The divorcing couple, Mr … As at present advised, I would not require Upstream, against whom no relief has ever been sought, to pay any costs, but in the rather unusual circumstances of this case, I would not make any costs order in their favour either.LORD NEUBERGER57. *I��(ݣ!�]���Y�L�N�tI�˺��kqx6�y���1����u0H�@fI��i�k�|���MC@R��z��V$�勌�dM^)�hJ�-��iXn��,-���` ����%�K���>�!��}}D�Q��^M���)�n�Ih�=��H��O��z2N��^h"���!/8ޕ�I���b��=�:yI��Ȁ�� He directed those companies to execute such documents as might be necessary to give effect to the transfer of the matrimonial home and the seven properties. I agree that this appeal should succeed, on the basis that the properties in question were held by the respondent companies on trust for the husband. The bank could have protected itself by taking a charge or registering the contract of sale.31. He considered that the judge had rejected both of these possibilities on the facts, and that he ought not therefore to have made the order. As he is beneficially entitled to them, they fall within the scope of the court's power to make transfer of property orders under section 24(1 )(a) of the Matrimonial Causes Act 1973. Lord Sumption may be right to say that it will only be done in a case of evasion, as opposed to concealment, where it is not necessary. 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. Some of the concurring judgments reserve the possibility of a somewhat wider test, but not in respects which affect its application to the present case.The Court rejects the argument that a broader principle applies in matrimonial proceedings by virtue of section 24(1) (a) of the 1973 Act. 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?' English law has no general doctrine of this kind. 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 court, adopting Lord Keith's dictum in Woolfson v Strathclyde, held that the corporate veil could be disregarded only in cases where it was being used for a deliberately dishonest purpose: pp 539, 540. 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. There was also a second home in Nevis. That discussion demonstrates, as I see it, the following: i. In most cases the facts necessary to establish this will disclose a legal relationship between the company and its controller giving rise to legal or equitable rights of the controller over the company's property, thus making it unnecessary to pierce the veil. 69. 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. 10% of the money ordered to be paid on account of costs has been paid by the three respondents, but only in order to satisfy a condition imposed on them upon their being granted leave to appeal to the Court of Appeal. Rimer J held, at para 26, that Mr Dalby was accountable for the money received by Burnstead, on the ground that the latter was "in substance little other than Mr Dalby's offshore bank account held in a nominee name", and "simply... the alter ego through which Mr Dalby enjoyed the profit which he earned in breach of his fiduciary duty to ACP." 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 and attribute to its members the legal consequences of the company’s acts. 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. In fact, he dismissed the claim on the ground that the restrictive covenant was void. It may be that the possibility on which I touched in para 77 would evaporate as a possible further exception to the principle in Salomon's case. 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. All of these properties were acquired by PRL before it began commercial operations and began to generate funds of its own. endstream endobj 20 0 obj <>stream He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.". Neutral citation number [2013] UKSC 34. 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. 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. Nor do I doubt that the object is to achieve a proper division of the assets of the marriage. Mr Le Breton, a former business colleague of the husband, gave evidence at the hearing which the judge accepted as reliable. 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. On the contrary, that is what incorporation is all about. The wife's evidence was that the husband paid for it. In particular, (i) it should be of value in the few cases where it can be properly invoked, (ii) it is, I believe and hope, sufficiently clear as to render it unlikely to be raised in inappropriate cases, and (iii) it does not cut across the rule in Salomon because it is consistent with conventional legal principles.83. Against this background, there are three possible legal bases on which the assets of the Petrodel companies might be available to satisfy the lump sum order against the husband: (1) It might be said that this is a case in which, exceptionally, a court is at liberty to disregard the corporate veil in order to give effective relief. The decree of restitution of conjugal rights was abolished in the comprehensive package of matrimonial law reforms which came into force on 1 January 1971. $O./� �'�z8�W�Gб� x�� 0Y驾A��@$/7z�� ���H��e��O���OҬT� �_��lN:K��"N����3"��$�F��/JP�rb�[䥟}�Q��d[��S��l1��x{��#b�G�\N��o�X3I���[ql2�� �$�8�x����t�r p��/8�p��C���f�q��.K�njm͠{r2�8��?�����. The husband is not party to the appeal in point of form, although he is present in spirit. In this country, Clarke J in The Tjaskemolen [1997] 2 Lloyd's Rep 465, 471 said that "[t]he cases have not worked out what is meant by 'piercing the corporate veil'". The concealment principle is legally banal and does not involve piercing the corporate veil at all. The question nevertheless arises as to whether, in a case such as this, the courts have power to prevent the statutes under which limited liability companies may be established as separate legal persons, whether in this or some other jurisdiction, being used as an engine of fraud. The Supreme Court's ruling in the landmark divorce case, Prest v Petrodel Resources Ltd [2013] UKSC 34, confirmed that placing assets into corporate structures for wealth protection reasons might not now protect that wealth against divorce claimants. But the case is authority for what it decided, not for what