Piercing The Corporate Veil: Supreme Court Clarifies The English Law Position

Prest v. Petrodel [2013] UKSC 34

The Supreme Court has recently issued a decision confirming that English law permits a claimant to ignore the separate legal identity of a company, and "pierce the corporate veil" in certain circumstances. However, this remains an exceptional remedy.

The background facts

Prest v. Petrodel came before the Supreme Court on appeal from a decision in a divorce case. Michael and Yasmin Prest married in 1993 but the marriage ended in 2008. Mr Prest was a wealthy oil trader who had previously worked for Marc Rich and later went into business on his own account, operating through a number of companies over which he had complete control (the "Companies"). The Companies had legal title to real estate within the UK, including the couple's matrimonial home.

In the divorce proceedings Mrs Prest obtained an order from the family courts requiring her husband to pay her a lump sum of £7.5 million plus annual payments. To satisfy this judgment, the Judge ordered the Companies to transfer title to the marital home and seven other properties. The Judge based this order on Section 24 of the Matrimonial Causes Act which provides that the court may order that "a party to the marriage shall transfer to the other party... such property as may be so specified, being property to which the first-mentioned party is entitled...". The Judge also decided that the matrimonial home was held by one of the Companies on trust for Mr Prest, who was the beneficial owner of the property.

Importantly, the Judge in the High Court recognised that the companies had a separate legal personality from Mr Prest, as they were not being used for an improper purpose, and the Court of Appeal agreed. It is this point that is of significance in a commercial context and is the focus of this article.

Saloman v. Saloman

The starting point for a legal analysis is the case of Saloman v. Saloman in 1897. Mr Aron Saloman was a sole trader who set up a limited liability company ("A. Saloman & Co Ltd") through which he conducted his leather and boot making business, in which Mr Saloman and certain members of his family were the only shareholders. When the business failed, the creditors sought to hold Mr Saloman personally liable for the debts of his company.

At first instance, the High Court held that the company was effectively just Mr Saloman in another form. The Court of Appeal agreed and also considered that Mr Saloman was using the company as "a device to defraud...