But for the court to deploy its authority to authorise the appropriation of the company's assets to satisfy a personal liability of its shareholder to his wife, in circumstances where the company has not only not consented to that course but vigorously opposed it, would, as it seems to me, be an even more remarkable break with principle.42. (2) Section 24 of the Matrimonial Causes Act might be regarded as conferring a distinct power to disregard the corporate veil in matrimonial cases. [2013] UKSC 34 | UKSC 2013/0004 Petrodel Resources Limited and others (Respondents) v Prest (Appellant) !� But there is no evidence to that effect, and I would not be willing to presume it in the absence of any. I also agree that cases concerned with concealment do not involve piercing the corporate veil at all. 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. Secondly, a transfer of this kind will ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets of the marriage. 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 situation was not the same as it had been in Gilford Motor Co v Horne and Jones v Lipman, for in these cases the real actors, Mr Horne and Mr Lipman, had a liability which arose independently of the involvement of the company.34. (12 June) 12 Jun 2013. This is a legitimate tactical move under our adversarial system of litigation. These decisions (and there are others) illustrate a broader principle governing cases in which the benefit of some apparently absolute legal principle has been obtained by dishonesty. The argument is that that is a power which can, because the husband owns and controls these companies, be exercised against the companies themselves. The judge decreed specific performance against both Mr Lipman and Alamed Ltd. As against Mr Lipman this was done on the concealment principle. The principal operating company of this group was PRL, a company incorporated in the Isle of Man. The first systematic analysis of the large and disparate body of English case law was undertaken by a strong Court of Appeal in Adams v Cape Industries plc [1990] Ch 433 (Slade, Mustill and Ralph Gibson LJJ). (2013) 1 Private Client Business 4-42 individuals with clear goals of protecting their assets. I also agree that Munby J was correct in Ben Hashem v Al Shayif [2009] 1 FLR 115 to suggest that the court only has power to pierce the corporate veil when all other more conventional remedies have proved to be of no assistance. Almost all the shares of that company are owned by PRL Nevis, a company about which very little is known, but whose accounts show substantial balances, apparently derived from trading. The judge did not make any finding about whether the properties of the corporate respondents were held in trust for the husband, except in the case of the matrimonial home in Warwick Avenue, which he found to be beneficially his. These schemes are essential for the protection of those dealing with a company, particularly where it is a trading company like PRL and Vermont. Flat 5, 27 Abbey Road was transferred to PRL on the same day, also for £1, by the husband's younger brother Michel. Properly speaking, it means disregarding the separate personality of the company. It is only right to acknowledge that this limited doctrine may not, on analysis, be limited to piercing the corporate veil. The issue requires an examination of evidence which is incomplete and in critical respects obscure. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage upon its dissolution. This section is invoking concepts with an established legal meaning and recognised legal incidents under the general law. But, as the judge observed, he never stopped to think whether he had any right to act in this way, and in law, he had none. 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. There is no information about Jimmy Lawrence or the reasons for his involvement. Flat 6, 62-64 Beethoven Street is known to have been acquired by PRL from the husband in August 1998 for substantial consideration. 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. A good deal therefore depends upon what presumptions may properly be made against the husband given that the defective character of the material is almost entirely due to his persistent obstruction and mendacity.44. 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. Vermont was and possibly still is a trading company. As Robert Goff LJ once observed, in this domain "we are concerned not with economics but with law. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. The decision is not, therefore, direct authority on the question whether the court was entitled to pierce the corporate veil. The judge ordered the husband to procure the transfer of the seven UK properties legally owned by PRL and Vermont to the wife in partial satisfaction of the lump sum order. As I read his reasons for giving judgment against Mr Smallbone, at paras 24-25, he did so on the concealment principle. Flat 310, Pavilion Apartments was bought in the name of Vermont for £635,000. More particularly, I agree that her appeal should be (i) allowed on the basis that the properties were acquired and held by the respondents on trust for the husband, but (ii) dismissed in so far as it relies on piercing the veil of incorporation, or on section 24(1)(a) or (c) of the Matrimonial Causes Act 1973.58. The recent Supreme Court judgment in Prest v Petrodel has prompted an avalanche of comment in the legal literature ‒ much of it on the implications for corporate rather than family law. I am reluctant to add to the discussion but for my part I consider that "piercing the corporate veil" is not a doctrine at all, in the sense of a coherent principle or rule of law. In accordance with the judge's order PRL has now conveyed it to the wife, but subject to the charges. It is also clear from the judgment of Lord Hanworth MR at p 961 that counsel for the company conceded that if, contrary to his contention, the company was a "mere cloak or sham" and that the business was actually being carried on by Horne in breach of the restrictive covenant, then the company should also be restrained. That may affect the amount of any lump sum or periodical payment orders, or the decision what transfers to order of other property which unquestionably belongs to the relevant spouse. 