prest v petrodel evasion principle

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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 … You understand and agree that transmitting information to Brown Rudnick by e-mail does not establish an attorney-client relationship. 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. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd[1] decision in light of the corporate veil doctrine. The UK Supreme Court has released an important new judgment addressing the ability of judges to "pierce the corporate veil": Prest v Petrodel Resources Ltd, [2013] UKSC 34.. 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 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. Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34 (12 June 2013) March 22, 2018/in Company /Private Law Tutor. Mrs Prest said they held legal title to properties that he beneficially owned, including a £4m house at 16 Warwick Avenue, London. Analysis is undertaken of the judgment in Prest and of how judges have adapted and applied this judgment in subsequent cases. 17 Nicholas Grier, ‘Piercing the Corporate Veil: Prest v Petrodel Resources Ltd’ (2014) 18(2) Edin LR 275, 277. [16] Or to abrogate a right derived from a legal status, such as marriage. Lord Sumption divided the pre-existing fraud/façade/sham cases into two new principles: the “evasion principle” and the “concealment principle”. 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. JUSTICES: Lord Neuberger (President), Lord Walker, Lady Hale, Lord Mance, Lord Clarke, Lord Wilson, Lord Sumption . [11] The same was true under the MCA 1973 s 24. others (Respondents) before . 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. PREST V PETRODEL RESOURCES LIMITED: 2013 UKSC 34 ... (“the evasion principle”). Prest and piercing the veil: Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. Thorpe LJ (a former judge of the Family Division) dissented, and said the following. The other justices concurred in Lord Sumption’s analysis but did add some thoughts of their own on various issues. However, he held that in applications for financial relief ancillary to a divorce there was a wider jurisdiction to pierce the corporate veil under section 24 of the Matrimonial Causes Act 1973. He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. [20] In Canada, "[t]he law on when a court may … '[lift] the corporate veil' … follows no consistent principle". [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". 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. 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. Kosmopoulos v. Constitution Insurance Co. "UK divorce ruling removes protection from some offshore assets", "Oil tycoon's wife warns husbands should 'beware' after landmark divorce victory", "Supreme court rules against oil trader in divorce case", https://en.wikipedia.org/w/index.php?title=Prest_v_Petrodel_Resources_Ltd&oldid=993671061, Supreme Court of the United Kingdom cases, United Kingdom corporate personality case law, Creative Commons Attribution-ShareAlike License. That can seem however, as a let out for judges who wish to come to a specific conclusion. This is The trial judge had rejected both of these possibilities on the facts and therefore the Court of Appeal gave judgment for the husband. 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. 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. You may delete and block all cookies from this site, but parts of the site will not work. By V. Niranjan. Mr. Prest, an oil trader and former barrister, had used various companies to purchase these properties. 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. The intention will normally be that the spouse in control of the company intends to retain a degree of control over the matrimonial home which is not consistent with the company's beneficial ownership. The concealment principle is simply that the court will look behind a company to see who the real actors are. Background . 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. 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. 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. So long as the marriage lasted, the husband's companies were milked to provide him and his family with an extravagant lifestyle. 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. 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. 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. [7] The husband's properties were worth approximately £37.5 million, and therefore the wife's fair award was valued at £17.5 million.[8]. Para. Prest v Petrodel Resources Limited 15. 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. Where the concealment principle is engaged, the court simply looks behind the company and will find the controller liable. Lord Neuberger, President Lord Walker Lady Hale Lord Mance Lord Clarke Lord Wilson Lord Sumption . Introduction. It is not an abuse to cause a legal liability to be incurred by the company in the first place. 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. Prest (Appellant) v. Petrodel Resources Limited and . If someone did try to frustrate a claim, the MCA 1973 section 37 made provision for setting aside certain dispositions. 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. Prest v Petrodel Resources Limited 15. The concealment principle is, he says “legally banal and does not involve piercing the corporate veil at all”. handed down a seminal judgment on the law of corporate veil, Prest v Petrodel Resources Ltd and Others [2013] UKSC 34, in which Lord Sumption proposed the evasion and concealment principles. 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. There can be many instances where injustice or the “wrong result” can be caused by the application of strict doctrines. PREST. But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company. It was of key interest as it was a legal cross over between family law and company law. 9 Min read. On the contrary, that is what incorporation is all about.... 35. 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. [10] Patten LJ commented on other Family Division cases leading to similar results. 93. He noted that in other Commonwealth countries there was also little consensus. It is not an abuse to cause a legal liability to be incurred by the company in the first place. © 2021 Brown Rudnick LLP. By way of example: however simple the structure of Beagle Limited – 1 issued share; 1 owner (Mr Pink) who is also the director - it has a legal life of its own. 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 court therefore had jurisdiction to make a transfer order. 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. The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. 16. Key Words Piercing/lifting the corporate veil Prest v Petrodel Resources Ltd Salomon v A. Salomon [1], Ms Yasmin Prest claimed under Matrimonial Causes Act 1973 sections 23 and 24 for ancillary relief against the offshore companies solely owned by Mr Michael Prest. That must now cease. Because Mr Prest’s properties were worth £37.5 million, Mrs Prest’s fair award was valued at £17.5m. Such a course is, I would have thought, at least normally, a matter for the legislature.... Lady Hale gave a judgment concurring in the result, with which Lord Wilson agreed, though added a qualification to Lord Sumption's decision. 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. 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. 