Nonetheless, this case Mr. Prest owned a network of

Nonetheless, numerous cases have set out
tests where this doctrine can be invoked by the court.  The rationale for studying veil-piercing is
that their have been many inconsistent judgments concerning piercing the
corporate veil.  A court may be
encouraged to pierce the corporate veil if it causes injustice, in order to
identify a liability.1
 For a long time courts have used
metaphors to justify treating an act as a liability of a company. In the case
if Pres v Petrodel Resources Ltd (2013)
it was accepted that piercing the corporate veil should only be accepted in
cases, which involve fraud or improper use to the corporate form.2

 

 

PREST

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The case of Prest v Petrodel Resources that argued whether or not English law
recognizes the concept of corporate veil.3
 In this case Mr. Prest owned a network
of offshore companies where he was in total control. The business was limited
to owning residential properties including a house he owned with his wife.

After their marriage failed Mrs. Prest made a claim against her husband for
financial assistance on the value of real estate owned by his company.4
However, he denied they were his and denied to give full disclosure of his
assets. Originally according to section 24 of the Matrimonial Causes Act the Court ordered the companied to transfer
her husband’s assets to Mrs. Prest.5
The Supreme Court then ordered that the assets owned by her husband alone could
be transferred.6
This case received a lot of attention due to how the doctrine of ‘piercing the
corporate veil’ was treated.

 

The two limitations of the Courts power
to pierce the corporate veil become clear. The first being Lord Sumption stated
that if it is not necessary to pierce the corporate veil then it is not
necessary to do so.7
Whereas Lord Clarke stated that the court may only pierce the veil if the
conventional remedies are of no help.  The second limitation being if the Court can
provide the claimant a remedy if a controller who has a legal obligation proves
the control of the company, which he or she is evading.8

 

Lord Sumption attempted to clarify the
doctrine in the case of Prest by
stating that the term ‘piercing the corporate veil’ means disregarding the separate
legal personality of a company.9  He attempted to distinguish it from a
situation where the law regards the acts of a company to those who are in
control without ignoring the company’s legal personality.  Lord Neuberger stated that it is evident from
the leading case of Prest that the law relating to the doctrine is confusing
and unsatisfactory.10
 Thus, as claimed in the Denning law
journal, Lord Sumption divided the cases into the ‘evasion principle’ and
‘concealment principle’.11 

 

EVASION PRINCIPLE

 

Lord Sumption explained that the evasion
principle applies when a person under a legal obligation seeks to evade that
obligation by placing a company under their control. Only the first principle,
evasion principle requires piercing of the veil. In which Lord Sumption
illustrated in the cases of Gilford Motor
Co v Horne (1993) and Jones v Lipman
(1962).12
In this case a court may pierce the corporate veil but only to deprive the
company of the advantage it would otherwise have. It is only justified to
pierce the corporate veil if it is to prevent fraud.  Although it must be demonstrated that the
alleged wrongdoer is in control and that there was a wrongdoing where there was
the misuse of corporate structure.13  In the case of Gilford Motor Co v Horne (1993), Lord Sumption stated that the
evasion principle was invoked to make the company liable.14
It was stated in the case that the company was a device that enabled Mr. Horne
to continue to breach.15
 Just like in the case of Jones v Lipman (1962) where the
company’s was a mask to avoid a specific performance order, and the evasion
principle was invoked to make the company liable.16
Russell J claimed that:

 

 

“The defendant company is the creature of
the first defendant, a device and a sham, a mask which he holds before his face
in an attempt to avoid recognition by the eye of equity…an equitable remedy is
to be granted against the creature in such circumstances.’17

 

 

 Thus coming to the conclusion that the evasion
principle is narrow when applied. However it is also clear that the evasion
principle is so narrow it can cause injustice as seen in the case of Ord v Belhaven Pubs Ltd (1998).18
 

 

CONCEALMENT PRINCIPLE

The concealment principle is when two
legal persons are able to grant a remedy without piercing the veil. The
concealment principle intervenes when the company tries to conceal the identity
of the actor, it does not require for the veil to be pierced.19
 Lord Sumption highlighted two main cases
where the company was a sham but they should have been resolved without
piercing the veil as in the case of Trustor
BV v Smallbone (2001).20  In this case the director breached his
duties when he transferred money to a company he personally owned.  The company sought to make Mr. Smallbone
liable; the judgment held that there was enough evidence to life the veil.21
In addition, the case of Gencor APC ltd.

V Dalby (2000) it was held that Mr. Dalby was liable and lifting the
corporate veil was appropriate.22
However, Lord Sumption suggested that on both cases lifting the corporate veil
could have been avoided and resolved on the basis that the companies mere
merely an agent of the controllers.23

1 (n-5)

2 2013
UKSC 34 (SC)

3 ibid

4 ibid

5 ibid

6 ibid

7  (n-11) Lord Sumption

8  (n-11) Lord Clarke

9 (n-11)

10 (n-11)

11 (n-11)

12 1933 Ch 935 (CA), 1962 1 WLR 832 (EWHC)

13 ibid

14 ibid

15 ibid

16 1962 1 WLR 832 (EWHC)

17 (n-25) at 836-837

18 1998 2 BCLC 447 (CA)

19 (n-11)

20 2001 EWHC 703 (Ch)

21 ibid

22 2000 EWHC 1560 (Ch) 

23 ibid, Lord Sumption