it might have decided, and in my view the principle which the Court of Appeal applied was correct. Accordingly, provided that it is possible to discern or identify an approach to piercing the corporate veil, which accords with normal legal principles, reflects previous judicial reasoning (so far as it can be discerned and reconciled), and represents a practical solution (which hopefully will avoid the problems summarised in para 75 above), I believe that it would be right to adopt it as a definition of the doctrine.81. For all those reasons, in addition to those given by Lord Sumption, I would dismiss this appeal on all but the issue of whether either party had a beneficial interest in the properties in question but allow it on that ground. It is tolerably clear from his supplementary judgment of 16 November 2011 (on the form of the order), that this was because having decided that he was specifically authorised to dispose of the companies' properties under section 24, it was unnecessary for him to do so and undesirable because of "the potential tax consequences". Flat 4, 27 Abbey Road was transferred by the husband, who had originally bought it in his own name in 1991, before PRL was incorporated. It 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. �,b���R�T^ WVP����� o�8����8W%��%/�h8���%�Uf�˔�F�{��5T96-l���XK��T���I������Ho>Տ�yz�t�������rbf?��Igf�x���\]ѣđ�8����?A����p>���9�� ��������O:E�z�956 �۲��u����'�1�tz�uP�B�άD(M�ܫc �Jwi��b�K��2�:���d�n \z���LC��iu���e�i::QR%��ʂ2&����?j��ԣ|������+�g�oM����e/o�G��`m`�ʈ�����`껉*q�{����0�4#��/�;��O=1�͵�ڰ;s�����f,|g�����-�2R?�r]�؜�n�����Hƻ�껈��Q��5 FL~��]�x\��nEx����'��9a�5'"�6��n�(Q�ek���~���0��]�V5�6�Q��5�{J����Lߜ�,�ǫ����9|�������W&{�s� è~�u�`��r�Hk�-�EЅ �ӲD���B��Z+z����Ӈ釜;v\ui�*ɋ��zJ?__���S֤"���|���$�-�$3L��_ ���iB}�ӑir���~'���Ⓟ'�@b~5p�Lk��u�]g�u����q��V"%Wa�Ns��(S�M�x������RuF���S�LKí���U6i�ϣ�>���Iiξ!��QP�w*+J���%d� �_%�Š�Gq~��X� Like Munby J in Ben Hashem, I consider that if it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justifies that course. There is no basis for treating the State's taking or Gécamines' use of Gécamines' assets for State purposes, at which Hemisphere directs vigorous criticism, as a justification for imposing on Gécamines yet further and far larger burdens in the form of responsibility for the whole of the debts of the Democratic Republic of the Congo. The ownership of the respondent companies proved to be more difficult to establish. For what they are worth, the accounts for both years show a substantial turnover and large balances. There is not one law of 'sham' in the Chancery Division and another law of 'sham' in the Family Division. It is true that most of the statements of principle in the authorities are obiter, because the corporate veil was not pierced. I only wish to add a word onpiercing the corporate veil. However, he declined to decide whether the consensus was right on an appeal from an interlocutory decision, given that, like the Court of Appeal, he considered that even if the veil were pierced the result would not be to make a company's controllers party to its contracts with third parties. I agree with all that Lord Sumption says on (i) the construction of section 24(1)(a) of the 1973 Act, in paras 37-42, (ii) the trust issue, in his masterly analysis of the facts and inferences to be drawn from them, in paras 43-52, (iii) the point sought to be raised under section 24(1)(c), in para 53, and (iv) his conclusions in paras 55 and 56, and there is nothing I wish to add on those issues.59. In accordance with the judge's order PRL has now conveyed it to the wife, but subject to the charges. The only relevance of the interposition of the company was to maintain the pretence that it was being carried on by others. But for my part I think it would be a lost opportunity - even perhaps a minor dereliction of duty - if we were to abstain from any further comment. Cumming-Bruce LJ (at p 287) thought that, in that situation, "the court does and will pierce the corporate veil and make an order which has the same effect as an order that would be made if the property was vested in the majority shareholder." The same confusion of concepts is, with respect, apparent in Sir Andrew Morritt V-C's analysis in Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177, which I have already considered. Flat 5, 27 Abbey Road was transferred to PRL on the same day, also for £1, by the husband's younger brother Michel. But when we speak of piercing the corporate veil, we are not (or should not be) speaking of any of these situations, but only of those cases which are true exceptions to the rule in Salomon v A Salomon and Co Ltd [1897] AC 22, i.e. 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. I therefore disagree with the Court of Appeal in VTB Capital who suggested otherwise at para 79. This did not involve piercing the corporate veil, but only identifying Mr Lipman as the man in control of the company. Neither the husband nor the companies have complied with orders for the production of the completion statements on the purchase of the properties and evidence of the source of the money used to pay the purchase price. This appeal arises out of proceedings for ancillary relief following a divorce. One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. The wife petitioned for divorce in March 2008. 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. The husband declined to answer the question whether he received any benefits from PRL other than his salary, saying that this was an "accounting question". The judge's answer to that question was that the "purpose and intention" of the Matrimonial Causes Act 1973 was that the companies' assets should be treated as part of the marital wealth. b�!U� �X��IC%��ӯ�v�Qk�_e]��9��+�r3����6 Jackie Wells, head of our family law team, comments on the issues and impact of this landmark Supreme Court decision. In Macaura v Northern Assurance Co Ltd [1925] AC 619, the House of Lords held that the sole owner and controller of a company did not even have an insurable interest in property of the company, although economically he was liable to suffer by its destruction. The position is the same in the case of 11, South Lodge, except that this was bought with money provided by PRL at a time when it was an active trading company and could therefore have funded the purchase itself. In the Court of Appeal, three of the companies challenged the decision on the ground that there was no jurisdiction to order their property to be conveyed to the wife. Since, as the judge found, no rent was paid to PRL for the family's occupation of the matrimonial home, this is a particularly clear case of the husband using PRL as a vehicle to hold legal title on trust for himself.49. 