prest v petrodel evasion principle

Moreover, three other important issues raised in the aftermath of Petrodel are discussed with a view towards clarifying the scope of veil-piercing: the single economic entity doctrine, statutory veil-piercing and the doctrine of corporate The Matrimonial Causes Act 1973 section 24 required that for a court to be able to order a transfer a property, Mr Prest had to be ‘entitled’ to the properties held by his companies. This is [19] In Australia, "there is no common, unifying principle, which underlies the occasional decision of courts to pierce the corporate veil", and that "there is no principled approach to be derived from the authorities". Further, at least in some cases where it may be relied on, it could probably be analysed as being based on agency or trusteeship especially in the light of the words "under his control". The impropriety must be linked to the use of the company structure to avoid or conceal liability. 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. the concealment and evasion principles which demarcate the boundary lines of the veil-piercing doctrine. The evasion principle was the court disregarding the corporate veil if there was a legal right against the person in control of it, which existed independently of the company’s involvement, and a company was interposed so that the separate legal personality of the company would defeat the right or … This does not involve piercing the veil, although it might be described as “lifting” it. A veil could be pierced only for the purpose of depriving the company or its controller of the advantage they would otherwise obtain from the company’s separate legal personality. [3], 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). the Salomon principle, the veil of incorporation can be pierced to fix the one man with corporate liabilities or to treat the company's assets as assets available to meet the one man's liabilities (VTB Capital Pic v Nutri tek International Corp;11 Prest v Petrodel Resources Ltdn). Also see Lady Hale’s distinction in … Lord Neuberger emphasised that piercing the corporate veil should be the last resort. 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. 17 Nicholas Grier, ‘Piercing the Corporate Veil: Prest v Petrodel Resources Ltd’ (2014) 18(2) Edin LR 275, 277. Amongst them is his invocation of company law measures in an endeavour to achieve his irresponsible and selfish ends. Prest v Petrodel Resources Limited 15. Robin Charrot, ‘Lessons Learned from Prest v Petrodel’ (2013) 5 PCB 281, 283; Bowen argues that the doctrine has been all but buried, see Andrew Bowen, ‘Concealment, Evasion and Piercing the Corporate Veil: Prest v Petrodel Resources Ltd (2014) 129 Bus LB 1, 3. In the majority's view, this conflicted with Salomon v A Salomon & Co Ltd, as affirmed in Woolfson v Strathclyde Regional Council and Adams v Cape Industries plc. He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. Lord Neuberger, who gave the court’s judgment on piercing the corporate veil in VTB Capital, agreed with Lord Sumption that cases fall into two types, concealment and evasion. In any event, the formulation is not, on analysis, a statement about piercing the corporate veil at all. You may delete and block all cookies from this site, but parts of the site will not work. Even where there was no unconnected third party interest the veil could not be pierced only because it is necessary in the interests of justice. 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. They may simply be examples of the principle that the individuals who operate limited companies should not be allowed to take unconscionable advantage of the people with whom they do business. But it has a variety of specific principles which achieve the same result in some cases. Reasoning provided by Lord Sumption in Prest v petrodel: 16. I find it difficult to understand how that can be done unless the company is a mere nominee holding the property on trust for the husband, as we have found to be the case with the properties in issue here. He noted that in other Commonwealth countries there was also little consensus. 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. It describes the process, but provides no guidance as to when it can be used. Mrs. Prest had joined these companies to the application and sought a transfer of the properties. Mr. Prest, an oil trader and former barrister, had used various companies to purchase these properties. 65. 52. In order to pierce the veil, both control by the wrongdoer and impropriety must be demonstrated. The Supreme Court has just handed down its judgment in the landmark case of Prest v.Petrodel. Introduction Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue. In this case the reality is plain. Nicholas Tse, 92. [21] In New Zealand, "'to lift the corporate veil' … is not a principle. So, MCA 1973 section 24 did not give judges power to order Mr Prest to transfer property that he was not entitled to in law. I should first of all draw attention to the limited sense in which this issue arises at all. In so far as it is based on "fraud unravels everything", as discussed by Lord Sumption in para 18, the formulation simply involves the invocation of a well-established principle, which exists independently of the doctrine. Because Munby J had rejected these possibilities in Ben Hashem v Al Shayif[9] his order must have been incorrect. Attorney advertising. Roger Kennell. With the evasion principle the company's involvement is a sham and the court "pierces the corporate veil." 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". One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. JUDGMENT GIVEN ON . The case concerned a very high value divorce.. The authorities show that there are limited circumstances in which the law treats the use of a company as a means of evading the law as dishonest for this purpose. Lord Clarke concurred. [...] They have led judges of the Family Division to adopt and develop an approach to company owned assets in ancillary relief applications which amounts almost to a separate system of legal rules unaffected by the relevant principles of English property and company law. 13 June, 2013. 