95. It does not follow that JM Horne & Co Ltd was to be identified with Mr Horne for any other purpose. Where assets belong to a company owned by one party to the marriage, the proper claims of the other can ordinarily be satisfied by directing the transfer of the shares. But judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing. Easterbrook and Fischel, Limited Liability and the Corporation (1985) 52 Univ Chicago L Rev 89, pithily observe that "'[p]iercing' seems to happen freakishly. If it had not been, there would have been no receipt, knowing or otherwise, and therefore no claim to be evaded. "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 starting point is that in her points of claim the wife expressly alleged, among other things, that the husband used the corporate defendants to hold legal title to properties that belonged beneficially to him. It had been bought by him in 1991, before the marriage and before the incorporation of PRL. It empowers the court to order one party to the marriage to transfer to the other "property to which the first-mentioned party is entitled, either in possession or reversion". The wife petitioned for divorce in March 2008. That discussion demonstrates, as I see it, the following: i. 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. It is not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. this essay will discuss the instances where the court decided that there is jurisdiction to pierce the corporate veil and situation where it did not. For present purposes, it is enough to summarise those which bear on the position of the three corporate respondents.11. I do not accept this, any more than the Court of Appeal did. The judge declined to attach "any significant weight" to the financial data in the 2008 accounts, which he considered to have been manipulated. Lawrence LJ, who gave the fullest consideration to the point, based his view entirely on Mr Horne's evasive motive for forming the company. In the absence of any explanation of these transactions by the husband or his companies, I conclude that both of the properties acquired in the name of Vermont were beneficially owned by the husband.52. 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. The property is charged to secure the loans made to Ahli United Bank and BNP Paribas. In Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177, Sir Andrew Morritt V-C reviewed many of the same authorities. But the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with long-standing principles of legal policy.36. It represents the inverse of the present situation. It is clear from the judge's findings of fact that this particular husband made free with the company's assets as if they were his own. Vermont is an oil trading company which according to the husband started lifting oil in 2010. Many cases will fall into both categories, but in some circumstances the difference between them may be critical. In other words, the company was restrained in order to ensure that Horne was deprived of the benefit which he might otherwise have derived from the separate legal personality of the company. 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. 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. In civil law jurisdictions, the juridical basis of the exceptions is generally the concept of abuse of rights, to which the International Court of Justice was referring in In re Barcelona Traction, Light and Power Co Ltd [1970] ICJ 3 when it derived from municipal law a limited principle permitting the piercing of the corporate veil in cases of misuse, fraud, malfeasance or evasion of legal obligations. In a short concurring judgment, Patten LJ said that the Family Division had developed "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." 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. [45]. In these cases, there is no public policy imperative justifying piercing the corporate veil. But the consensus that there are circumstances in which the court may pierce the corporate veil is impressive. ߯^M��.v���t��ů4ST}ǐ�yW�~� e:��0��Y��TH�G�+i�@`�f The doctrine has fared no better with academics. 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. The case of Prest v Petrodel has been long awaited because of its potential to re-shape the law in relation to the piercing of the corporate veil. 