However, he found that the husband was the sole beneficial owner and the controller of the companies, and doing the best that he could on the material available assessed his net assets at £37.5 million.5. Either it then became the beneficial property of the wife (which is what equity would initially presume); or else it remained in the beneficial ownership of the husband, which is what I would on balance infer from the wife's evidence that the transfer was procured by the husband without her conscious involvement. Much the most significant of them for present purposes was that of Munby J. The group was "effectively ... the husband's money box which he uses at will. Their separate personality and property are the basis on which third parties are entitled to deal with them and commonly do deal with them.9. [45]. 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 this country, Clarke J in The Tjaskemolen [1997] 2 Lloyd's Rep 465, 471 said that "[t]he cases have not worked out what is meant by 'piercing the corporate veil'". The wife transferred her interest in the freehold of 143 Ashmore Street to PRL. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. Section 25(2)(a) requires the court when exercising the powers under section 24, to have regard to "the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future". Rimer J ordered an account against both Mr Dalby and Burnstead. The first systematic analysis of the large and disparate body of English case law was undertaken by a strong Court of Appeal in Adams v Cape Industries plc [1990] Ch 433 (Slade, Mustill and Ralph Gibson LJJ). He used PRL's assets to fund his and his family's personal expenditure, including the substantial legal costs incurred in these proceedings. The decision is not, therefore, direct authority on the question whether the court was entitled to pierce the corporate veil. In the Court of Appeal, three of the companies challenged the decision on the ground that there was no jurisdiction to order their property to be conveyed to the wife. Some of the concurring judgments reserve the possibility of a somewhat wider test, but not in respects which affect its application to the present case.The Court rejects the argument that a broader principle applies in matrimonial proceedings by virtue of section 24(1) (a) of the 1973 Act. The only directly relevant evidence given by Mr Murphy in his affidavit is a bald assertion that the companies are the sole beneficial owners of the shareholdings and the properties, but he declined to appear for cross-examination on it. Flat 5, 27 Abbey Road was transferred to PRL on the same day, also for £1, by the husband's younger brother Michel. The correct analysis of the situation was that the court refused to be deterred by the legal personality of the company from finding the true facts about its legal relationship with Mr Dalby. The words "in possession or reversion" show that the right in question is a proprietary right, legal or equitable. But one would wish to hear further argument on this or any other suggested exception, in a case where it was directly relevant, before deciding this. 25. The judge found that his purpose was "wealth protection and the avoidance of tax". Part II of the Matrimonial Causes Act 1973 confers wide powers on the court to order ancillary relief in matrimonial proceedings. There is nothing in the language, the history, or indeed the Report of the Law Commission which led to the 1970 Act (Law Com No 25), to suggest that those words should be read to include "property over which the first-mentioned party has such control that he could cause himself to become entitled, either in possession or reversion". But it does not follow that the courts will stop at nothing in their pursuit of that end, and there are a number of principled reasons for declining to give the section the effect that the judge gave it. Section 45 gave the court power, when granting a decree of divorce on the ground of the wife's adultery, to settle such property for the benefit of the husband and/or the children of the marriage. BACKGROUND TO THE APPEAL. He could justly have added that it is not just legally but economically fundamental, since limited companies have been the principal unit of commercial life for more than a century. Writing extra-judicially, Lord Templeman referred to the principle in Salomon as the "unyielding rock" on which company law is constructed, and on which "complicated arguments" might ultimately become "shipwrecked"- Forty Years On (1990) 11 Co Law 10.67. Most of the judge's findings of fact were directed to two questions which are no longer in dispute, namely whether the husband owned the Petrodel Group and what was the value of his assets. 72. In Constitution Insurance Co of Canada v Kosmopoulos [1987] 1 SCR 2, 10, Justice Wilson in the Supreme Court of Canada said that "[t]he law on when a court may ... '[lift] the corporate veil' ... follows no consistent principle". Lord Hanworth did not explain why the injunction should issue against the company, but I think it is clear from the judgments of Lawrence and Romer LJJ, at pp 965 and 969, that they were applying the evasion principle. Its directors acted on his instructions. The law in this area has been rife with conflicting principles and many commentators felt that the Supreme Court decision in Prest v Petrodel provided a unique opportunity 3 to resolve the “never ending story” 4 of when the corporate veil can be pierced. Because the restrictive covenant prevented Mr Horne from competing with his former employers whether as principal or as agent for another, it did not matter whether the business belonged to him or to JM Horne & Co Ltd provided that he was carrying it on. In addition, PRL was the legal owner of five