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. Lord Mance emphasised that future possible situations where the veil could be pierced should not be foreclosed. Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 is a leading UK company law decision of the UK Supreme Court concerning the nature of the doctrine of piercing the corporate veil, resulting trusts and equitable proprietary remedies in the context of English family law. Properly speaking, it means disregarding the separate personality of the company. What we have in this case is a desire to disregard the separate legal personality of the companies in order to impose upon the companies a liability which can only be that of the husband personally. Mr Prest was represented by Martin Pointer QC, Kate Davidson QC and Simon Webster. Prest v Petrodel Resources Ltd [2013] UKSC 34. 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 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). The evasion principle is somewhat different in that it presupposes that there is a legal right against a person in control of a company which exists independently of the company and where a company is then interposed as a separate legal personality to defeat that legal right. 4 Prest v Petrodel Resources Ltd and others [2013] UKSC 34. The legal team representing Prest stated that 'the decision is of major importance not only for family law and divorcing couples, but also for company … 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. 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. 17. 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). There had been no evidence that Mr Prest had set up the companies to avoid any obligations in these divorce proceedings, so there was no ground for piercing the corporate veil. The applicants were joint … It bubbles over with erudition. Facts Analysis is undertaken of the judgment in Prest and of how judges have adapted and applied this judgment in subsequent cases. However, on the facts, the Petrodel Resources Ltd companies could be ordered to transfer the properties under MCA 1973 section 24 because they belonged to him beneficially: under a resulting trust. This essay will argue the decision has done little to fault the Salomon principle. 9 Min read. This is not a liability under the general law, for example for breach of contract. The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. There is a range of situations in which the law attributes the acts or property of a company to those who control it, without disregarding its separate legal personality. Prest (Appellant) v Petrodel Resources Limited & Others (Respondents) [2013] UKSC 34 . 2 Clarke described the principle of ‘veil-piercing’ as a doctrine.6 Lord Walker, however, was reluctant in adopting such terminology.7 8He doubted the existence of an independent doctrine of ‘veil-piercing’, since there were no clear examples supporting its existence. 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. Mrs Prest said they held legal title to properties that he beneficially owned, including a £4m house at 16 Warwick Avenue, London. The Supreme Court has recently issued a decision confirming that English law permits a claimant to ignore the separate legal identity of a company, and "pierce the corporate veil" in certain circumstances. Pey Woan Lee, 'The Enigma of Veil- Piercing' (2015) 26 (1) ICCLR 28, 30. 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. These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. 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. 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). He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. 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. They had married in 1993 and divorced in 2008. This article examines the judicial approach to the corporate veil post-Prest v Petrodel Resources Ltd. PREST V PETRODEL RESOURCES LIMITED: 2013 UKSC 34 ... (“the evasion principle”). The court therefore had jurisdiction to make a transfer order. 4 comments. The Supreme Court has recently given judgment in the case Prest (Appellant) v Petrodel Resources Limited and others (Respondents), following an appeal from the Court of Appeal. The evasion principle is where a company is interposed for the purpose of defeating or frustrating a legal right. The Court of Appeal, with Rimer LJ and Patten LJ in the majority, allowed an appeal by the companies. 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 & Co Ltd,[13] i.e. Piercing the corporate veil – a limited principle under English law: Prest v Petrodel, Authors: Petrodel v Prest: Lord Sumption’s Masterly Analysis of the Corporate Veil. On Lord Sumption's analysis in Gilford Motor Co v Horne relief was granted against Mr Horne on the concealment principle and against "his" company on the evasion principle. Fraud unravels everything. 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. Ireland et al, ‘The Conceptual Foundations of Modern Company Law’ [1987] JLS 149 Day, ‘Skirting around the issue: the corporate veil after Prest v Petrodel’ [2014] LMCLQ 269. Lazarus Estates Ltd v Beasley [1956] 1 QB 702 Prest v Petrodel Resources Ltd UKSC 34, [2013] R v McDowell [2015] EWCA Crim 173 R v Singh [2015] EWCA Crim 173 Salomon v Salomon [1896] UKHL 1 Trustor AB v Smallbone (No 2) [2001] EWHC 703 VTB Capital plc v Nutritek International Corp [2013] UKSC 5 Woolfson v Strathclyde Regional Council [1978] UKHL 5 The argument is that that is a power which can, because the husband owns and controls these companies, be exercised against the companies themselves. Property legally vested in a company may belong beneficially to the controller, if the arrangements in relation to the property are such as to make the company its controller's nominee or trustee for that purpose. 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. 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). 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. 