In Gencor ACP Ltd v Dalby [2000] 2 BCLC 734, the plaintiff made a large number of claims against a former director, Mr Dalby, for misappropriating its funds. 31. There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party's failure to rebut it. 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. The judge found that the matrimonial home was held by PRL on trust for the husband, but he made no corresponding finding about the seven other properties and refused to make a declaration that the husband was their beneficial owner. In addition, PRL was the legal owner of five residential properties in the United Kingdom and Vermont is the legal owner of two more. But the fiction is the whole foundation of English company and insolvency law. It also accounted for Vermont, whose shares are held 49% by PRL and 51% by PRL Nigeria, and Upstream, which had a single issued share held by PRL Nevis. 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. However, I have reached the conclusion that it would be wrong to discard a doctrine which, while it has been criticised by judges and academics, has been generally assumed to exist in all common law jurisdictions, and represents a potentially valuable judicial tool to undo wrongdoing in some cases, where no other principle is available. They did not think that there was any fraud involved simply in using a limited liability company as a vehicle for conducting a legitimate business. the “concealment principle”), Lord Sumption thought that it may not be necessary in such cases to formally pierce the veil, instead “only looking behind it to discover the facts which the corporate structure is ... 7 Prest v Petrodel Resources Ltd [2013] 2 AC 415 at [35], per Lord Sumption. In the company's financial statements for 2008, the two properties are listed as its only assets and there were no liabilities apart from the bank loans charged on Flat 310, Pavilion Apartments. This succeeded at first instance and in the Court of Appeal, Lindley LJ going so far as to say that "Mr Aron Salomon's scheme is a device to defraud creditors": [1895] 2 Ch 323, 339. Introduction. However, he declined to decide whether the consensus was right on an appeal from an interlocutory decision, given that, like the Court of Appeal, he considered that even if the veil were pierced the result would not be to make a company's controllers party to its contracts with third parties. 46. As against Mr Horne, the injunction was granted on the concealment principle. Other factors included the circumstances and the source of the receipt, and the nature of the company's other transactions if any. The courts have tended to recoil from some of the fiercer parts of this statement, which appear to convert open-ended speculation into findings of fact. The same confusion of concepts is, with respect, apparent in Sir Andrew Morritt V-C's analysis in Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177, which I have already considered. For years after it was decided, Cape Industries was regarded as having settled the general law on the subject. 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. 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. The concealment principle is legally banal and does not involve piercing the corporate veil at all. The concealment principle is legally banal and does not involve piercing the corporate veil at all. 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. 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. It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. 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. 104. The language of this provision is clear. In short, otherwise, the inevitable consequence can only be what has been impliedly foreseen / prophesied by the learned writer in the concluding part of his write-up. The judge rejected his excuse that he was in bad health, and found that he was "unwilling rather than unable to attend court." The judge, Moylan J, recited in his judgment the long history of successive orders of the court which were either ignored or evaded, the various attempts of the husband to conceal the extent of his assets in the course of his evidence, and the collusive proceedings in Nigeria by which he sought declarations that certain of the companies were held in trust for his siblings. 7. 63. 24. 43. 26. The words are those of Lord Atkin in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, 1031-1032, but the principle is very familiar and has been restated by the courts in many contexts and at every level. after the husband had left Marc Rich and set up on his own. Mr Prest is of course not the first person to ignore the separate personality of his company and pillage its assets, and he will certainly not be the last. The group was "effectively the husband's money box which he uses at will.". There may have been good reasons for not imposing such terms, but on the face of it the possibility was not even considered. 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. Prest v Petrodel Resources Ltd UKSC 34, [2013] R v McDowell [2015] EWCA Crim 173. The sole shareholder or the whole body of shareholders may approve a foolish or negligent decision in the ordinary course of business, at least where the company is solvent: Multinational Gas & Petrochemical Co v Multinational Gas & Petrochemical Services Ltd, The principle is mainly familiar in the context of contracts and other consensual arrangements, in which the effect of fraud is to vitiate consent so that the transaction becomes voidable ab initio. His findings about Mr Dalby's relationship with the company and his analysis of the legal consequences show that both Mr Dalby and Burnstead were independently liable to account to ACP, even on the footing that they were distinct legal persons. It is also clear from the cases and academic articles that the law relating to the doctrine is unsatisfactory and confused. Stone & Rolls Ltd v Moore Stephens (a firm) [2009] 1 AC 1391 is an example of going behind the separate legal personality of the company in order to "get at" the person who owned and controlled it, not for the purpose of suing him, but in order to attribute his knowledge to the company so that its auditors could raise a defence of ex turpi causa to the company's allegation that they had negligently failed to detect the fraudulent nature of its business. But what the cases do have in common is that the separate legal personality is being disregarded in order to obtain a remedy against someone