residential properties in the United Kingdom and Vermont is the legal owner of two more. �tq�X)I)B>==���� �ȉ��9. Its sole function in that period appears to have been to hold title to the matrimonial home at 16, Warwick Avenue in London and five residential investment properties in London, and to act as a channel for funding property purchases by other companies of the group. But where, say, the terms of acquisition and occupation of the matrimonial home are arranged between the husband in his personal capacity and the husband in his capacity as the sole effective agent of the company (or someone else acting at his direction), judges exercising family jurisdiction are entitled to be sceptical about whether the terms of occupation are really what they are said to be, or are simply a sham to conceal the reality of the husband's beneficial ownership.Nuptial settlement53. It should be noted that he decreed specific performance against the company notwithstanding that as a result of the transaction, the company's main creditor, namely the bank, was prejudiced by its loss of what appears from the report to have been its sole asset apart from a possible personal claim against Mr Lipman which he may or may not have been in a position to meet. However, I can see considerable force in the view that it is appropriate for us to address those matters now. The judge found that the husband had "unrestricted access" to the companies' assets, unconfined by any board control or by any scruples about the legality of his drawings. "q��Պ�Z��r�6�w"~i�6Q� ��9D�61��3�v�:-��d6%�ոD���ڠuv���=�{��,�OP�µ�t;��Zyh�F�"mM�O��k9Z��>�R���Xp���4���N���6�%��H(YТ'�Q.�9�b�%Z%�0Dz�ME�k�)�ݜ}��A��b;��38���U�c��8+{�߬��Sj���"�q?�-a�wt�}h"�9�����!��y��>��5w�-[��3کu�6Oҟ[�������v�� UD��n�t��� ��2SO�)fj�^�-Wb�Յ >��W ����7�E�iU���|#Y�,�w�� I��5�D=�%ڤ�6������v�E8�M� u It had been bought in March of that year for £48,650 in Michel's name. For some years it has been the practice of the Family Division to treat the assets of companies substantially owned by one party to the marriage as available for distribution under section 24 of the Matrimonial Causes Act, provided that the remaining assets of the company are sufficient to satisfy its creditors. �|@"��*�� Pb����"ऊ��]C� W� I do therefore welcome the full discussion in the judgments of Lord Neuberger, Lady Hale, Lord Mance and Lord Sumption.106. The case was decided on its facts, but at p 96, Lord Keith, delivering the leading speech, observed that "it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere facade concealing the true facts."21. $E}k���yh�y�Rm��333��������:� }�=#�v����ʉe In Ben Hashem v Al Shayif [2009] 1 FLR 115, another decision of Munby J, the difference between the approach taken in the Family Division and in other divisions of the High Court arose in a particularly acute form, because he was hearing the claim for ancillary relief in conjunction with proceedings in the Chancery Division. The judge, however, made extensive findings about this. This is a legitimate tactical move under our adversarial system of litigation. It is not an abuse to rely upon the fact (if it is a fact) that a liability is not the controller's because it is the company's. Introcom was owned and controlled by a Liechtenstein trust of which Mr Smallbone was a beneficiary. Since PRL had not begun operations at that stage, I infer that the purchase money must have come from the husband. There was also a second home in Nevis. Section 23 provides for periodical and lump sum payments to a spouse or for the benefit of children of the marriage. Many of the assets (primarily properties in London) were held by overseas companies controlled by the husband. Flat 5, 27 Abbey Road was transferred to PRL by the husband's younger brother Michel. It is true that this will not always be possible, particularly in cases like this one where the shareholder and the company are both resident abroad in places which may not give direct effect to the orders of the English court. endstream endobj 21 0 obj <>stream Secondly, a transfer of this kind will ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets of the marriage. Transformed into legal language, they were his agents to do as he commanded. Whatever the husband's reasons for organising things in that way, there is no evidence that he was seeking to avoid any obligation which is relevant in these proceedings. In Gencor ACP Ltd v Dalby [2000] 2 BCLC 734, the plaintiff made a large number of claims against a former director, Mr Dalby, for misappropriating its funds. Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 2 AC 415; [2013] 3 WLR 1 This case summary discusses the UK Supreme Court case of Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 2 AC 415; [2013] 3 WLR 1 in which the majority held that the corporate veil … Another was to take funds from the companies whenever he wished, without right or company authority. This contention, which has been repeated before us, raises a question of some importance. An "entitlement" is a legal right in respect of the property in question. Only then will they constitute property to which the husband is "entitled, either in possession or reversion." An order for specific performance would have required Lipman not merely to convey the property in question to the plaintiffs, but to do everything which was reasonably within his power to ensure that the property was so conveyed – see eg Wroth v Tyler [1974] Ch 30, 47-51. Lord Sumption refers to the process compendiously as "disregarding the separate personality of the company" at para 16. This appeal arises out of proceedings for financial remedies following a divorce between Michael and Yasmin Prest. But for the court to deploy its authority to authorise the appropriation of