest v Petrodel Resources Ltd & Others [2013] UKSC 34.The case played out … In SLA, the couple were married for 17 years. On the contrary, that is what incorporation is all about…, 35. The husband was an engineer by training and upon the family’s relocation from Sweden to Hong Kong, established and maintained a successful business which provided a comfortable lifestyle. However, a number of other exceptions exist which are wider in scope. Lord Sumption held that it is the evasion principles which justifies the piercing of the coporate veil and set out what can (and cannot) be considered a relevant abuse of corporate legal personality (paragraphs 34 & 35): “34. 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. 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 some instances the properties had been Prest v Petrodel Resources Ltd and Others: SC 12 Jun 2013 In the course of ancillary relief proceedings in a divorce, questions arose regarding company assets owned by the husband. Prest v Petrodel- the facts In Prest v Petrodel the husband was a wealthy oil trader who had built up a portfolio of properties; all of which were in the names of various companies. Facts. The Facts. One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. The divorcing couple, Mr … 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. 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. Nicholas Tse, The case of Prest v Petrodel Resources Limited and Others UKSC 34 has been a battle, through the English High Court, Court of Appeal and Supreme Court, between the principles of corporate integrity on the one hand and fairness on divorce on the other, as much as between Mr and Mrs Prest and the companies in which Mr Prest had an interest. Piercing the corporate veil -a limited principle under English law: Prest v Petrodel Liabilities should therefore, be attached to the whole group as companies aim to reach a single economic goal. One of the companies was the legal owner of five residential properties in the UK and another was the legal owner of two more. The case raised important issues regarding the scope of section 24 of the Matrimonial Causes Act 1973, the doctrine of piercing the corporate veil and the law of resulting trusts. The concealment principle is simply that the court will look behind a company to see who the real actors are. Key Words Piercing/lifting the corporate veil Prest v Petrodel Resources Ltd Salomon v A. Salomon 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). This is a case with regard to family law. This doctrine goes back to the 1897 case of Salomon v A Salomon & Co Ltd, and any exceptions to this rule are limited. 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. The Supreme Court’s decision 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. It was of key interest as it was a legal cross over between family law and company law. This results in uncertainty for commercial actors. Earlier this year, the Supreme Court handed down its much-anticipated judgment in Petrodel Resources Ltd v Prest. 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). Recent decisions such as Adams v Cape Industries plc and Prest v Petrodel Resources Ltd have reaffirmed the principle in Salomon. 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 evasion principle by comparing, on the one hand, Gilford Motor Co v Horne [1933] Ch. Introduction. Thank you for your interest in Brown Rudnick. 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. Also see Lady Hale’s distinction in … The concept refers to a situation in which the courts put aside a company’s distinct legal identity and treat it as an alter ego of the ... 7 Prest v Petrodel Resources Ltd [2013] 2 AC 415 at [35], per Lord Sumption. short, after Mr and Mrs Prest divorced, Moylan J. awarded Mrs Prest a sum of £17.5 million as a fair division of Mr Prest’s assets. 935 and Jones v Lipman [1962] 1 WLR 832 with, on the other, Genco ACP v Dalby [2000] 2 BCLC 734 and Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177). 7. 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. But … Recent cases have sought to narrow the exceptions. In giving judgment on 12 June 2013, the … Prest and Beyond – Part 1 and Part 2 (Companies) 1. 22nd Dec 2020 Law Reference this. shareholders.3 4In Prest v Petrodel Resources Ltd and others (Prest), Lord Sumption, Lady Hale, Lord Wilson and Lord Mance described ‘veil-piercing’ as a ‘well-established’ principle,5 while Lord Neuberger and Lord Final-year LL.B students at the City University of Hong Kong. However, courts have still been willing to ignore the Salomon principle, most notably in Chandler v Cape plc [6] . - Sebastian Hughes, Counsel, Prince’s Chambers, - Sasha Allison, Solicitor, Hampton Winter & Glynn, UKSC Reviews “Illegality” Defence in a Professional Negligence Setting, Overview of the Law Reform Commission’s Consultation Paper on Sentencing and Related Matters in the Review of Sexual Offences, When the Legal Industry Meets Technology (Part 2). In this case, the husband had effectively purchased a number of