The question of when the courts will be prepared to “pierce the corporate veil” and disregard Salomon has quizzed judges, lawyers and academics. The Court of Appeal decided that it would be contrary to principle and authority and therefore not appropriate to pierce the corporate veil to effect a contractual claim from the claimant against those alleged to be controlling the defendant companies, where those being pursued were not a party to that contract. The concept of the corporate veil, also known as the Salomon Principle, separate legal personality amongst other names,[2] was established in Salomon v Salomon[3]. It intersects two main areas of R v Singh [2015] EWCA Crim 173. In order for the evasion principle to come into play the controller of the company had to use the characteristics of the company’s separateness to evade a personal liability. [18] The court would then be minded to “pierce the corporate veil” in exceptional circumstances for the purposes of providing a remedy for the improper act that those controlling the company had done. 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. Appeal allowed unanimously. However, when relief was granted against the company this occurred under the evasion principle, and the corporate veil pierced. Three of the companies of which Mr Prest was the majority shareholder appealed to the Court of Appeal, in which the majority criticised not only Moylan LJ’s dicta but the general practice of the family courts to use the MCA to pierce the corporate veil and asserted that in the absence of abuse of the Salomon principle, the law did not permit this. Trustor AB v Smallbone (No 2) [2001] EWHC 703 One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. However, there have been circumstances in which the courts have been prepared to “pierce the veil” of corporate personality to find the members of the company liable for company actions in certain circumstances. Demands were also made on each of the guarantors of the loans, the third to ninth defendants. Throughout the proceedings the Guarantor had asserted that the Property was owned by the fourteenth defendant (the Company) and that he had no beneficial interest in it. But they disagreed that it should be used as a last resort remedy. His lordship went on to observe that this principle had been affirmed Trustor AB v Smallbone (No 2) in which it was also established that the dishonesty must involve company law being used as a sham or façade to disguise the true ownership of property. The courts have demonstrated that the veil will not be pierced where, despite the presence of wrongdoing, the impropriety was not linked to the use of the corporate structure as a device or facade to conceal or avoid liability, nor will the courts pierce the veil merely because the interests of justice so require (Adams v Cape Industries Plc [1990]). 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. This was recently demonstrated where a subsidiary company was no longer in existence and the court imposed a duty of care on the parent company for the health and safety of the employees of its subsidiary (Chandler v Cape Plc [2012]). Lord Sumption considered that the more limited evasion principle had been properly applied by the courts in only a small number of cases. When Lord Sumption analysed Gilford Motor Co v Horne[27]he contended that relief against Mr Horne the controller of the company under the concealment principle. Another was to take funds from the companies whenever he wished, without right or company authority. By using the corporate structure and its separate legal personality they were trying to defeat their personal obligation. In addition, the Guarantor was trying to sell the Property at the time of the freezing injunction application. Private Law Tutor © 2018 All Rights Reserved. Both sides of the profession were affected differently. Prest therefore established that although it is possible that the corporate veil may be pierced in some circumstances, it is not clear what these circumstances are beyond the fact that the remedy is only a last resort and as such it seems that the decision failed to take advantage of the opportunity to clarify the law. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd decision in light of the corporate veil doctrine. This has why the doctrine has faced so much criticism. It was evidenced that the first defendant was residing at the Property and using the address for the registration of and correspondence for a number of other companies. Lord Sumption[9] also refers to the “piercing the corporate veil” as an exception to the age old principle laid down in Salomon v A Salomon & Co Ltd [10] at the same time Lord Neuberger and Lord Clarke make reference to it being a “doctrine”. It remains the unfortunate position that although Prest has limited the doctrine by confirming that it is only to be used as a remedy of last resort, a future decision will be required to confirm exactly when the doctrine may be applied. However, the distinction between them both remains crucial because it will ultimately lead to the court to “rightly or wrongly”, to pierce the corporate veil. In this case it should be noted that although the matrimonial home itself was also owned by one of the companies, it was established in the Court of Appeal that this was held on trust for Mrs Prest and did not form part of the appeal to the Supreme Court. In 2013, the United Kingdom Supreme Court handed down a seminal judgment on the law of corporate veil, Prest v Petrodel Resources Ltd and Others UKSC 34, in which Lord Sumption proposed the evasion and concealment principles. Having obtained permission to serve out of the jurisdiction, the claimant was granted a worldwide freezing order against the fourth defendant, which the claimant alleged controlled the first and second defendants. In light of the documentary evidence the Judge decided that the assertions of the Guarantor were not credible. The tenth to sixteenth defendants are alter ego corporate vehicles of the third defendant, who directs and controls the actions of the companies. Criminal Law, White Collar Crime & Road Traffic Cases. The doctrine was a “potentially valuable judicial tool to undo wrongdoing in some cases where no other principle is available”, provided that there was a coherent approach that courts could follow. In his words the distinction should not be “definitively adopted unless and until the court has heard detailed submissions upon it.”[26]. 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?' Whether or not the company was incorporated with deceptive intent, the courts will want to see that it was being used as a facade at the time of the relevant transaction(s) and a remedy will only be provided in respect of the particular wrong that has been committed. 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. Ottolenghi describes this as merely an”act of curiosity”, which is the “least offensive to the separate entity theory”. Although the Prest case does make it clear that veil piercing will only be appropriate where there has been evasion of liabilities and where no other remedy of law will provide an appropriate remedy, as shown above, the judgment gives no indication of precisely the circumstances in which the veil may still be pierced and thus the decision should be seen only as contributing further to the uncertainties surrounding this area of law. In order to show that a corporate structure has been used as a device to conceal impropriety, the impropriety must first be identified to the court. 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 initial financial contribution to it. The case was originally heard in the family court as an application for ancillary relief by the wife her divorce case. John Wilson QC examines a ground-breaking Supreme Court ruling on the separate identity of a corporate entity. June 12, 2013 ... that there is a limited principle of English law which applies when a person is ... the veil should not be pierced even where the evasion principle applies, if other appropriate remedies are available to the claimant. “These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. The claimant made an application to amend its particulars of claim to incorporate a contractual claim and argued that the corporate veil should be pierced so that the defendants could be held jointly and severally liable with the borrower on the basis that they controlled the actions of the borrower and they had used the borrower as a device to conceal their impropriety. 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