Analysis of Prest v Petrodel Resources Ltd

Analysis of Prest v Petrodel Resources LtdThe relatively short and signifi jakest judgment in the Supreme Court case of Prest v Petrodel Resources Ltd has ga in that locationd noisy interest from academics and practitioners. It was of key interest as it was a legitimate cross over between family law and social club law. The legal team representing Prest stated that the escorting is of major importance non provided for family law and divorcing couples, but also for company law, and it is the most important reviews since Victorian times on the law regarding perforate the integrated veil.2 The principles of lifting the corporate veil for the other(prenominal) eight decades awaited to have never been wholly open as judges perpetually contradicted each other and never reached a unanimous finale. There has been extensive discussion as to whether a court can ignore the principle of separate legal personality and discreetness a companys property, salutarys and obligations as belonging to a person who owns and controls the company.3 The critical points which would be analysed in this essay would be whether Prest has brought us closer to what the principle of lifting the corporate veil can be defined as, what it entails or whether the whole ism should be set aside. It will be argued that the law should non be given its repose as it insurems that judges argon somewhat getting closer to an resolution. Prest narrowed the helping in which the doctrine may apply thus, this could show that decision makers atomic number 18 near the end of a long marathon. On the contrary, it seems that even if the doctrine is set aside, the principles would sleek over be applied unknowingly by judges, it would peradventure non be defined as shrewd the veil doctrine. It would possibly be applied in conjunction with other laws which would have the same effect and gist as penetrating the corporate veil.Lifting the corporate veil has been viewed narrowly to be the proce ss apply by the courts to either determine what exactly is going on behind the shell of incorporation. The whole concept of lifting the veil was derived from Salomon v Salomon4 where corporate veil was schematic. It was held that a expressage company was viewed like any other commutative person with its right and liabilities fascinate to itself5 The Salomon principle has been the foundation on which company law and business corporations have thrived on for years.6 When taking into consideration how the law has essential in this ara, Cheung describes that it is evident the House of Lords decision in Woolfson 7 came to be source for guidance in subsequent cases. More importantly, the HL emphasised that it is simply appropriate to pierce the corporate veil where the circumstances indicate that the company is merely a faade concealing true facts. However, despite this important discreteion, the courts have always been wary that there essential be some limit to the protection aff orded by limited obligation to ensure that business dealings remain honest. As Lazarus8 explained no court will allow a person to keep an advantage which had been obtained by fraud9 This principle underpinned all of the early attempts to pierce the veil meaning that the court will not allow a corporate personality to be used to protect individuals from wrongdoing. Similarly, Lord Sumption explains piercing the corporate veil agency disregarding the separate personality of the company10 Moreover, as per Lord Keith in Woolfson,11 he states it is appropriate to pierce the corporate veil only where special circumstances exist12 Consequently, right from the onset, there were conflicting views. The reception which the doctrine received forty years ago is appease echoed to this day in Prest. The court reaffirmed in Prest the well-established discriminative conservativism flak that the corporate veil could only be pierced in very rare cases13 Therefore, despite the doctrine not being clear, it is well established that the doctrine is not be considered in all corporate cases but, ought to be considered only rare ones.On the other hand,it can be argued, that the strictness of the onrush led to the doctrine existing more as a matter of legal theory than as a feature of legal practice. Prior to Prest, in Lipman,14the only way to lift the veil was if the company was regarded as a sham or mere faade. In Smallbone,15Sir Morritt brought forward the argument that it is uncertain as to which circumstances a company can be considered as a sham or whether the company train to do something illegal for immorality to suffice.16 Hence, this suggests that there is no clear structure to be followed. This could fix further confusion as to what the doctrine of piercing the corporate veil originally intended to do. Could this perhaps suggest that it is better to abandon the doctrine as a whole rather than to try and figure out what the principle actually proposes to do. This coul d perhaps create more clarity in the sense that