the company's assets to satisfy a personal liability of its shareholder to his wife, in circumstances where the company has not only not consented to that course but vigorously opposed it, would, as it seems to me, be an even more remarkable break with principle.42. They may simply be examples of the principle that the individuals who operate limited companies should not be allowed to take unconscionable advantage of the people with whom they do business. … There is nothing in the judgments in Gilford Motor to suggest that any member of the Court of Appeal thought that he was making new law, let alone cutting into the well-established and simple principle laid down in Salomon. A good deal therefore depends upon what presumptions may properly be made against the husband given that the defective character of the material is almost entirely due to his persistent obstruction and mendacity.44. The decision of the International Court of Justice in In re Barcelona Traction, Light and Power Co, Ltd [1970] ICJ 3 recognises the doctrine; however, that is in the context of a civil law system which includes the principle of abuse of rights, and begs the question whether, in a common law system, the doctrine should be applicable by the courts in the absence of specific legislative sanction;ii. In the converse case, where it is sought to convert the personal liability of the owner or controller into a liability of the company, it is usually more appropriate to rely upon the concepts of agency and of the "directing mind".93. In these circumstances it is not strictly necessary for this Court to add further general comments on the vexed question of piercing the corporate veil. Lord Sumption may be right to say that it will only be done in a case of evasion, as opposed to concealment, where it is not necessary. There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party's failure to rebut it. It was simply an application of the principle summarised by the Vice-Chancellor at para 19 of his judgment, that receipt by a company will count as receipt by the shareholder if the company received it as his agent or nominee, but not if it received it in its own right. I would only emphasise the special nature of proceedings for financial relief and property adjustment under the Matrimonial Causes Act, which he explains in para 45. In the present case, Moylan J held that he could not pierce the corporate veil under the general law without some relevant impropriety, and declined to find that there was any. As the appellants elected to call none of the persons who patrolled the line there is nothing to rebut the inference that they did not lack the common sense to realise the danger. There is no information about the consideration paid either in 1996 or in 1998. New Judgment: Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34. The judge's findings: the companies10. Stone & Rolls Ltd v Moore Stephens (a firm) [2009] AC 1391 is an example of going behind the separate legal personality of the company in order to "get at" the person who owned and controlled it, not for the purpose of suing him, but in order to attribute his knowledge to the company so that its auditors could raise a defence of ex turpi causa to the company's allegation that they had negligently failed to detect the fraudulent nature of its business.96. Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 is a leading UK company law decision of the UK Supreme Court concerning the nature of the doctrine of piercing the corporate veil, resulting trusts and equitable proprietary remedies in the context of English family law. The husband's evidence was that it began to ship crude oil in 2010. Most advanced legal systems recognise corporate legal personality while acknowledging some limits to its logical implications. In any event, it seems to me that the decision in Gilford Motor that an injunction should be granted against the company was amply justified on the basis that the company was Horne's agent for the purpose of carrying on the business (just as his wife would have been, if he had used her as the "cloak"); therefore, if an injunction was justified against Horne, it was justified against the company. I therefore disagree with the Court of Appeal in VTB Capital who suggested otherwise at para 79. The separate personality and property of a company is sometimes described as a fiction, and in a sense it is. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.26. There are two charges on the property, in favour of Ahli United Bank and BNP Paribas, apparently to secure loans made to PRL. That package included, in section 4(a) of the Matrimonial Proceedings and Property Act 1970, the power to order either spouse to transfer to the other "property to which the first-mentioned party is entitled, either in possession or reversion". The evasion principle was not engaged, and indeed could not have been engaged on the facts of either case. But the objection would have been just as strong if the liability in question had not been consensual.35. where a person who owns and controls a company is said in certain circumstances to be identified with it in law by virtue of that ownership and control. The family finances will commonly have been the responsibility of the husband, so that although technically a claimant, the wife is in reality dependent on the disclosure and evidence of the husband to ascertain the extent of her proper claim. The authorities show that there are limited circumstances in which the law treats the use of a company as a means of evading the law as dishonest for this purpose.19. I do not doubt that the construction of section 24(1)(a) of the Act is informed by its purpose and its social context, as well as by its language. However, I have reached the conclusion that it would be wrong to discard a doctrine which, while it has been criticised by judges and academics, has been generally assumed to exist in all common law jurisdictions, and represents a potentially valuable judicial tool to undo wrongdoing in some cases, where no other principle is available. In the end, it did not matter, because the judge cut through the complexities of the corporate structure by accepting the evidence of the wife and Mr Le Breton that the husband was the true owner of the Petrodel Group, as he had always told them he was, even if the exact means by which he held it remained obscure. 