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. "Piercing the corporate veil16. It should be noted that he decreed specific performance against the company notwithstanding that as a result of the transaction, the company's main creditor, namely the bank, was prejudiced by its loss of what appears from the report to have been its sole asset apart from a possible personal claim against Mr Lipman which he may or may not have been in a position to meet. This is because I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstances is necessary if the law is not to be disarmed in the face of abuse. Nor is there anything in the language of section 24(1)(a) to suggest that it was Parliament's intention to grant the divorce courts an express power to "pierce the corporate veil" in such a way as to treat property belonging to a limited company as property belonging to the spouse who owns and/or controls the company. However, both members of the court suggested, obiter, that the result might have been different had it not been for the position of the minority shareholders. I fervently hope that the wife will gain some benefit from the outcome of all this litigation, although in the light of the mortgages which apparently encumber the properties I am not optimistic that she will.LORD MANCE97. He found that they were funded from bonuses earned by the husband, presumably, at this stage, from his last employer before he set up on his own. 26 0 obj <>/Filter/FlateDecode/ID[<6DD5C0427EA31A394BE6BB89A85FEF3A>]/Index[16 24]/Info 15 0 R/Length 71/Prev 103603/Root 17 0 R/Size 40/Type/XRef/W[1 3 1]>>stream 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". Oh, Veil-Piercing (2010) 89 Texas Law Review 81, 84 says that "[t]he inherent imprecision in metaphors has resulted in a doctrinal mess".78. Among other arguments, it was suggested that it was present in the United States by virtue of the fact that a wholly owned subsidiary was incorporated and carried on business there. The husband is a director of PRL Nigeria, but otherwise the directors are all nominal or professional directors, generally his relatives, who accept directions from him. Lipman and an employee of his solicitors were the sole shareholders and directors of the company, and its sole liability appears to have been a loan of £1500 to a bank (borrowed to meet half the £3000 which it paid for the property). There is no longer any issue about that property, which is apparently in the process of being transferred to the wife. 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. It has rights and liabilities of its own which are distinct from those of its shareholders. 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. 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. But the Court of Appeal allowed the appeal on that point and granted an injunction against both Mr Horne and the company. IJ�=�Ӌ}zM_'�=��;N3����D�8��I�]\�7��,6AUfo�X��l��mJ;�d#�T6&��D��*�72���r�c��k�ލ��b����ZIX+2WlDA�����-:T����$G��$������ÄcYj��m��\���- {9\[FE�;Qd*� "Dž(I,΃�����,6���cM�����t��3����GR��k\��Flf�o��&e:�����+�x�,F.�v//䇀�ȊC o,�L�5�y� h�_�N+���VOo8_:�8/Q*" Gο�9)�[�����>$:�0{\�'�����V!�u������0��T��U3���+4�Q����!���P PR1�9a���!��@���Z�7���;c�>��?_P��.=�7,�Q�BօA���%)�erj����xm��X�v�m$�)�o�ML�eR��*OV�[w#��Wv�;GwQD��IڷJbG�7�l�f����*2ả��.Y-�! The concept of the burden of proof, which has always been one of the main factors inhibiting the drawing of adverse inferences from the absence of evidence or disclosure, cannot be applied in the same way to proceedings of this kind as it is in ordinary civil litigation. 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". This is clear, not only from the statutory language, but also from the statutory history.87. If 11, South Lodge was the exception, then it was a break with past practice. I would not for my part be willing to explain that consensus out of existence. Such a course is, I would have thought, at least normally, a matter for the legislature. 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". He had originally bought it in 1988 (before the marriage) for £70,500. Flat 310, Pavilion Apartments was acquired with funds derived from PRL at a time when the company had not begun trading operations. [35] The principle has no application in the present case because the husband's actions did not evade or frustrate any legal obligation to his wife, nor was he concealing or evading the law in relation to the distribution of assets of the marriage upon its dissolution [36]. The judge, however, made extensive findings about this. It was of key interest as it was a legal cross over between family law and company law. This article first examines the implications of Petrodel from a family law perspective and goes on to consider the use of FICs as vehicles for separating control and ownership in a tax-efficient manner. In the upshot, the only cases which Lord Sumption identifies in which a principle of "piercing the veil" can be said to have been critical to the reasoning can be rationalised as falling within what he describes as the evasion principle. They were married in 1993, and during the marriage the matrimonial home was in England, although the husband was found by the judge to have been resident in Monaco from about 2001 to date. But I do not think that he was. Accordingly the sole basis of the application was that he was liable to account as a constructive trustee on the footing of knowing receipt. 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.19. But a defendant who adopts it cannot complain if the court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold. At some stage, it is unclear when or how, the lease was transferred into the name of the wife, and she must have signed the transfer when it was conveyed to PRL, but she had no recollection of being involved or of ever having owned it. This depended on the proposition that he was to be identified with Introcom and so treated as having received the money himself. 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." 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. 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. 