decision makers would know what is not meant to be included in the doctrine. Furthermore, this can be mirrored in Prest where dame Hale and Lord Wilson doubted whether it is possible to mannikinify all cases neatly into cases of either concealment or evasion17 Therefore, even to this day there are a down of question marks as to when and how the doctrine is applied there are still a lot of unanswered questions which have not been dealt with. It seems that the judges only deal with these when and how it comes. It can be contended that the doctrine is there but, no one has yet connected the dots to see the full picture of what it entails. The fact that none of these questions seem to provide a clear picture further creates problems today as for a doctrine to develop or adapt to the newly changes, the reasonings behind the past decision needs to be understood thus, if one cannot do that and then how can the doctrine be established.Not withstanding, since Prest, it is no longer sufficient for a company to show that it is a mere faade or a sham18 one must show that control of the company by the wrongdoer was used as a device to conceal the wrongdoing.19 A new provision on how the doctrine should be established was brought in Prest. Over the past fourscore years, there has been many interpretations. Most recently, analysed by Lord Sumption where he identified the concealment and evasion principle. In Prest, Lord Sumption argued for a narrower and clearer approach by curtail the circumstances in which the veil may be pierced. This was because references to a faade or sham beg too many questions to provide a suitable answer20 He attempted to give an explanation He stated that the veil would be restricted to two principles the concealment principle and the evasion principle.21 The concealment principles is the treatment of a company or perhaps several companies so as to conceal the real actors22 But, he noted that t his does not actually involve piercing the veil the court is simply looking behind the faade to discover the true facts.23 Contrarily, the evasion principle applies where a person is under an existing legal obligation which he deliberately evades by interposing a company under his control.24 However, despite the two approaches being somewhat clear Lord Alcock observes that care must be taken because none of the other six justices of the Supreme Court find outd with Lord Sumption without some qualifications25 He also points out that there is whole uncertainty surrounding the operation of the evasion principle.26 Most significantly, Neuberger also found that in cases where piercing the veil was considered, it either did not apply in the facts, or it was applied on the facts but the results could have been arrived at on some other legal basis.27 On these grounds, this could show that the doctrine does not necessarily need to exist as the same outcome can be arrived on some other lega l basis. It can be indicated that the doctrine could perhaps only exist to give reassurance to corporate businesses in order to ensure them that they have a sense of security in case something goes wrong, but in reality, it does not exist and is rarely applied. Undoubtedly, Lord Neuberger drew different conclusions regarding the application of the principle. He argued that there is not much support for the doctrine.28 He observed that there is no English case which unequivocally underpinned a power to lift the veil29 however, recognition is given to a limited power as a valuable judicial tool to undo wrongdoing in cases where no other solution exist30 It gives the impression that every judge will come up with a new principle every now and again which would be relied upon but then a couple of years after, a new judge will find criticism in the doctrine. It seems that it is going around in a vicious circle without reaching an end-point.Additionally, Lord Sumptions principle brought fu rther opposition. Lord Mance argued that It is dangerous to seek to foreclose all possible future situations which may arise and I would not wish to do so31 Furthermore, it should be considered that Prest only dealt with one detail class of asset which were held by those of corporate entities. The decision shows that an application of company law principles is required when determining the ownership of those assets.32 Henceforth, this shows that Prest only narrowed only one specific factor in piercing the corporate veil, a factor which cannot be used in all cases. This further shows that we are no closer to an answer of lifting the corporate veil.Contrarily to the above, despite there not being a set doctrine, it seems that the Lordships all agree on one aspect. In Prest, they all received the existence of a general common law veil piercing as being limited to rare and exceptional circumstances.33 Lord Clarke argued that Sumptions distinction the circumstances in which the doctri ne apply are rare34 This similar reaction has been echoed in the past. It can be thus shown, that not much has