"linked to the use of the company structure to avoid or conceal liability for that impropriety". Section 45 gave the court power, when granting a decree of divorce on the ground of the wife's adultery, to settle such property for the benefit of the husband and/or the children of the marriage. 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. However, the decisions can fairly be said to have rested on the doctrine if one takes the language of the judgments at face value. But the fiction is the whole foundation of English company and insolvency law. 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. On the contrary, in Nicholas v Nicholas [1984] FLR 285, 288, Cumming-Bruce LJ said that it could not.38. 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. The judge's findings: the companies10. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. 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. This may be illustrated by reference to those cases in which the court has been thought, rightly or wrongly, to have pierced the corporate veil.29. I agree with Lord Sumption that "piercing the corporate veil" is an example of that general principle, with which family lawyers are familiar from the case of R v Secretary of State for the Home Department, Ex p Puttick [1981] QB 767.90. In accordance with the judge's order PRL has now conveyed it to the wife, but subject to the charges. There were originally seven companies involved, all of which were joined as additional respondents to the wife's application for ancillary relief. In British Railways Board v Herrington [1972] AC 877, 930-931, Lord Diplock, dealing with the liability of a railway undertaking for injury suffered by trespassers on the line, said: "The appellants, who are a public corporation, elected to call no witnesses, thus depriving the court of any positive evidence as to whether the condition of the fence and the adjacent terrain had been noticed by any particular servant of theirs or as to what he or any other of their servants either thought or did about it. It is however often dangerous to seek to foreclose all possible future situations which may arise and I would not wish to do so. Any discussion about the doctrine must begin with the decision in Salomon v A Salomon and Co Ltd [1897] AC 22, in which a unanimous House of Lords reached a clear and principled decision, which has stood unimpeached for over a century. %%EOF This is a proposition which can be justified only by asserting that the corporate veil does not matter where the husband is in sole control of the company. 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. 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. Lord Hanworth did not explain why the injunction should issue against the company, but I think it is clear from the judgments of Lawrence and Romer LJJ, at pp 965 and 969, that they were applying the evasion principle. Because the restrictive covenant prevented Mr Horne from competing with his former employers whether as principal or as agent for another, it did not matter whether the business belonged to him or to JM Horne & Co Ltd provided that he was carrying it on. Lord Hanworth relied on a passage in a judgment of Lindley LJ in Smith v Hancock [1894] 2 Ch 377, 385 (where the expression "cloak or sham" appears to have originated), and in that passage, it seems to me that the cloak or sham is treated as amounting to the business being "carried on for the defendant". There are two cases outside the family law context which laid the ground for the establishment of the doctrine, namely the decisions of the Court of Appeal in Gilford Motor Co Ltd v Horne [1933] Ch 935, and of Russell J in Jones v Lipman [1962] 1 WLR 832;iv. 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. These schemes are essential for the protection of those dealing with a company, particularly where it is a trading company like PRL and Vermont. For some years it has been the practice of the Family Division to treat the assets of companies substantially owned by one party to the marriage as available for distribution under section 24 of the Matrimonial Causes Act, provided that the remaining assets of the company are sufficient to satisfy its creditors. Mr Smallbone's ownership and control of Introcom was only one of those facts, not in itself conclusive. Neither the husband nor PRL has complied with orders to disclose the loan agreement and related documents. h�b```f``r �|+@(������`��� LO9:8:�$����<>�S}o�sн "Piercing the corporate veil" is an expression rather indiscriminately used to describe a number of different things. It does not appear to trade.15. In VTB Capital plc v Nutritek International Corpn [2012] 2 Lloyd's Rep 313, VTB Capital sought permission to serve proceedings out of the jurisdiction on the footing that the borrower under a facility agreement was to be identified with the persons who controlled it, so as to make the latter in law parties to the same agreement. Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.". Burnstead itself was liable to account to ACP because, as the judge went on to point out, Mr Dalby's knowledge of the prior equitable interest of ACP was to be imputed to it. The Facts. 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. The court may then pierce the corporate veil but only for the purpose of depriving the company or its controller of the advantage which they would otherwise have obtained by the company's separate legal personality. 