prest v petrodel principle

This argument for lifting the veil is targeted at companies within a corporate group. Capital v Nutritek and, last week, Petrodel v Michael Prest. This article argues against this approach as it is so narrow that it practically abolished the jurisdiction. It was of key interest as it was a legal cross over between family law and company law. - Sebastian Hughes, Counsel, Prince’s Chambers, - Sasha Allison, Solicitor, Hampton Winter & Glynn, UKSC Reviews “Illegality” Defence in a Professional Negligence Setting, Overview of the Law Reform Commission’s Consultation Paper on Sentencing and Related Matters in the Review of Sexual Offences, When the Legal Industry Meets Technology (Part 2). 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. 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. 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. The trial judge had rejected both of these possibilities on the facts and therefore the Court of Appeal gave judgment for the husband. VTB Capital plc v Nutritek International Corp [2013] UKSC 5, [2013] 2 AC 337 is an English company law case, concerning piercing the corporate veil for fraud.. The court therefore had jurisdiction to make a transfer order. The same point applies to Jones v Lipman, para 135. 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. 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. Both sides of the profession were affected differently. The authors would like to thank the Editorial Board and the peer You may delete and block all cookies from this site, but parts of the site will not work. The other justices concurred in Lord Sumption’s analysis but did add some thoughts of their own on various issues. 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. The Facts. However, courts have still been willing to ignore the Salomon principle, most notably in Chandler v Cape plc [6] . © 2021 Brown Rudnick LLP. Attorney advertising. You understand and agree that transmitting information to Brown Rudnick by e-mail does not establish an attorney-client relationship. 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. Piercing the corporate veil – a limited principle under English law: Prest v Petrodel, Authors: Mrs. Prest appealed to the Supreme Court. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. 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. It was of key interest as it was a legal cross over between family law and company law. 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. 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. Piercing The Corporate Veil: Prest Vs Petrodel Resources The Supreme Court has handed down a landmark judgement in favour of Mrs Prest in high profile matrimonial dispute. 22nd Dec 2020 Law Reference this. This essay will argue the decision has done little to fault the Salomon principle. In Prest v Petrodel at para. 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. (2013) 1 Private Client Business 4-42 individuals with clear goals of protecting their assets. 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 part satisfaction of this sum, the judge ordered three Petrodel group companies to transfer the seven properties in question to Mrs Prest. Abstract. 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). The evasion principle is where a company is interposed for the purpose of defeating or frustrating a legal right. 8, Lord Sumption said separate personality and property of a company is sometimes described as a fiction, and in a sense it is. 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. The applicants were joint … 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). 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. The barrier between the company’s assets and those of its members is known as the ‘veil of incorporation’. Recent decisions such as Adams v Cape Industries plc and Prest v Petrodel Resources Ltd have reaffirmed the principle in Salomon. 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. He considered that two distinct principles underlie these terms, namely the concealment principle and the evasion principle. 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. Another was to take funds from the companies whenever he wished, without right or company authority. Mr. Prest, an oil trader and former barrister, had used various companies to purchase these properties. This argument was advanced successfully in the 1976 case of DHN Food Distributors v Tower Hamlets wher… 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 … In Petrodel, Facts. Roger Kennell. Neil Micklethwaite, The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. However, a number of other exceptions exist which are wider in scope. Yasmin Prest. The authors would like to thank the Editorial Board and the peer 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. The Facts. Supreme Court’s decision in Prest v Petrodel Resources Ltd with a view to determining whether the decision is a step towards the abolition of piercing the corporate veil doctrine. In giving judgment on 12 June 2013, the … 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. 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. 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). 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. 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). The case provides a framework for an examination of a number of issues relating to the veil-piercing rule. 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. 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. there was a real risk of dissipation of further company monies at the instance and behest of B. 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. 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 divorcing couple, Mr and Mrs Prest, were wealthy. 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. 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". shareholders.3 4In Prest v Petrodel Resources Ltd and others (Prest), Lord Sumption, Lady Hale, Lord Wilson and Lord Mance described ‘veil-piercing’ as a ‘well-established’ principle,5 while Lord Neuberger and Lord Final-year LL.B students at the City University of Hong Kong. 7. The Supreme Court’s decision others (Respondents) before . JUDGMENT GIVEN ON . Many of the assets (primarily properties in London) were held by overseas companies controlled by the husband. This essay will argue the decision has done little to fault the Salomon principle. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. In 2013, Lord Sumption, delivering the leading judgment of the Supreme Court of the United Kingdom in Prest v Petrodel Resources Ltd, Claim by Mrs. Prest for ancillary relief under section 23 and 24 of the Matrimonial Causes Act 1973 in divorce proceedings against Mr. Prest. It was of key interest as it was a legal cross over between family law and company law. The case concerned a very high value divorce.. Nicholas Tse, Mr. Prest was the sole owner of numerous offshore companies. basis on which parties deal with companies. 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. The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. 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. Prest v Petrodel Resources Limited 15. 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. In some instances the properties had been This is a case with regard to family law. 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. The first is the ‘evasion principle’; the second is the ‘concealment principle’. 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. Piercing the corporate veil -a limited principle under English law: Prest v Petrodel 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. 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. The court was asked as to the power of the court to order the transfer of … The decision in Prest overhauled the court’s previous precedent… Heard on 5 and 6 March 2013 the company should not, however, have concurrent liability with the husband in making the lump sum payment to the wife. 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. 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. shareholders.3 4In Prest v Petrodel Resources Ltd and others (Prest), Lord Sumption, Lady Hale, Lord Wilson and Lord Mance described ‘veil-piercing’ as a ‘well-established’ principle,5 while Lord Neuberger and Lord Final-year LL.B students at the City University of Hong Kong. Facts 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?' However, there is st… the evasion principle by comparing, on the one hand, Gilford Motor Co v Horne [1933] Ch. However, courts have ‘lifted the veil’ in certain circumstances, such as when authorized by statute, in wartime and to prevent fraud. It was established, inter alia, that Mr Prest was the The wife was successful in her application to set aside these dispositions; the court concluding that the transfers were a sham. Para. But … Wife claimed that the properties held by the companies belonged beneficially to the husband. 12 June 2013 . 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. 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. Mrs. Prest had joined these companies to the application and sought a transfer of the properties. The divorcing couple, Mr … Earlier this year, the Supreme Court handed down its much-anticipated judgment in Petrodel Resources Ltd v Prest. It is not an abuse to cause a legal liability to be incurred by the company in the first place. 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. 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. 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. 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. Recent decisions such as Adams v Cape Industries plc and Prest v Petrodel Resources Ltd have reaffirmed the principle in Salomon. Introduction. It is persuasive authority of the highest order and insofar as it now becomes relevant to this case I respectfully propose to follow it.”. By continuing to use this site you consent to our use of cookies in accordance with our Cookie Policy. 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. 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 [2013] 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. 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. 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.”. Has Prest v Petrodel made the law clearer? 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 … 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. Prest v Petrodel Resources Ltd [2013] UKSC 34. Family lawyers always get very excited about decisions handed down by the Supreme Court; after all, they don’t come very often. 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. 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. It will present the view the Law Lords had of … 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. 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 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. 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 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. There are two principles which it has been used in connection with. But in Prest this was achieved via a different route. This article will critically evaluate the significance of the Prest v Petrodel Resources Ltd decision in light of the corporate veil doctrine. Also see Lady Hale’s distinction in … Background . Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. In 2013, the case of Prest v Petrodel [2013] UKSC 34 left the family law fraternity debating and divided. to the principle that a company is a separate legal entity from its shareholders. the husband was the beneficial owner of the shares purportedly transferred to his business associates, and that the company held its assets on trust for the husband; the value of the shareholding and the known assets of the company were to be included in the asset pool for assessment of the wife’s ancillary relief application; and. 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). 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. 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. 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. 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. These are narrow exceptions to the general rule. 3 As such, no consistent rule or principle has emerged to guide whether or not a court should pierce the corporate veil. 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. 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. 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. 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. One of Mr Prest’s failings was to provide funding without properly documented loans or capital subscription. Also see Lady Hale’s distinction in … But in Prest this was achieved via a different route. 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. 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. The Law Society of Hong Kong | Sweet & Maxwell | Westlaw Asia | Contact Us. 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). The decision is therefore of great interest to family lawyers. 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