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. This may be thought hard on the bank, but it is no harder than a finding that the company was not the beneficial owner at all. This means that the court's role is an inquisitorial one. Furthermore, I agree that, if the court has power to pierce the corporate veil, Munby J was correct in Ben Hashem v Al Shayif [2009] 1 FLR 115 to suggest that it could only do so in favour of a party when all other, more conventional, remedies have proved to be of no assistance (and therefore I disagree with the Court of Appeal in VTB [2012] 2 Lloyd's Rep 313, para 79, who suggested otherwise).63. 39 0 obj <>stream 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. In international law as in domestic law, lifting the corporate veil must be a tailored remedy, fitted to the circumstances giving rise [to] it.". On that footing, the company received the money on Mr Smallbone's behalf. AppellantRichard Todd QCDaniel LightmanStephen Trowell(Instructed by Farrer & Co) RespondentTim Amos QCOliver WiseBen ShawAmy Kisser(Instructed by Jeffrey Green Russell Ltd) LORD SUMPTIONIntroduction1. The Board need express no further view on that possibility. Section 25(2)(a) requires the court when exercising the powers under section 24, to have regard to "the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future". h�bbd```b``j��`��dq��7@$W���"S�$��& ��P/Є�`����O|0 ,� The judge recorded the wife's evidence that the husband had once advised her that if anything were to happen to him, she should sell all the properties, move to Nevis and use the proceeds of sale to meet her living expenses there.47. A court may take judicial notice that railway lines are regularly patrolled by linesmen and Bangers. Accordingly, if piercing the corporate veil has any role to play, it is in connection with evasion.62. Flat 310, Pavilion Apartments was bought in the name of Vermont for £635,000. There are two charges on the property, in favour of Ahli United Bank and BNP Paribas, apparently to secure loans made to PRL. Most of the judge's findings of fact were directed to two questions which are no longer in dispute, namely whether the husband owned the Petrodel Group and what was the value of his assets. However, if either or both those points were correct, it would not undermine Lord Sumption's characterisation of the doctrine: it would, if anything, serve to confirm the existence of the doctrine, albeit as an aspect of a more conventional principle. 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. Many cases will fall into both categories, but in some circumstances the difference between them may be critical. In itself, that is consistent with PRL being the beneficial owner if, for example, the husband provided the money to the company by way of loan or capital subscription. All the disclosed accounts are now very much out of date. 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 … But for much of this period, the Family Division pursued an independent line, essentially for reasons of policy arising from its concern to make effective its statutory jurisdiction to distribute the property of the marriage upon a divorce. It represents the inverse of the present situation. I also agree that cases concerned with concealment do not involve piercing the corporate veil at all. The proper exercise of these powers calls for a considerable measure of candour by the parties in disclosing their financial affairs, and extensive procedural powers are available to the court to compel disclosure if necessary. In the absence of evidence to the contrary, it is entitled to infer that one or more of them in the course of several weeks noticed what was plain for all to see. These include elaborate provisions regulating the repayment of capital to shareholders and other forms of reduction of capital, and for the recovery in an insolvency of improper dispositions of the company'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. $�����H�;�����Y�g�` �� endstream endobj 17 0 obj <> endobj 18 0 obj <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageC]/XObject<>>>/Rotate 0/Tabs/S/Type/Page>> endobj 19 0 obj <>stream 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. Between 1996 and 2002, it is described in its financial statements as a property investment company. This case summary discusses the UK Supreme Court case of Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 2 AC 415; [2013] 3 WLR 1 in which the majority held that the corporate veil should only be pierced where all other remedies were not available. The principal parties before the judge, Moylan J, were Michael and Yasmin Prest. Only then will they constitute property to which the husband is "entitled, either in possession or reversion." This appeal arises out of proceedings for financial remedies following a divorce between Michael and Yasmin Prest. 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.Nuptial settlement53. Rimer J ordered an account against both Mr Dalby and Burnstead. However, it is right to note (i) that the ownership of residential investment property in London appears to have nothing to do with the oil trading business in which PRL was then engaged, and (ii) that at this stage of the history a consistent pattern can be discerned by which the husband causes properties to be acquired with funds provided by himself by companies under his control, nominally funded by PRL but in fact by himself. Section 23 provides for periodical and lump sum payments to a spouse or for the benefit of children of the marriage. 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