95. Nor do I doubt that the object is to achieve a proper division of the assets of the marriage. Lord Neuberger, Lord Walker, Lady Hale, Lord Mance, Lord Clarke, Lord Wilson, Lord Sumption. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage upon its dissolution. That leaves the two London properties (Flat 310, Pavilion Apartments and 11, South Lodge, Circus Road) which were acquired in the name of Vermont for substantial consideration, in July 2001 and January 2004 respectively. This is the second case in the space of a few months when the doctrine has been invoked before this court on what are, on any view, inappropriate grounds. All the disclosed accounts are now very much out of date. The words "entitled to any property either in possession or reversion" first appeared in the Matrimonial Causes Act 1857, which introduced judicial divorce to the law of England and Wales. r(��s}IQ>��Z�� :pZ��`�K��XM 10% of the money ordered to be paid on account of costs has been paid by the three respondents, but only in order to satisfy a condition imposed on them upon their being granted leave to appeal to the Court of Appeal. References to a "facade" or "sham" beg too many questions to provide a satisfactory answer. The wife's evidence was that, at the time, Michel was a student in London with no substantial assets of his own who was being supported by her husband. I infer that the funds were provided to PRL by the husband. If it does not exist, it does not exist anywhere. That in turn suggests that proper disclosure of the facts would reveal them to have been held beneficially by the husband, as the wife has alleged.48. They were Petrodel Resources Ltd ("PRL"), Petrodel Resources (Nigeria) Ltd ("PRL Nigeria"), Petrodel Upstream Ltd ("Upstream"), Vermont Petroleum Ltd ("Vermont"), Elysium Diem Ltd, Petrodel Resources (Nevis) Ltd ("PRL Nevis") and Elysium Diem Ltd (Nevis). I also think that provided the limits are recognised and respected, it is consistent with the general approach of English law to the problems raised by the use of legal concepts to defeat mandatory rules of law.28. For present purposes the claim which matters is a claim for an account of a secret profit which Mr Dalby procured to be paid by a third party, Balfour Beatty, to a BVI company under his control called Burnstead. The leasehold interest in Flat 2, 143 Ashmore Road was transferred to PRL by the wife. So far as piercing the corporate veil is concerned, the court's reasons were given by Lord Neuberger. In civil law jurisdictions, the juridical basis of the exceptions is generally the concept of abuse of rights, to which the International Court of Justice was referring in In re Barcelona Traction, Light and Power Co Ltd [1970] ICJ 3 when it derived from municipal law a limited principle permitting the piercing of the corporate veil in cases of misuse, fraud, malfeasance or evasion of legal obligations. This showed that it was "a mere channel used by the defendant Horne for the purpose of enabling him, for his own benefit, to obtain the advantage of the customers of the plaintiff company, and that therefore the defendant company ought to be restrained as well as the defendant Horne." The effect of the judge's order in this case was to make the wife a secured creditor. The judge accepted that as a matter of company law, the husband as shareholder had no more than a right of participation in accordance with the company's constitution, and that that did not confer any right to any particular property of the company. Mr Smallbone's ownership and control of Introcom was only one of those facts, not in itself conclusive. I also agree that Munby J was correct in Ben Hashem v Al Shayif [2009] 1 FLR 115 to suggest that the court only has power to pierce the corporate veil when all other more conventional remedies have proved to be of no assistance. He considered that the judge had rejected both of these possibilities on the facts, and that he ought not therefore to have made the order. It is only right to acknowledge that this limited doctrine may not, on analysis, be limited to piercing the corporate veil. It has rights and liabilities of its own which are distinct from those of its shareholders. The judge found that the purchase price was also derived from PRL. Judges in the United States have also been critical, even though the doctrine has been invoked and developed to a much greater extent than in this jurisdiction. Connell J made such an order in Green v Green [1993] 1 FLR 326. This may be thought hard on the bank, but it is no harder than a finding that the company was not the beneficial owner at all. Like lightning, it is rare, severe, and unprincipled". This article first examines the implications of Petrodel from a family law perspective and goes on to consider the use of FICs as vehicles for separating control and ownership in a tax-efficient manner. The argument is that that is a power which can, because the husband owns and controls these companies, be exercised against the companies themselves. Both have dual Nigerian and British nationality. It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them.