This article argues against this approach as it is so narrow that it practically abolished the jurisdiction. The authors would like to thank the Editorial Board and the peer The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. 22nd Dec 2020 Law Reference this. Prest (Appellant) v. Petrodel Resources Limited and . Yasmin Prest. Prest and Beyond – Part 1 and Part 2 (Companies) 1. 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). Facts: Mr Prest was an oil-trader. the evasion principle by comparing, on the one hand, Gilford Motor Co v Horne [1933] Ch. This argument was advanced successfully in the 1976 case of DHN Food Distributors v Tower Hamlets wher… This is a case with regard to family law. Mr. Prest, an oil trader and former barrister, had used various companies to purchase these properties. 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. Another was to take funds from the companies whenever he wished, without right or company authority. Key Words Piercing/lifting the corporate veil Prest v Petrodel Resources Ltd Salomon v A. Salomon In this case, the husband had effectively purchased a number of properties in England which he had put into the names 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. 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 authors would like to thank the Editorial Board and the peer 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. Facts Piercing the corporate veil – a limited principle under English law: Prest v Petrodel, Authors: Facts. The Law Society of Hong Kong | Sweet & Maxwell | Westlaw Asia | Contact Us. This argument for lifting the veil is targeted at companies within a corporate group. Has Prest v Petrodel made the law clearer? 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 first is the ‘evasion principle’; the second is the ‘concealment principle’. Recent decisions such as Adams v Cape Industries plc and Prest v Petrodel Resources Ltd have reaffirmed the principle in Salomon. 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. 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. 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. The trial judge had rejected both of these possibilities on the facts and therefore the Court of Appeal gave judgment for the husband. 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). In some instances the properties had been These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. 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. 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. You may delete and block all cookies from this site, but parts of the site will not work. The divorcing couple, Mr and Mrs Prest, were wealthy. It was of key interest as it was a legal cross over between family law and company law. The other justices concurred in Lord Sumption’s analysis but did add some thoughts of their own on various issues. (2013) 1 Private Client Business 4-42 individuals with clear goals of protecting their assets. On the contrary, that is what incorporation is all about…, 35. 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). 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. 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. 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 Facts. We use cookies on our website. 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 However, a number of other exceptions exist which are wider in scope. 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. In 2013, Lord Sumption, delivering the leading judgment of the Supreme Court of the United Kingdom in Prest v Petrodel Resources Ltd, In SLA, the couple were married for 17 years. JUDGMENT GIVEN ON . 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. 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. In giving judgment on 12 June 2013, the … 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. 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. 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. 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 Petrodel, 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. Thank you for your interest in Brown Rudnick. 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 essay will argue the decision has done little to fault the Salomon principle. 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. 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. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd decision in light of the corporate veil doctrine. 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 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. 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 not an abuse to cause a legal liability to be incurred by the company in the first place. However, courts have still been willing to ignore the Salomon principle, most notably in Chandler v Cape plc [6] . the company should not, however, have concurrent liability with the husband in making the lump sum payment to the wife. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. Prest v Petrodel Resources Limited 15. It was of key interest as it was a legal cross over between family law and company law. However, courts have ‘lifted the veil’ in certain circumstances, such as when authorized by statute, in wartime and to prevent fraud. 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 Supreme Court’s decision 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. But … It will present the view the Law Lords had of the “doctrine” to show it was not clear. The barrier between the company’s assets and those of its members is known as the ‘veil of incorporation’. 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. 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). 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. Recent decisions such as Adams v Cape Industries plc and Prest v Petrodel Resources Ltd have reaffirmed the principle in Salomon. ... Jersey: Case Update: Prest V Petrodel Resources Limited: 2013 UKSC 34 30 July 2013 . Prest v Petrodel Resources Ltd [2013] UKSC 34. Also see Lady Hale’s distinction in … 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". The case concerned a very high value divorce.. Background . 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 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 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. 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 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 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 Supreme Court’s judgment should prevent the doctrine being invoked to achieve this purpose in view of the statement that the doctrine can only be invoked 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.”. 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. 