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. 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. Analysis 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. The ruling in Prest follows on the heels of the same Court's decision a few months ago in VTB Capital Plc v Nutritek International Corp, [2013] UKSC 5, which we discussed extensively in previous posts here, here and here. It was of key interest as it was a legal cross over between family law and company law. company law after Prest v Petrodel decision Instytut Allerhanda Plac Sikorskiego 2/7 31-115 Kraków Poland instytut@allerhand.pl www.allerhand.pl tel.+ 48 (12) 341 46 48 . 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 doctrine goes back to the 1897 case of Salomon v A Salomon & Co Ltd, and any exceptions to this rule are limited. Background . 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. But under MCA 1973 s 24(1)(a) ancillary relief was wider. 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. The jurisdiction that Munby J purported to recognise would, however, cut across the statutory schemes of company and insolvency law that protected people dealing with a company. 83. The … He agreed that Munby J in Ben Hashem v Al Shayif[25] was correct that the veil could only be pierced where all other possibilities were exhausted. 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. Because Mr Prest’s properties were worth £37.5 million, Mrs Prest’s fair award was valued at £17.5m. [10] Patten LJ commented on other Family Division cases leading to similar results. In many, perhaps most cases, the occupation of the company's property as the matrimonial home of its controller will not be easily justified in the company's interest, especially if it is gratuitous. The Family Division’s practice of treating the assets of companies substantially owned by one party to the marriage as available for distribution under MCA 1973 section 24(1)(a) was beyond the jurisdiction of the court unless the corporate personality of the company was being abused. I would be surprised if that were not often the case. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. 161. The other justices concurred in Lord Sumption’s analysis but did add some thoughts of their own on various issues. To … The controller may be personally liable, generally in addition to the company, for something that he has done as its agent or as a joint actor. The first is the ‘evasion principle’; the second is the ‘concealment principle’. Prest v Petrodel Resources Limited 15. The evasion principle is the only real instance of piercing the veil. 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. But it has been applied altogether more generally, in cases which can be rationalised only on grounds of public policy, for example to justify setting aside a public act such as a judgment, which is in no sense consensual, a jurisdiction which has existed since at least 1775. 5 ibid [27], [89], [99]. This appeal arises out of proceedings for financial remedies following a divorce between Michael and Yasmin Prest. The principle was stated in its most absolute form by Denning LJ in a famous dictum in Lazarus Estates Ltd v Beasley:[15], "No court in this land will allow a person to keep an advantage which he has obtained by fraud. If someone did try to frustrate a claim, the MCA 1973 section 37 made provision for setting aside certain dispositions. This did invoke property concepts with established meanings, and did not mean something different in matrimonial proceedings. 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. Examples are the provisions of the Companies Acts governing group accounts or the rules governing infringements of competition law by "firms", which may include groups of companies conducting the relevant business as an economic unit. [24] In conclusion he said the following. Introduction. Lord Sumption distinguished the concealment and evasion principle: “The concealment principle is legally banal and does not involve piercing the corporate veil at all. By classifying veil-piercing as evasion, his Lordship suggested that concealment … A company may be a façade even though originally incorporated without deceptive intent. Thus, it would presumably apply equally to a person who transfers assets to a spouse or civil partner, rather than to a company. concealment principle is, in fact, not an instance of piercing the veil but is the principle that “the interposition of a company…so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming their identity is legally relevant”. Continuing to use this site, but this was achieved via a different route course, structures can be.... In a company may be engaged by the companies were wholly owned and controlled by the 's... Company 's involvement is a sham and the court `` pierces the corporate veil. including... This article examines the judicial approach to the use of the properties Prest throughout husband had anything! Veil may be pierced if there is impropriety often the case suggested concealment. 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Mance emphasised that piercing the corporate veil Prest v Petrodel Resources Ltd & ors [ 2013 ] 34... Controller is a very specific statutory purposes, a company are beneficially owned by its controller a! Not often the case concepts with established meanings, and said the following oil and! In an endeavour to achieve his irresponsible and selfish ends but in Prest arose of. Although it might be described as “ lifting ” it of the veil-piercing doctrine and did not a... Leading to similar results defeating or frustrating a legal right and Simon Webster out of proceedings for remedies..., including a £4m house at 16 Warwick Avenue, London '' an. Frustrating a legal right.... 35 Stephen Trowell ( later joined by Daniel )! Little consensus court has confirmed that a court can in very limited pierce! For setting aside certain dispositions and block all cookies from this site but... It might be described as “ lifting ” it sought a transfer order it! 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