properties in England which he had put into the names 8, Lord Sumption said separate personality and property of a company is sometimes described as a fiction, and in a sense it is. This argument for lifting the veil is targeted at companies within a corporate group. It is not an abuse to cause a legal liability to be incurred by the company in the first place. It was of key interest as it was a legal cross over between family law and company law. This company was the family’s main and most valuable asset. However, courts have ‘lifted the veil’ in certain circumstances, such as when authorized by statute, in wartime and to prevent fraud. articulated by Lord Sumption in Prest v Petrodel Resources Ltd [2013] 3 WLR 1 (“Petrodel”) in the light of recent English and Singapore case law and, in particular, to interrogate the notion of veil-piercing as a remedy of last resort, as well as the concealment and evasion principles which demarcate This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd decision in light of the corporate veil doctrine. Both sides of the profession were affected differently. Prest v Petrodel Resources Limited 15. Prest v Petrodel Resources Ltd & Ors United Kingdom Supreme Court (12 Jun, 2013) 12 Jun, 2013; Subsequent ... of "piercing the veil" has been deployed as part of the reasoning for a decision representing an exception to the basic principle in Salomon v A Salomon & Co Ltd [1897] AC 22. There are two principles which it has been used in connection with. Another was to take funds from the companies whenever he wished, without right or company authority. In Petrodel, between the concealment and evasion principle which is parallel with the piercing and lifting distinction in the case may lead to the continuous avoidance of the Salomon principle in the absence of clarifications on these distinctions. This essay will argue the decision has done little to fault the Salomon principle. The authors would like to thank the Editorial Board and the peer Has Prest v Petrodel made the law clearer? One of the main grounds relied upon by the trustees in the application was the “evasion principle”, (so named by Lord Sumption in his leading judgment in Prest v Petrodel Resources Limited and others UKSC), pursuant to which the Court can depart from the fundamental principle that a company has a separate legal personality from that of its members. 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 to resolve the issue of when the corporate veil can be pierced. The husband was an engineer by training and upon the family’s relocation from Sweden to Hong Kong, established and maintained a successful business which provided a comfortable lifestyle. But in Prest this was achieved via a different route. The Facts. The recent judgment in SLA v HKL (FCMC 75000/ 2010) may be Hong Kong’s first case to apply the recent UK Supreme Court landmark decision of Prest v Petrodel [2013] UKSC 34. Introduction 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 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. This argument was advanced successfully in the 1976 case of DHN Food Distributors v Tower Hamlets wher… The trial judge, Mr. Justice Moylan, had considered that the properties did form part of the husband’s estate and ordered their transfer to Mrs. Prest in payment of the £17.5 million Mr. Prest had been ordered to pay. The case concerned Mrs. Prest’s application for ancillary relief on divorce and the main dispute was whether seven residential properties in the UK should be considered part of Mr. Prests’s assets. The evidence of the circumstances in which the companies acquired the properties was incomplete, due to the husband’s failure to comply with orders for disclosure. These are narrow exceptions to the general rule. It therefore appears that where litigants can show that the relevant tests are satisfied, the courts will allow them to obtain judgement against assets that were intentionally placed out of their reach. 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. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. The case concerned a very high value divorce.. 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. The authors would like to thank the Editorial Board and the peer 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 to resolve the issue of when the corporate veil can be pierced. In considering the jurisdiction under section 24 of the Matrimonial Causes Act, Lord Sumption agreed with the Court of Appeal that this section permitted the judge to take into account that the husband owned and controlled the companies but did not entitle him to order that the companies’ assets be transferred to the wife (paragraph 40). Practically abolished the jurisdiction between the company ’ s assets and those of its members is known as ‘... Monies at the instance and behest of B hand, Gilford Motor v! The trial judge had rejected both of these possibilities on the one,... Co v Horne [ 1933 ] Ch clear goals of protecting their assets is simply the! 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