other than the company in respect of a liability which would otherwise be that of the company alone (if it existed at all). Get 1 point on adding a valid citation to this judgment. These may result from a statutory provision, or from joint liability in tort, or from the law of unjust enrichment, or from principles of equity and the law of trusts (but without any "false invocation of equity" in the phrase used by C Mitchell in the article mentioned by Lord Neuberger). Turning to what is known about the acquisition of the disputed properties, PRL acquired the legal interest in six London properties (including the matrimonial home) between 1995 and 2001. There is no longer any issue about that property, which is apparently in the process of being transferred to the wife. There is nothing in the language, the history, or indeed the Report of the Law Commission which led to the 1970 Act (Law Com No 25), to suggest that those words should be read to include "property over which the first-mentioned party has such control that he could cause himself to become entitled, either in possession or reversion". Of course, structures can be devised which give a different impression, and some of them will be entirely genuine. 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. But where, say, the terms of acquisition and occupation of the matrimonial home are arranged between the husband in his personal capacity and the husband in his capacity as the sole effective agent of the company (or someone else acting at his direction), judges exercising family jurisdiction are entitled to be sceptical about whether the terms of occupation are really what they are said to be, or are simply a sham to conceal the reality of the husband's beneficial ownership. Further, they indicate that, where a court is of the view (albeit that I think that it was mistaken in those cases) that there is no other method of achieving justice, the doctrine provides a valuable means of doing so. 19. Section 37 is a limited provision which is very far from being a complete answer to the problem, but it is as far as the legislature has been prepared to go. I infer that the funds were provided to PRL by the husband. This means that the court's role is an inquisitorial one. Easterbrook and Fischel, Limited Liability and the Corporation (1985) 52 Univ Chicago L Rev 89, pithily observe that "'[p]iercing' seems to happen freakishly. There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party's failure to rebut it. 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. 65. Many of the links on this blog will take you to sites operated by third parties. This section is invoking concepts with an established legal meaning and recognised legal incidents under the general law. The judge decreed specific performance against both Mr Lipman and Alamed Ltd. As against Mr Lipman this was done on the concealment principle. They were liable to account only if the true facts were that the company had received the money as their agent or nominee. I expressed a similar view in VTB Capital plc v Nutritek International Corpn [2013] 2 WLR 398 and adhere to it now. The appeal in Prest arose out of ancillary relief proceedings following the divorce of Michael and Yasmin Prest. 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. 105. R v Singh [2015] EWCA Crim 173. Much the most significant of them for present purposes was that of Munby J. 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. Lazarus Estates Ltd v Beasley [1956] 1 QB 702. 95. 1 Prest v Petrodel Resources Ltd [2013] 3 WLR 1 at [8], per Lord Sumption. 17. This may be thought hard on the bank, but it is no harder than a finding that the company was not the beneficial owner at all. Secondly, they said that it was not enough to show that there had been wrongdoing. Given his evident determination to frustrate his wife's claims on him, it cannot be assumed that the assets of the company recorded in the disclosed accounts are still there. The judge's answer to that question was that the "purpose and intention" of the Matrimonial Causes Act 1973 was that the companies' assets should be treated as part of the marital wealth. These considerations are not a licence to engage in pure speculation. Since PRL had not begun operations at that stage, I infer that the purchase money must have come from the husband. In case of any confusion, feel free to reach out to us.Leave your message here. 70. 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. 15. 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 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. I do not doubt that the construction of section 24(1)(a) of the Act is informed by its purpose and its social context, as well as by its language. 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. It is difficult to imagine that any commercial partners could enjoy rights of confidence over information concerning residential investment properties in London, and on the judge's findings the only shareholder was the husband himself. The effect of the judge's order in this case was to make the wife a secured creditor. It follows that the piercing of the corporate veil cannot be justified in this case by reference to any general principle of law. Initially, there were two principal companies involved, Aurora and the Petrodel companies. The landmark Supreme Court judgment in Prest v Petrodel Resources Ltd provides a significant reassessment of the law relating to a court's ability to circumvent corporate personality. To some extent that is the fault of the husband and his companies, but that is unlikely to be much comfort to unsatisfied creditors with no knowledge of the state of the shareholder's marriage or the proceedings in the Family Division. 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. The same words were used in section 3 of the Matrimonial Causes Act 1884, when extending the same power to a husband's application for restitution of conjugal rights. Trustor AB v Smallbone (No 2) [2001] EWHC 703 Prest v Petrodel Resources Ltd [2013] UKSC 34. 81. That accounted for PRL, PRL Nigeria and PRL Nevis. 5 [1897] AC 22. Prest v Petrodel Resources Ltd UKSC 34, [2013] R v McDowell [2015] EWCA Crim 173. 