The Second Opinion: Presto! The UK Supreme Court Holds The Corporate Veil Can Disappear In Prest v. Petrodel Resources

The UK Supreme Court has released an important new judgment addressing the ability of judges to "pierce the corporate veil": Prest v Petrodel Resources Ltd, [2013] UKSC 34. The ruling in Prest follows on the heels of the same Court's decision a few months ago in VTB Capital Plc v Nutritek International Corp, [2013] UKSC 5, which we discussed extensively in previous posts here, here and here. In an interesting turn of events, the Court in Prest answers a question that it left open in VTB Capital, namely, whether the jurisdiction to pierce the corporate veil exists at all. According to Prest, the corporate veil may indeed be pierced where exceptional circumstances warrant it. The Court also sets out a new test for doing so that is likely to influence future jurisprudence in both Canada and abroad.

Background

The Prest litigation arose out of proceedings for ancillary relief following a divorce. The appellant Prest was the ex-wife of a man who owned and controlled a number of related companies, including the respondents. Her ex-husband had repeatedly failed to comply with the duty to make full disclosure of his finances, through a course of conduct which the Supreme Court "characterised by persistent obstruction, obfuscation and deceit, and a contumelious refusal to comply with rules of court and specific orders". (para. 4)

At trial, Moylan J. made a significant award in favour of the appellant, including a £17.5 million lump sum payment and the £4 million matrimonial home. He also ordered that three of the respondent companies controlled by the ex-husband convey various assets to her in satisfaction of the judgment. In doing so, Moylan J. recognized that he would not ordinarily be permitted to pierce the respondents' corporate veils, since this may only be done where the legal personality of a company has been abused for an improper purpose, which was not the case here. Nonetheless, Moylan J. found that a wider jurisdiction to pierce the corporate veil than existed at common law was available under the Matrimonial Causes Act 1973 (U.K.).

Moylan J.'s ruling was set aside by the English Court of Appeal. The majority held that there was no greater ability to pierce the corporate veil in family law cases than in any other context. Since there was no evidence that the legal personalities of the respondents had been abused for an improper purpose, nor a finding that they held the relevant properties on trust for the ex-husband, the respondents could not be ordered to convey the properties to the appellant.

The Prest Decision

A seven-member panel of the UK Supreme Court unanimously overturned the Court of Appeal's judgment. The Supreme Court agreed that the corporate veils of the respondents should not be pierced at common...