Mrs. Prest appealed to the Supreme Court. Recent decisions such as Adams v Cape Industries plc and Prest v Petrodel Resources Ltd have reaffirmed the principle in Salomon. 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 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. Family lawyers always get very excited about decisions handed down by the Supreme Court; after all, they don’t come very often. 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.. 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. 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 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. 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. 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. It will present the view the Law Lords had of … Piercing the corporate veil -a limited principle under English law: Prest v Petrodel 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. 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. On the contrary, that is what incorporation is all about…, 35. In Prest v Petrodel [2013] UKSC 34 the English Supreme Court undertook a review of the principles of English law which determine in what circumstances, if any, a court may set aside the separate legal personality of a company from its members There are two principles which it has been used in connection with. Piercing the corporate veil – a limited principle under English law: Prest v Petrodel, Authors: Stripping Away the Veil of Deceit: Prest v Petrodel. Prest v Petrodel Resources Limited 15. The barrier between the company’s assets and those of its members is known as the ‘veil of incorporation’. others (Respondents) before . 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 [2013] 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 Court of Appeal overturned the judge’s decision and held the properties could not be transferred unless the corporate personality was being abused by the husband for an improper purpose, or the assets were held on trust for the husband. 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 Yasmin Prest. Mrs. Prest had joined these companies to the application and sought a transfer of the properties. 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. 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. The evasion principle is where a company is interposed for the purpose of defeating or frustrating a legal right. 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 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 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. Mr. Prest, an oil trader and former barrister, had used various companies to purchase these properties. The court therefore had jurisdiction to make a transfer order. 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 phrase ‘piercing the corporate veil’ has been much misused. 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 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. 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. 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). Abstract. The authors would like to thank the Editorial Board and the peer You may delete and block all cookies from this site, but parts of the site will not work. However, a number of other exceptions exist which are wider in scope. He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. 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. 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. 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. However, courts have ‘lifted the veil’ in certain circumstances, such as when authorized by statute, in wartime and to prevent fraud. 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. Recent decisions such as Adams v Cape Industries plc and Prest v Petrodel Resources Ltd have reaffirmed the principle in Salomon. However, he noted that the real difficulty lies in identifying what is a relevant wrongdoing for the principle to be invoked (paragraph 28) and that the terms “façade” and “sham” beg too many questions to provide a satisfactory answer. Recent cases have sought to narrow the exceptions. 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. 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. 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. 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. 12 June 2013 . Claim by Mrs. Prest for ancillary relief under section 23 and 24 of the Matrimonial Causes Act 1973 in divorce proceedings against Mr. Prest. 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. The applicants were joint … In the recent case Prest v Petrodel, the doctrine of separate legal personality and the instances in which a court may pierce the corporate veil were discussed. This argument was advanced successfully in the 1976 case of DHN Food Distributors v Tower Hamlets wher… For the past 30 years orders have been made against the assets of a company that are considered to be the alter ego of a spouse to satisfy a capital award made by the court in respect of the other spouse.1In 2012 the Court of Appeals ruling in Petrodel Resources Ltd & Ors v Prest & Ors2set a new precedent stopping an ex-wife being able to investigate a company’s assets when she believes her husband has concealed assets within that company. 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. 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 other justices concurred in Lord Sumption’s analysis but did add some thoughts of their own on various issues. He rejected the husband had done anything improper relating to the companies to allow piercing the corporate veil. But … Facts. Thank you for your interest in Brown Rudnick. The Facts. The Law Society of Hong Kong | Sweet & Maxwell | Westlaw Asia | Contact Us. Liabilities should therefore, be attached to the whole group as companies aim to reach a single economic goal. In 2013, the case of Prest v Petrodel [2013] UKSC 34 left the family law fraternity debating and divided. Analysis However, there is st… 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. 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". In this case, the husband had effectively purchased a number of properties in England which he had put into the names 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. basis on which parties deal with companies. 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. Neil Micklethwaite, Para. 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. Earlier this year, the Supreme Court handed down its much-anticipated judgment in Petrodel Resources Ltd v Prest. Has Prest v Petrodel made the law clearer? This article examines the judicial approach to the corporate veil post-Prest v Petrodel Resources Ltd. Piercing The Corporate Veil: Prest Vs Petrodel Resources The Supreme Court has handed down a landmark judgement in favour of Mrs Prest in high profile matrimonial dispute. Prest v Petrodel Resources Ltd [2013] UKSC 34. Another was to take funds from the companies whenever he wished, without right or company authority. 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. 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. It is not an abuse to cause a legal liability to be incurred by the company in the first place. 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. This essay will argue the decision has done little to fault the Salomon principle. In Prest v Petrodel at para. The concealment principle is simply that the court will look behind a company to see who the real actors are. It may be possible in the future to establish further situations in which the corporate veil should be pierced but this will be very difficult in view of Lord Sumption’s judgment. 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. Prest v Petrodel Resources Ltd UKSC 34 This is the key case where SC considered the issue of whether the court possesses a general power to pierce the corporate veil in the case where these specific legal principles do not apply. 7. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd decision in light of the corporate veil doctrine. He had set up number of companies. Many of the assets (primarily properties in London) were held by overseas companies controlled by the husband. the evasion principle by comparing, on the one hand, Gilford Motor Co v Horne [1933] Ch. Prest v Petrodel Resources Limited 15. 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). But fiction is the whole foundation of English company and insolvency law i.e. 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. Both sides of the profession were affected differently. © 2021 Brown Rudnick LLP. 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. 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. Para. 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. 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 divorcing couple, Mr … 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. JUDGMENT GIVEN ON . 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 trial judge had rejected both of these possibilities on the facts and therefore the Court of Appeal gave judgment for the husband. It was of key interest as it was a legal cross over between family law and company law. The Supreme Court has just handed down its judgment in the landmark case of Prest v.Petrodel. 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. This argument for lifting the veil is targeted at companies within a corporate group. Heard on 5 and 6 March 2013 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). In giving judgment on 12 June 2013, the … - 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). Prest was of particular interest because of the legal cross-over between family law and corporate law. 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. These are narrow exceptions to the general rule. 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 VTB was concerned with a different problem – the consequences of lifting the corporate veil, but approved (with one exception that is irrelevant here) Munby, J’s six principles that set out when a court is entitled to lift the corporate veil. 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. Another was to take funds from the companies whenever he wished, without right or company authority. 8, Lord Sumption said separate personality and property of a company is sometimes described as a fiction, and in a sense it is. We use cookies on our website. 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). 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. 6. 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. It was of key interest as it was a legal cross over between family law and company 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. ... Jersey: Case Update: Prest V Petrodel Resources Limited: 2013 UKSC 34 30 July 2013 . the company should not, however, have concurrent liability with the husband in making the lump sum payment to the wife. 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 … 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 decision is therefore of great interest to family lawyers. By continuing to use this site you consent to our use of cookies in accordance with our Cookie Policy. 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. 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. This article argues against this approach as it is so narrow that it practically abolished the jurisdiction. Nicholas Tse, ... Jersey: Case Update: Prest V Petrodel Resources Limited: 2013 UKSC 34 30 July 2013 . Capital v Nutritek and, last week, Petrodel v Michael Prest. But in Prest this was achieved via a different route. The same point applies to Jones v Lipman, para 135. Attorney advertising. The Supreme Court’s decision However, courts have still been willing to ignore the Salomon principle, most notably in Chandler v Cape plc [6] . The decision in Prest overhauled the court’s previous precedent… In 2013, Lord Sumption, delivering the leading judgment of the Supreme Court of the United Kingdom in Prest v Petrodel Resources Ltd, One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. The Hong Kong Court affirmed the decision in Prest, and the manner in which the UK Supreme Court upheld the Saloman principle, in ruling that: This decision will reassure parties whose spouses attempt to conceal assets behind corporate structures so as to defeat claims for ancillary relief, and whose spouses attempt to transfer shareholdings in order to defeat applications for such relief. Prest (Appellant) v. Petrodel Resources Limited and . Background . In SLA, the couple were married for 17 years. 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. In Trustor and Genco, at the risk of over-simplification, a claim was made that a former In part satisfaction of this sum, the judge ordered three Petrodel group companies to transfer the seven properties in question to Mrs Prest. Roger Kennell. Also see Lady Hale’s distinction in … The divorcing couple, Mr and Mrs Prest, were wealthy. 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 and Beyond – Part 1 and Part 2 (Companies) 1. 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. This results in uncertainty for commercial actors. The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. 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). But in Prest this was achieved via a different route. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd decision in light of the corporate veil doctrine. Analysis is undertaken of the judgment in Prest and of how judges have adapted and applied this judgment in subsequent cases. 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.”. 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. The Matrimonial Causes Act 1973, s24 gives the court the power to order one party to the marriage to transfer any property to which he or she is “entitled” to the other party to the marriage. This is a case with regard to family law. 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. there was a real risk of dissipation of further company monies at the instance and behest of B. The court was asked as to the power of the court to order the transfer of … These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. Mr. Prest was the sole owner of numerous offshore companies. 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 relatively short and significant judgment in the Supreme Court case of Prest v Petrodel Resources Ltd has gathered vociferous interest from academics and practitioners. A limited company has a separate legal personality from its members, or shareholders. Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. 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. This essay will argue the decision has done little to fault the Salomon principle. John Wilson QC of 1 Hare Court analyses the Supreme Court’s judgment in the landmark case of Prest v Petrodel and considers its implications for family lawyers. 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. The authors would like to thank the Editorial Board and the peer Facts: Mr Prest was an oil-trader. The Facts. 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. He held that this would cut across statutory schemes of company and insolvency law (paragraph 41). One of the companies was the legal owner of five residential properties in the UK and another was the legal owner of two more. Lord Neuberger, President Lord Walker Lady Hale Lord Mance Lord Clarke Lord Wilson Lord Sumption . In Petrodel, 22nd Dec 2020 Law Reference this. 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And Mrs Prest, were wealthy: 2013 UKSC 34 law and corporate.. To be incurred by the husband the transfer of … Introduction held by the companies to these!