changed and the decision makers are still unsure as to when the doctrine can be applied. In 2017, it is very difficult to predict what the future path for the doctrine will take as there are many conflicts on this topic even from the Supreme Court judges. As stated above, Lord Neuberger, Lord Clarke and Lady Hale were not entirely convinced on the validity of the doctrine and seeing it as merely a metaphor which was unclear and inchoherent. This was contrasted with Lord Mance and Lord Walker who are very much in favour of keeping the doctrine. On the other hand, Lord Neuberger who had initially been in favour of giving the doctrine its quietus because it had been misapplied in the eighty years indicates that the obiter by Lord Sumption is very influential and could prove to be important in future cases. Hence, this further indicates that there are still many uncertainties w ithin the doctrine itself.It can be indicated that if Prest was successful in providing a set answer as to what piercing the corporate veil entails then there would have been many cases which would have pierced the veil post Prest. For some the most helpful case is the decision in Pennyfeathers limited v Pennyfeathers property company limited.35 It is said to be a better example of facts for giving rise to the principle of piercing the veil. Provided that the principle was to be properly established then there is one thing that all decision makers would agree upon which would be that the company was used in an attempt to immunise himself from the liability of wrongdoing36 This is accordant in DHN37 just as much as it is in Gramsci.38 It seems that in every case that involves piercing the veil, the defendants always argue that there is no such(prenominal) thing as piercing the corporate veil39 thus, could it be that many wrongdoers have been able to escape liabilities simply because the doctrine was not well established. The new approach found in VTB40and Prest significantly restrictive approach to piercing the corporate veil which in effect has relegated the doctrine to a principle of last resort.41 pack Prest cases such as R v McDowell42 and R v Singh43 shows that the superior courts exercising restraint in disturbing the principle in Salomon.44 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. However, these cases are and will remain exceptional. More recently, in Akzo Nobel45 in its arguments had suggested that the Competition Commission had tried to attribute the activities of the subsidiaries to Akzo Nobel which was in effect piercing the corporate veil.46It could be considered that an alternative approach would be to put the doctrine on a statutory basis so that the courts would have a guide to follow instead of consistently establishing conflicting views between themselves. However, this could prevent tractability of the courts whilst it faces complex issues which cannot be foreseen by statute. On the other side of the coin, it would be less harmful than having ambiguous rules. Furthermore, there could be an extension which established distinct body rules for corporate groups such as in Germany. The interest of the whole group both financial and non- financial matters would be recognised. Moreover, another approach could be piercing the veil by removing limited liability towards involuntary creditors, notably tort victims. In Chandler v Cape,47 it introduced some basis for this approach whilst imposing liability on a parent company by suggesting that the parent company has a duty to the employees of its subsidiary company.To conclude, it has been suggested by academic commentary that the decision reflects a progressive trend of restricting the doctrine.48 However, it can be co ntemplated that slightly narrowing a doctrine which Supreme Court judges do not agree with does not mean that it is progressive.49 If one keeps on rebutting every proposal that is brought forward then that is not progressive, it does not feel like any decision makers has tried to find a solution for this problem. It can be disputed that this is a never ending vicious circle.It seems as if it is an entertaining ground for judges to see what new solution can be made this time around. Prest brings a new kind of uncertainty.50 However, Prest does confirm that the veil would only be pierced in exceptional circumstances. There is one basis which all judges approve which is that the veil is only to be pierced in exceptional circumstances. This could perhaps be a starting point of a well-established doctrine. It can be contended that, even if the doctrine is given is quietus, judges would still apply the principles of piercing the veil unknowingly. This decision can be derived from another legal basis but, it will have the same outcome. Thus, even if it is given its quietus, the doctrine would still be there transparently. It seems that we are at a halt with the long marathon until, a case can fully apply the two provisions in Prest.BibliographyPractitioners TextbooksPalmers Company equityBooksA