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. basis on which parties deal with companies. One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. 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. He rejected the husband had done anything improper relating to the companies to allow piercing the corporate veil. 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.”. It was of key interest as it was a legal cross over between family law and company law. The applicants were joint … 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). It was of key interest as it was a legal cross over between family law and company law. 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, courts have still been willing to ignore the Salomon principle, most notably in Chandler v Cape plc [6] . Roger Kennell. 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. to the principle that a company is a separate legal entity from its shareholders. The court therefore had jurisdiction to make a transfer order. He held that this would cut across statutory schemes of company and insolvency law (paragraph 41). A limited company has a separate legal personality from its members, or shareholders. 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 Supreme Court has just handed down its judgment in the landmark case of Prest v.Petrodel. Hong Kong case applying Prest v Petrodel In SLA , the couple were married for 17 years. This results in uncertainty for commercial actors. 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. There are two principles which it has been used in connection with. 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. 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. 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. 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 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. 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. Mrs. Prest had joined these companies to the application and sought a transfer of the properties. This article examines the judicial approach to the corporate veil post-Prest v Petrodel Resources Ltd. 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. 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. 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. Facts. Mrs. Prest appealed to the Supreme Court. 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. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. But in Prest this was achieved via a different route. 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. Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. 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 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. 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 … He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. The basis of this argument is that despite the separate legal personalities of the companies within the group, they in fact constitute a single unit for economic purposes and should therefore be seen as one legal unit. 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. 7. The wife was successful in her application to set aside these dispositions; the court concluding that the transfers were a sham. 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 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. Para. Wife claimed that the properties held by the companies belonged beneficially to the husband. Piercing the corporate veil -a limited principle under English law: Prest v Petrodel Neil Micklethwaite, The Facts. 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. 8, Lord Sumption said separate personality and property of a company is sometimes described as a fiction, and in a sense it is. 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. Attorney advertising. Stripping Away the Veil of Deceit: 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. Lady Hale (with whom Lord Wilson agreed) and Lords Mance and Clarke agreed with Lord Sumption’s judgment but wished to reserve the position as to whether it would be possible to pierce the corporate veil other than in cases of evasion, although they sounded a warning that any other exception would not be easy to establish (paragraphs 92, 102 & 103). Both sides of the profession were affected differently. The issue was whether those properties could be brought into the calculation of the matrimonial assets. there was a real risk of dissipation of further company monies at the instance and behest of B. 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 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. Also see Lady Hale’s distinction in … 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. This company was the family’s main and most valuable asset. Analysis The divorcing couple, Mr … 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. 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 … Introduction The decision in Prest overhauled the court’s previous precedent… The decision is therefore of great interest to family lawyers. 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). 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. Para. 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?' The evasion principle is where a company is interposed for the purpose of defeating or frustrating a legal right. But fiction is the whole foundation of English company and insolvency law i.e. Earlier this year, the Supreme Court handed down its much-anticipated judgment in Petrodel Resources Ltd v Prest. 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. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd decision in light of the corporate veil doctrine. 12 June 2013 . In 2013, the case of Prest v Petrodel [2013] UKSC 34 left the family law fraternity debating and divided. 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 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. 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. Capital v Nutritek and, last week, Petrodel v Michael Prest. Claim by Mrs. Prest for ancillary relief under section 23 and 24 of the Matrimonial Causes Act 1973 in divorce proceedings against Mr. Prest. Heard on 5 and 6 March 2013 In Trustor and Genco, at the risk of over-simplification, a claim was made that a former 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. ... Jersey: Case Update: Prest V Petrodel Resources Limited: 2013 UKSC 34 30 July 2013 . The court was asked as to the power of the court to order the transfer of … Properties in London ) were held by the companies to allow piercing the corporate.. Had rejected both of these possibilities on the facts and therefore the court concluding that the transfers were sham! Of the Matrimonial Causes Act 1973 in divorce proceedings against mr. Prest prest v petrodel principle in! 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