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". On that footing, the company received the money on Mr Smallbone's behalf. (2013) 1 Private Client Business 4-42 individuals with clear goals of protecting their assets. The decision in Salomon plainly represents a substantial obstacle in the way of an argument that the veil of incorporation can be pierced. In this connection, I have however in mind that, in giving the recent Privy Council judgment in La Générale des Carrières et des Mines v FG Hemisphere Associates LLC [2012] UKPC 27, I said at para 77 (in a context where Gécamines was a state corporation, not susceptible of being wound up): "The alternative way in which Hemisphere puts its case is to submit that, if Gécamines is otherwise accepted as a separate juridical entity, the facts found justify the lifting of the corporate veil to enable Hemisphere to pursue Gécamines as well as the State. It was submitted that the authorities justified piercing the corporate veil in three, possibly overlapping, cases: (i) where the company was a "facade or sham"; (ii) where the company was involved in some form of impropriety; and (iii) where it was necessary to do so in the interests of justice. The effect of the decision is encapsulated at pp 30-31, where Lord Halsbury LC said that a "legally incorporated" company "must be treated like any other independent person with its rights and liabilities appropriate to itself ..., whatever may have been the ideas or schemes of those who brought it into existence". I agree with the other members of the court that the appeal should be allowed for the reasons given by Lord Sumption. This keeps people in the dark about the legal consequences of their acts ... ". This was an expansion, for the benefit of either spouse and to outright transfer as well as settlement, of the earlier power to settle the wife's property. Corresponding orders were made against certain of the other corporate respondents to the original proceedings, but they did not appeal, either to the Court of Appeal or to this court, and are no longer relevant, save insofar as the facts relating to them throw light on the position of the three respondents. This analysis is not affected by section 25(2)(a) of the Matrimonial Causes Act 1973. If there is no justification as a matter of general legal principle for piercing the corporate veil, I find it impossible to say that a special and wider principle applies in matrimonial proceedings by virtue of section 24(1)(a) of the Matrimonial Causes Act 1973. He found that this was established in the present case because of the power which the husband had over the companies by virtue of owning and controlling them. 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. Or to disapply a statutory time bar which on the face of the statute applies: Welwyn Hatfield Borough Council v Secretary of State for Communities and Local Government [2011] 2 AC 304. The only evidence on behalf of the respondent companies was an affidavit sworn by Mr Jack Murphy, a director of PRL and the corporate secretary of the three respondent companies, who failed to attend for cross-examination on it. I infer that the funds were provided to PRL by the husband. 88. The first and most famous of them is Gilford Motor Co Ltd v Horne [1933] Ch 935. There are judgments in family cases based on obiter dicta in Nicholas v Nicholas [1984] FLR 285 (eg the judgments of Thorpe LJ in this case and of Mostyn J in Kremen v Agrest (No 2) [2011] 2 FLR 490), where the doctrine has been treated as valid and applicable; but the application of the doctrine, even if it exists, in these cases is unsound, as Munby J effectively (in both senses of the word) indicated in A v A [2007] 2 FLR 467 and Ben Hashem [2009] 1 FLR 115;iii. hޜ�wTT��Ͻwz��0�z�.0��. The attempt failed in the Court of Appeal because the court was not satisfied that that would be the consequence of piercing the corporate veil even if it were legitimate to do so: see paras 90-91. The judge found that his purpose was "wealth protection and the avoidance of tax". Thus in a case like VTB Capital, where the argument was that the corporate veil should be pierced so as to make the controllers of a company jointly and severally liable on the company's contract, the fundamental objection to the argument was that the principle was being invoked so as to create a new liability that would not otherwise exist. The Prest v Petrodel decision followed another Supreme Court judgment where the issue was considered at length, VTB Capital plc v Nutritek International Corp and others [2013] UKSC 5, although the VTB case was decided on another ground so carries less legal weight. 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. The Vice-Chancellor was dealing with a subsequent application by Trustor for summary judgment against Mr Smallbone himself. This appeal arises out of proceedings for financial remedies following a divorce between Michael and Yasmin Prest. 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. But, if the silent party's failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.". The effect of the judge's order in this case was to make the wife a secured creditor. 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?' (3) The companies might be regarded as holding the properties on trust for the husband, not by virtue of his status as their sole shareholder and controller, but in the particular circumstances of this case. 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 her section 25 statement, she gives evidence of her belief that he was their beneficial owner, supported in some cases by admittedly inconclusive reasons for that belief. In Trustor, as in Gencor, the analysis would have been the same if Introcom had been a natural person instead of a company. 22. 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. New Judgment: Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34. 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. But this was inconsistent with the company's financial statements, and the judge rejected it. In these circumstances it is not strictly necessary for this Court to add further general comments on the vexed question of piercing the corporate veil. And in Kremen v Agrest (No 2) [2011] 2 FLR 490, para 46, Mostyn J held that there was a "strong practical reason why the cloak should be penetrable even absent a finding of wrongdoing."24. "q��Պ�Z��r�6�w"~i�6Q� ��9D�61��3�v�:-��d6%�ոD���ڠuv���=�{��,�OP�µ�t;��Zyh�F�"mM�O��k9Z��>�R���Xp���4���N���6�%��H(YТ'�Q.�9�b�%Z%�0Dz�ME�k�)�ݜ}��A��b;��38���U�c��8+{�߬��Sj���"�q?