Digman A, John Lowry, Company fair play (8th edn OUP Oxford)Birds J, Boyle Clark B et al, company Law (9th edn, Jordan Publishing)Dr Wilde C, Smith and Keenans Company Law ( 17th edn Pearson)Lowry J, and Arad Reisberg, Company Law Corporate pay (4th Edn, PearsonJournalsAkansha Dubey et al, Family Law (2014) 3(1)A Alcock piercing the veil- A dodo of a Doctrine (2013) 25 denning LJ 241,243A Bowden Concealment, Evasion and shrill the corporate veil Prest v Peterodel Resources Ltd 2013, super C Business law, April 2014Bull S, piercing the corporate veil in England and Singapore 2014 HeinonlineC Hare, Piercing the corporate veil in the supreme court (again)- The Cambridge Law Journal, 72 2013 511-515Chrysthis N Papacleovoulou, lifting or piercing, the corporate veil in Cyprus a doctrine under challenge- an analysis of English and Cyprus case Law analysis (2016) 27 (4) ICCLRD Lightman, Petrodel Resources Ltd v Prest Where are we now? believe Trustees (2013) 19 (9)877J McDonagh, Piercing the corporate veil in the family division Prest the latest from the court of appeal- Trust and Trustees (2013) 19 (2) 137J Payne Lifting the corporate veil A reassessment of the fraud exception Cambridge law Journal, 56 (2) July 1997Mujih E, Piercing the corporate veil as a remedy after Prest V Petrodel resources Ltd Inching towards Abolition 2016 Westlaw 17,17Pey Woan Lee, The Enigma of Veil- Piercing (2015) 26 (1) ICCLR 28, 30Spears, Expert analysis of the Prest Judgement (Spears ,11 June 2013)Tan Cheng-Han, Veil piecing- a bright start (2015) 1 JBLOnline ArticlesSpears, Expert analysis of the Prest Judgement (Spears ,11 June 2013) http///www.spearswms.com/expert-an alysis-of-the-Prest-judgment/ accessed 8th March 2017Simon Mcleod- The Corporate Veil And Its Piercing As Clear As?http//gdknowledge.co.uk/the-corporate-veil-and-its-piercing-as-clear-as/ accessed 20th February 2017CasesAkzo Nobel NV v Competition Commission 2013 CAT 13Antonio Gramsci Shipping Corp ors v Aivars Lembergs 2013 EWCA Civ 730DHN Food Distributors Ltd v Tower Hamlets London Borough Council 1976 1 WLR 852Lazarus Estates Ltd v Beasley 1956 1 QB 702Prest v Petrodel Resources Ltd UKSC 34, 2013R v McDowell 2015 EWCA Crim 173R v Singh 2015 EWCA Crim 173Salomon v Salomon 1896 UKHL 1Trustor AB v Smallbone (No 2) 2001 EWHC 703VTB Capital plc v Nutritek International Corp 2013 UKSC 5Woolfson v Strathclyde regional Council 1978 UKHL 51 Prest v Petrodel Resources Ltd UKSC 34, 20132 Spears, Expert analysis of the Prest Judgement (Spears ,11 June 2013) http///www.spearswms.com/expert-analysis-of-the-Prest-judgment/ accessed 8th March 20173 French D, Mayson S Ryan C, Company law (31st edn, OUP) 1274 Salomon v Salomon 1896 UKHL 15 Lord Halsbury Salomon v Salomon 986 Lowry J, and Arad Reisberg, Company Law Corporate Finance (4th Edn, Pearson) 357 Woolfson v Strathclyde Regional Council 1978 UKHL 58 Lazarus Estates Ltd v Beasley 1956 1 QB 7029 Ibid10 Prest Lord Sumption 1611 Woolfson v Strathclyde Regional Council 1978 UKHL 512 carve up 90 lord Ketih13 Prest 103 Lord Clarke14 Jones v Lipman15 Trustor AB v Smallbone (No 2) 2001 EWHC 70316 Ibid17 Ibid 92 Lady Hale18 Jones v Lipman 4419 Birds J, Boyle Clark B et al, company Law (9th edn, Jordan Publishing) 6020 Prest 28 (lord Sumption)21 Pret 28 Lord Sumption22 Ibid23 Ibid24 Ibid 3525 Alistair Alcock piercing the veil- A dodo of a Doctrine (2013) 25 denning LJ 241,24326 Pey Woan Lee, The Enigma of Veil- Piercing (2015) 26 (1) ICCLR 28, 3027 Prest 74 Lord Neuberger28 Prest 69 (lord Neuberger) Alistar Alcock (n 18) 25029 Ibid30 Ibid31 Ibid 100 Lord Mance32 Piercing the corporate veil in the family division Prest the l atest from the court of appeal- Trust and Trustees (2013) 19 (2) 13733 Piercing the corporate veil in the supreme court (again)- The Cambridge Law Journal, 72 2013 511-51534 Ibid 103 Lord Clarke35 Pennyfeathers limited v Pennyfeathers property company limited 2013 EWHC 3530 (Ch)36 Gramsci. Burton J 10137 DHN Food Distributors Ltd v Tower Hamlets London Borough Council 1976 1 WLR 85238 Antonio Gramsci Shipping Corp ors v Aivars Lembergs 2013 EWCA Civ 73039 Ibid40 VTB Capital plc v Nutritek International Corp 2013 UKSC 541 Bull S, piercing the corporate veil in England and Singapore 2014 Heinonline 39,3942 R v Singh 2015 EWCA Crim 17343 R v McDowell 2015 EWCA Crim 17344 Mujih E, Piercing the corporate veil as a remedy after Prest V Petrodel resources Ltd Inching towards Abolition 2016 Westlaw 17,1745 Akzo Nobel NV v Competition Commission 2013 CAT 1346 Simon McLeod- The Corporate Veil And Its Piercing As Clear As?http//gdknowledge.co.uk/the-corporate-veil-and-its-piercing-as-clear-as / accessed 20th February 201747 Chandler v Cape plc 2012 EWCA Civ 52548 Akansha Dubey et al, Family Law (2014) 3(1) 214,21749 Tan Cheng-Han, Veil piecing- a fresh start (2015) 1 JBL 20,2150 Chrysthis N Papacleovoulou, lifting or piercing, the corporate veil in Cyprus a doctrine under challenge- an analysis of English and Cyprus case Law analysis (2016) 27 (4) ICCLR 129,130