English Company Law - The current approach under : Prest v. Petrodel Resources Ltd ( Piercing the Corporate Veil)

English Company Law - The current approach under : Prest v. Petrodel Resources Ltd ( Piercing the Corporate Veil)
 
The Court of Appeal's ruling in Adams v Cape Industries plc shows that courts are not quick to dismiss corporate personality, and that the number of grounds on which corporate personality may be dismissed was limited. The Supreme Court ruling of Petrodel Resources Ltd v Prest [2013] has further curtailed this by holding that a company's corporate personality can only be discarded in one circumstance, and even then, it will only be disregarded if it is absolutely essential. Prest must now be considered the most important instance in this area. 

Prest v Petrodel Resources Ltd [2013] UKSC 34 Facts: The case included Mr. and Mrs. Prest's divorce settlement Mrs Prest received a £17.5 million divorce settlement from the High Court, although much of Mr Prest's wealth was tied up  in companies that he entirely controlled. The Matrimonial Causes Act 1973, Section 24(1)(a), gives courts the authority to "direct that a party to the marriage shall transfer to the other party... property to which the first stated party is entitled." The High Court used this authority to pierce these companies' corporate veils and order that the relevant properties be handed to Mrs Prest.Mr Prest filed an appeal, arguing that the Court had no authority to do so because the properties did not belong to Mr Prest, but to his companies. In accepting Mr Prest's appeal, the Court of Appeal found that the veil could not be pierced in these circumstances, and that the High Court lacked power to make the order under § 24(1). (a). Mrs Prest filed an appeal. The appeal was unanimously granted, but not on the grounds that the companies' corporate personalities should be disregarded. The Supreme Court ruled that the properties were held in trust for Mr Prest by the companies and hence could be included in the divorce settlement. More importantly for the purposes of this case, the Court unanimously refused to disregard the companies' corporate personalities, stating that corporate personality would be disregarded only in the following circumstances: "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." Furthermore, in this case, a court could only dismiss corporate personality if "all other, more conventional, remedies have proven to be ineffective." 

Lord Sumption's leading judgment began by defining what it means to pierce the corporate veil: To put it another way, it means ignoring the company's own personality. The law assigns a company's conduct or property to those who govern it in a variety of scenarios, despite the company's separate legal personality. For something he has done as its agent or as a joint actor, the controller may be personally accountable, in addition to the company. Property that is legally vested in a company may be beneficially owned by the controller if the property's arrangements make the company the controller's nominee or trustee for that purpose... But when we talk about piercing the corporate veil, we're not (or shouldn't be) talking about any of these scenarios; rather, we're talking about cases where a person who owns and controls a company is said to be identified with it in law by virtue of that ownership and control in certain circumstances.

As a result, it is evident that Lord Sumption does not consider many of the cases presented to be actual instances of corporate personality being ignored. Prest has redefined what it means to disregard corporate personality, and as a result, many circumstances that were previously considered to be instances of neglecting corporate personality (e.g. agency) must no longer be seen as such. This is likely most apparent in circumstances when the company is being used as a façade , where Lord Neuberger remarked that such cases frequently did not involve abandoning corporate personality. Many of these cases, according to Lord Sumption, are examples of the 'concealment principle,' which states that the interposition of a company or possibly several companies to conceal the identity of the real actors will not prevent the courts from identifying them, assuming their identity is legally relevant. The court in these cases is not looking past the 'façade,' but rather digging behind it to uncover the truths that the corporate structure is concealing. The concealment concept, according to Lords Sumption and Neuberger, is "legally banal" and "does not involve breaching the veil at all."
 
The 'evasion principle,' which occurs 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," is the only true instance in which the corporate personality could be disregarded. It follows from this that three conditions must be met in order for a company's corporate personality to be disregarded and liability to be imposed on a person :
it is clear that three conditions must be met in order for a company's corporate personality to be disregarded and liability imposed on a person (X): there must be an existing legal obligation, liability, or restriction imposed on X; X must interpose a company in order to evade or frustrate the obligation, liability, or restriction in question; and the company being interposed must be under X's control.

Even when these circumstances are met, Lord Neuberger believes that many decisions that could be considered examples of the evasion principle (e.g., Gilford Motor Co Ltd v Horne, ) could have been decided without ignoring corporate personality. He also said that "there has not been a single incident in this jurisdiction when the doctrine [of the court breaching the corporate veil] has been utilized properly and successfully."