Corporate Veil Can Only Be Pierced In Very Limited Circumstances

Prest v Petrodell Resources Limited & Others [2013] UKSC 34

This was a divorce case in which Mrs Prest was seeking to enforce a matrimonial award against companies owned by her ex-husband. Mrs Prest relied on three arguments, piercing the corporate veil, s24 of the Matrimonial Causes Act and holding that the properties were held by the companies on trust for the husband.

The Supreme Court held that there was a trust, so the wife won on that ground. It rejected the other two grounds. This report deals with remarks on the corporate veil principle.

In the words of the press release:

"After surveying the authorities, the court holds that there is a principle of English law which enables a court in very limited circumstances to pierce the corporate veil. It 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. The court may then pierce the corporate veil but only for the purpose of depriving the company or its controller of the advantage which they would otherwise have obtained by the company's separate legal personality. In most cases the facts necessary to establish this will disclose a legal relationship between the company and its controller giving rise to legal or equitable rights of the controller over the company's property, thus making it unnecessary to pierce the veil. In these cases, there is no public policy imperative justifying piercing the corporate veil. But the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is consistent with authority and long standing principles of legal policy. The principle has no application in the present case because the husband's actions did not evade or frustrate any legal obligation to his wife, nor was he concealing or evading the law in relation to the distribution of assets of the marriage upon its dissolution."

A few words adding to this summary. Lord Sumption, giving the leading judgment, analysed the corporate veil principle. Properly speaking, it meant disregarding the separate personality of the company. In many cases, including those in which the corporate veil was pierced, it was possible to have decided the case against the...