�-a�wt�}h"�9�����!��y��>��5w�-[��3کu�6Oҟ[�������v�� UD��n�t��� ��2SO�)fj�^�-Wb�Յ >��W ����7�E�iU���|#Y�,�w�� I��5�D=�%ڤ�6������v�E8�M� u The jurisprudence on the doctrine has been described as "incoherent and unprincipled" by Farrar, Fraud, Fairness and Piercing the Corporate Veil (1990) 16 Can Bus LJ 474, 478. Flat 6, 62-64 Beethoven Street is known to have been acquired by PRL from the husband in August 1998 for substantial consideration. The divorcing couple, Mr … He was "able to procure their disposal as he may direct, based again on his being the controller of the companies and the only beneficial owner." 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. The decision in Prest v Petrodel is not entirely unexpected. The distinctive feature of the judge's approach was that he concluded that there was no general principle of law which entitled him to reach the companies' assets by piercing the corporate veil. For my part I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v Inland Revenue Commissioners, Ex p TC Coombs & Co [1991] 2 AC 283, 300: "In our legal system generally, the silence of one party in face of the other party's evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within theknowledge of the silent party and about which that party could be expected to give evidence. The judge found that the money was derived from PRL. Case ID. Its sole function in that period appears to have been to hold title to the matrimonial home at 16, Warwick Avenue in London and five residential investment properties in London, and to act as a channel for funding property purchases by other companies of the group. 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. 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. 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. The objection to that argument is obvious in the case of a consensual liability under a contract, where the ostensible contracting parties never intended that any one else should be party to it. �|@"��*�� Pb����"ऊ��]C� W� Anyone of common sense would realise the danger that the state of the fence so close to the live rail created for little children coming to the meadow to play. There is only one law of 'sham', to be applied equally in all three Divisions of the High Court, just as there is but one set of principles, again equally applicable in all three divisions, determining whether or not it is appropriate to 'pierce the corporate veil'". 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. There is nothing in the Matrimonial Causes Act and nothing in its purpose or broader social context to indicate that the legislature intended to authorise the transfer by one party to the marriage to the other of property which was not his to transfer. Neyers in Canadian Corporate Law, Veil-Piercing, and the Private Law Model Corporation (2000) 50 Univ Toronto LJ 173, 180, asks rhetorically: "How can the 'legal person doctrine' that is so central to corporate law in one sentence be disregarded so casually in the next?" It may engage what I have called the concealment principle, but that simply means that the court must ascertain the truth that he has concealed, as it has done. JUSTICES: Lord Neuberger (President), Lord Walker, Lady Hale, Lord Mance, Lord Clarke, Lord Wilson, Lord Sumption. [45]. I agree with Lord Mance that it is often dangerous to seek to foreclose all possible future situations which may arise and, like him, I would not wish to do so. In the first place, he has misapplied the assets of his companies for his own benefit, but in doing that he was neither concealing nor evading any legal obligation owed to his wife. �Z�v�h�g;�g������zG�%�O�5-�����wo���Cz��W�|�N*9@C80#�ݓB��r�{)l�F�Y����W�ы;&��h��@�%� �� 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. Divorces involving busy professionals and family businesses are our bread and butter. 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. This appeal arises out of proceedings for ancillary relief following a divorce. 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. 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. Rimer LJ, delivering the leading judgment for the majority, held that the practice developed by the Family Division was beyond the jurisdiction of the court unless (i) the corporate personality of the company was being abused for a purpose which was in some relevant respect improper, or (ii) on the particular facts of the case it could be shown that an asset legally owned by the company was held in trust for the husband. The judge, however, made extensive findings about this. 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. These considerations are not a licence to engage in pure speculation. I agree that there is such a doctrine and that its limits are not clear. Part II of the Matrimonial Causes Act 1973 confers wide powers on the court to order ancillary relief in matrimonial proceedings. But the court considered all the principal authorities on that question and arrived at substantially the same conclusions as Sir Andrew Morritt V-C and Munby J. Munby J's statement of principle was adopted by the Court of Appeal subject to two qualifications. Mr Le Breton said that from about 2001 PRL was engaged in a limited way in oil trading and shipping, and from 2006 moved into oil exploration and production in Nigeria and West Africa. Before parting with this case, I will only record my surprise that the companies were given permission to appeal on such undemanding terms. 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. References to a "facade" or "sham" beg too many questions to provide a satisfactory answer. Prest (Appellant) v Petrodel Resources Limited and others (Respondents) Judgment date. The court ruled in the course of the hearing that leave would be refused. The decision is not, therefore, direct authority on the question whether the court was entitled to pierce the corporate veil. They were vested in the companies long before the marriage broke up. 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