92. By classifying veil-piercing as evasion, his Lordship suggested that concealment … Both sides of the profession were affected differently. This essay will argue the decision has done little to fault the Salomon principle. Attorney advertising. He held that this would cut across statutory schemes of company and insolvency law (paragraph 41). However, because Mr Prest had been "entitled" to the assets of his companies under a resulting trust, under the Matrimonial Causes Act 1973 section 24 the court had jurisdiction to transfer half the value of the properties to Mrs Prest. The applicants were joint … 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 first is the ‘evasion principle’; the second is the ‘concealment principle’. 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. Most advanced legal systems recognise corporate legal personality while acknowledging some limits to its logical implications. For specific statutory purposes, a company's legal responsibility may be engaged by the acts or business of an associated company. When I read the “evasion principle” enunciated in Prest v Petrodel Resources Ltd [2013] UKSC 34, I was struck by its similarities to the latest Boyband earworm. 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. [24] In conclusion he said the following. 4 Prest v Petrodel Resources Ltd and others [2013] UKSC 34. The first is the ‘evasion principle’; the second is the ‘concealment principle’. 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. That was only possible because the companies were wholly owned and controlled by the husband and there were no third party interests. Analysis is undertaken of the judgment in Prest and of how judges have adapted and applied this judgment in subsequent cases. In any event, the formulation is not, on analysis, a statement about piercing the corporate veil at all. Mrs. Prest appealed to the Supreme Court. [4] In reviewing the law as it relates to piercing the corporate veil, he noted the following principles:[5], In that regard, he found that piercing was justified, not under the general principles,[6] but by virtue of the Act. 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. Heard on 5 and 6 March 2013 Lord Walker said he welcomed "the full discussion in the judgments of Lord Neuberger, Lady Hale, Lord Mance and Lord Sumption" and concluded with the following. 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. I should first of all draw attention to the limited sense in which this issue arises at all. 161. 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. 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 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.”. 52. I would be surprised if that were not often the case. 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. Another was to take funds from the companies whenever he wished, without right or company authority. Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34 (12 June 2013) March 22, 2018/in Company /Private Law Tutor. Lord Clarke concurred. 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. There was no need to pierce the corporate veil, which could only be done in limited situations. 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. Lord Sumption distinguished the concealment and evasion principle: “The concealment principle is legally banal and does not involve piercing the corporate veil at all. Prest v. Petrodel [2013] UKSC 34. 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. [17] Or to disapply a statutory time bar which on the face of the statute applies. This article examines the judicial approach to the corporate veil post-Prest v Petrodel Resources Ltd. 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.It was of key interest as it was a legal cross over between family law and company law. The impropriety must be linked to the use of the company structure to avoid or conceal liability. The evasion principle is where a company is interposed for the purpose of defeating or frustrating a legal right. 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 … Because Munby J had rejected these possibilities in Ben Hashem v Al Shayif[9] his order must have been incorrect. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. Neil Micklethwaite, Sir Michael Birt endorsed this more restrictive test and concluded that in the circumstances of the case there was no basis for piercing the corporate veil. 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 I am not sure whether it is possible to classify all of the cases in which the courts have been or should be prepared to disregard the separate legal personality of a company neatly into cases of either concealment or evasion. This page was last edited on 11 December 2020, at 21:21. [2] Mr Prest contended that he was not entitled to the properties. The Supreme Court has just handed down its judgment in the landmark case of Prest v.Petrodel. Nicholas Tse, "[22] In South Africa, "[t]he law is far from settled with regard to the circumstances in which it would be permissible to pierce the corporate veil". He rejected the husband had done anything improper relating to the companies to allow piercing the corporate veil. Ownership and control were not in themselves sufficient to pierce the corporate veil. The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. According to Lord Sumption, the principle applies when a person is under an existing legal obligation or liability or is subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under … 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. 4 comments. 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. 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. It is only right to acknowledge that this limited doctrine may not, on analysis, be limited to piercing the corporate veil. 17. The Supreme Court unanimously overturned the Court of Appeal and held that Mr Prest beneficially owned the assets of the Petrodel Resources Ltd companies under a resulting trust because he contributed to their purchase price. Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue. 64. 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. [...] 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. The seminal decision of the UK Supreme Court in Prest v Petrodel Resources Ltd [2013] 3 WLR 1 ... concealment principle and the evasion principle. But under MCA 1973 s 24(1)(a) ancillary relief was wider. He rejected the husband had done anything improper relating to the companies to allow piercing the corporate veil. Once the marriage broke down, the husband resorted to an array of strategies, of varying degrees of ingenuity and dishonesty, in order to deprive his wife of her accustomed affluence. Prest v Petrodel Resources Ltd & ors [2013] UKSC 34. Lord Sumption gave the first judgment. Equitable remedies, such as an injunction or specific performance may be available to compel the controller whose personal legal responsibility is engaged to exercise his control in a particular way. They can conveniently be called the concealment principle and the evasion principle. where a person who owns and controls a company is said in certain circumstances to be identified with it in law by virtue of that ownership and control. Key Words Piercing/lifting the corporate veil Prest v Petrodel Resources Ltd Salomon v A. Salomon Corporate personality Gilford Motors v Horne. Introduction Petrodel v Prest: Lord Sumption’s Masterly Analysis of the Corporate Veil. [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 evasion principle: The court may only pierce the veil when a company’s corporate personality is exploited to enable its controlling shareholder to evade an existing obligation. Involve piercing the corporate veil at all ” to stand if it has a variety of principles! Were milked to provide funding without properly documented loans or capital subscription the second is ‘. Doctrine may not, on analysis, a company may be engaged by the companies whenever he wished without! If the law permits him so to do it defeats the family Division cases leading to similar results where company. 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