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. But he adopted, as it seems to me, both the general reasoning of the Court of Appeal and the view of Munby J that any doctrine permitting the court to pierce the corporate veil must be limited to cases where there was a relevant impropriety: see paras 128, 145. It is only right to acknowledge that this limited doctrine may not, on analysis, be limited to piercing the corporate veil. Or to abrogate a right derived from a legal status, such as marriage: R v Secretary of State for the Home Department, Ex p Puttick [1981] QB 767. Most of the judge's findings of fact were directed to two questions which are no longer in dispute, namely whether the husband owned the Petrodel Group and what was the value of his assets. 55. 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 recognition of a jurisdiction such as the judge sought to exercise in this case would cut across the statutory schemes of company and insolvency law. Since, as the judge found, no rent was paid to PRL for the family's occupation of the matrimonial home, this is a particularly clear case of the husband using PRL as a vehicle to hold legal title on trust for himself. The principle was stated in its most absolute form by Denning LJ in a famous dictum in Lazarus Estates Ltd v Beasley [1956] 1 QB 702, 712: The principle is mainly familiar in the context of contracts and other consensual arrangements, in which the effect of fraud is to vitiate consent so that the transaction becomes voidable ab initio. 1. It is true that this will not always be possible, particularly in cases like this one where the shareholder and the company are both resident abroad in places which may not give direct effect to the orders of the English court. 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. This did not involve piercing the corporate veil, but only identifying Mr Lipman as the man in control of the company. Judges in the United States have also been critical, even though the doctrine has been invoked and developed to a much greater extent than in this jurisdiction. He was referring to an article by the same name by D Michael (2000) 26 J Corp Law 41, 55. Accordingly, if piercing the corporate veil has any role to play, it is in connection with evasion. If it had been, there might have been an argument that the exception for bona fide purchasers for value contained in section 37(4) did not apply to a company where the controlling mind was acting with that intention. 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. Secondly, a transfer of this kind will ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets of the marriage. Nor do I doubt that the object is to achieve a proper division of the assets of the marriage. 62. There were originally seven companies involved, all of which were joined as additional respondents to the wife's application for ancillary relief. Claim by Mrs. Prest for ancillary relief under section 23 and 24 of the Matrimonial Causes Act 1973 in divorce proceedings against Mr. Prest. For present purposes, it is enough to summarise those which bear on the position of the three corporate respondents. 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." In this case, the husband's conduct of the proceedings has been characterised by persistent obstruction, obfuscation and deceit, and a contumelious refusal to comply with rules of court and specific orders. Flat 310, Pavilion Apartments was acquired with funds derived from PRL at a time when the company had not begun trading operations. 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. 41. DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852. The question is heavily burdened by authority, much of it characterised by incautious dicta and inadequate reasoning. There was also a second home in Nevis. 33. 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. Robin Charrot, ‘Lessons Learned from Prest v Petrodel’ (2013) 5 PCB 281, 283; Bowen argues that the doctrine has been all but buried, see Andrew Bowen, ‘Concealment, Evasion and Piercing the Corporate Veil: Prest v Petrodel Resources Ltd (2014) 129 Bus LB 1, 3. Once you create your profile, you will be able to: Claim the judgments where you have appeared by linking them directly to your profile and maintain a record of your body of work. More recently, it has been suggested that PRL Nevis is owned by a family trust about which, however, nothing has been disclosed. First, they said that it was not necessary in order to pierce the corporate veil that there should be no other remedy available against the wrongdoer, and so far as Munby J suggested that it was, he had set the bar too high. Accordingly the sole basis of the application was that he was liable to account as a constructive trustee on the footing of knowing receipt. In Secon Serv Sys Inc v St Joseph Bank & Trust Co, 855 F2d (7th Cir, 1988), 406, 414, Judge Easterbrook in the US Court of Appeals described the doctrine as "quite difficult to apply, because it avoids formulating a real rule of decision. He then formed a company, JM Horne & Co Ltd, named after his wife, in which she and a business associate were shareholders. (1) This cunning title is taken from the speech of Lord Neuberger, at para 77, of Prest v Petrodel Resources Ltd [2013] UKSC 34. These dicta were subsequently applied by judges of the Family Division dealing with claims for ancillary financial relief, who regularly made orders awarding to parties to the marriage assets vested in companies of which one of them was the sole shareholder. 59. "linked to the use of the company structure to avoid or conceal liability for that impropriety". 82. In addition he awarded costs in favour of the wife, with a payment of 600,000 on account. Of the other five properties owned by PRL, the first category comprises the three properties (Flats 4 and 5, 27 Abbey Road, and Flat 2, 143 Ashmore Road) acquired by the company in December 1995 and March 1996, in each case for a nominal consideration of 1. 52. But the case is authority for what it decided, not for what it might have decided, and in my view the principle which the Court of Appeal applied was correct. In these cases the court is not disregarding the "facade", but only looking behind it to discover the facts which the corporate structure is concealing. 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. The family finances will commonly have been the responsibility of the husband, so that although technically a claimant, the wife is in reality dependent on the disclosure and evidence of the husband to ascertain the extent of her proper claim. The concealment principle is legally banal and does not involve piercing the corporate veil at all.

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