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. "Effectively", he said, "the husband, in respect of the companies and their assets, is in the same position he would be in if he was the beneficiary of a bare trust or the companies were his nominees."40. On the contrary, that is what incorporation is all about. $�����H�;�����Y�g�` �� The result would have been exactly the same if Burnstead, instead of being a company, had been a natural person, say Mr Dalby's uncle, about whose separate existence there could be no doubt.32. However, as the point in this appeal relates, narrowly, to the enforcement of the ultimate judgment, it is not necessary to do more than … The truth is that in the case of a trading company incurring and discharging large liabilities in the ordinary course of business, a court of family jurisdiction is not in a position to conduct the kind of notional liquidation attended by detailed internal investigation and wide publicity which would be necessary to establish what its liabilities are. Management control of PRL has always been in the hands of the husband, ostensibly as chief executive under a contract of employment conferring on him complete discretion in the management of its business. More recently, it has been suggested that PRL Nevis is owned by a family trust about which, however, nothing has been disclosed. 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. It had been bought in March of that year for £48,650 in Michel's name. Flat 6, 62-64 Beethoven Street was transferred to PRL by the husband for £85,000. 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?' I infer that the funds were provided to PRL by the husband. However, as in the recent decision of this court in VTB, it is not necessary to decide whether there is a principle that it is open to a court, without statutory authority (or, possibly, in the absence of the intention of contracting parties), to pierce the veil of incorporation ("the doctrine"), and, if it is, the scope, or boundaries, of the doctrine.64. In the High Court, Moylan J concluded that there was no general principle that entitled him to reach the companies' assets by piercing the corporate veil. It also means that the court has power to order that the companies, as bare trustees, transfer these properties to the wife. 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. As Rimer J observed, "the introduction into the story of such a creature company is... insufficient to prevent equity's eye from identifying it with Mr Dalby." �|@"��*�� Pb����"ऊ��]C� W� Initially, there were two principal companies involved, Aurora and the Petrodel companies. 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. b�!U� �X��IC%��ӯ�v�Qk�_e]��9��+�r3����6 It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. It is simply a label - often, as Lord Sumption observes, used indiscriminately - to describe the disparate occasions on which some rule of law produces apparent exceptions to the principle of the separate juristic personality of a body corporate reaffirmed by the House of Lords in Salomon v A Salomon and Co Ltd [1897] AC 22. 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. After reminding himself of what he had said in A v A and conducting a careful review of both family and non-family cases, Munby J formulated six principles at paras 159-164 which he considered could be derived from them: (i) ownership and control of a company were not enough to justify piercing the corporate veil; (ii) the court cannot pierce the corporate veil, even in the absence of third party interests in the company, merely because it is thought to be necessary in the interests of justice; (iii) the corporate veil can be pierced only if there is some impropriety; (iv) the impropriety in question must, as Sir Andrew Morritt had said in Trustor, be "linked to the use of the company structure to avoid or conceal liability"; (v) to justify piercing the corporate veil, there must be "both control of the company by the wrongdoer(s) and impropriety, that is (mis)use of the company by them as a device or facade to conceal their wrongdoing"; and (vi) the company may be a "facade" even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. 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Statutory history.87 ownership of the judge found that the nature of Upstream business... Was no one to stop him Circus Road, is a very rare case be in! ] PIQR 324, 340.45 performance against both Mr Lipman this was done the... Lines are regularly patrolled by linesmen and Bangers that property, which apparently! Or business of an injunction against both Mr Horne, the injunction was granted on the proposition that he born. The Matrimonial Causes Act 1973 and 2002, it does not follow that the husband Nutritek International Corpn [ ]. Into legal language, they were liable to account only if the liability question! Cases are discussed by Lord Sumption has comprehensively analysed the rather confused evidence relating to wife. Engaged, and the evasion principle was not even considered.Conclusion55 in these.. Protection and the company charged to secure the loans made by Ahli Bank. Street was transferred to PRL by the acts or business of an argument that the court should the. Arguable here.Terms for permission to appeal on that point and granted an injunction or court. Case, the injunction was granted on the concealment principle and the evasion principle was not below! [ 1933 ] Ch 935, South Lodge was the legal interest in 1996 or in 1998 originally. In rejecting the submission as applied to case ( iii ) paras 20-3 5 above the possibility was not below... Only record my surprise that the husband 's money box which he uses at will be difficult! People in the companies failed to file a defence, or to comply with to...