Protected Legal Interest In Prest V Petrodel Resources Ltd.

Issues and Facts in Prest v Petrodel Resources Ltd.

One of the reasons that make case of Prest v Petrodel Resources Ltd.[1] important is that there are many legal problems and issues. In accordance with the principle of separate legal personality, there are issues related to company law. There are issues related to family law due to matrimonial processes. There are also commercial law issues due to insolvency and resulting trust. These should be taken into consideration when considering and examining this case.

Mr. Prest had been ordered to make a payment with a settlement for his wife during the divorce process. Mrs. Prest wanted to include everything in that ancillary relief that she thinks Mr. Prest owns and controls; her husband’s Petrodel Group of Companies (including companies on the Isle of Man and oil exploration companies), matrimonial homes and other properties in London. The problem for Mrs. Prest was that, although her husband owned shares in the companies (or at least, according to the limited information obtained from Mr.Prest due to refusing to cooperate with the court), these companies were in accordance with the Salomon principle, each one had a separate legal personality and because of that reason companies weren’t responsible for Mr.Prest’s liabilities. In other words, the properties mentioned were not at the disposal of Mr. Prest. The corporate veil had to be pierced in order to give the property to Mrs. Prest. The case was first heard in the family court. According to the law envisaged to help divorced spouses for applying to an ancillary relief, Moylan LJ said that although it is not a general principle for lifting the veil of corporate personality, it is possible under the law of  section 24(1)(a) of the Matrimonial Causes Act.[2]  After these three companies, of which Mr. Prest holds a majority, appealed and claimed that the Salomon principle was abused. In the Court of Appeal Patten LJ said that “…amounts almost to a separate system of legal rules unaffected by the relevant principles of English property and company law and must cease.”[3] Thus, court decided to not pierce the corporate veil. This time Mrs. Prest appealed this decision to a higher degree court which is the Supreme Court.

Trial Process and the Views of Judges During Judgment

Trial Process

The Supreme Court overturned the Court of Appeals decision unanimously. Lord Sumption, one of the leading judges, considered the conditions are inadequate to be allowed to pierce the corporate veil.[4] In this complexity, Lord Sumption argued that to implementing the doctrine of piercing the corporate veil in the case of Adams v Cape Industries Plc.[5] was too much and when practicing this doctrine there should be an evidence of the act of fraud had to be found. He said that this principle came from the case of Trustor AB v Smallbone[6] and that the act of fraud was used as a tool to conceal the real owner of the property in sham or façade. Lord Sumption, however, argued that the terms of the sham or façade should be replaced by evasion and concealment.[7] That in case the liability is concealed; as Lord Neuberger says, all it needs to look behind the veil to find the real actors.[8] Lord Sumption mentioned this principle was taken by Lord Neuberger in the case of VTB Capital plc v Nutritek International Corporation[9] and it was not necessary to pierce the corporate veil just as it would not make sense in the case of Prest v Petrodel Resources Ltd.[10] too. In the case of Prest v Petrodel Resources Ltd.[11] piercing the corporate veil may be possible in case of evasion of a certain responsibility, and even if it is not sufficient by itself alone, it is often necessary to seek another remedy.[12] With trust principles in the case, Mrs. Prest was secured and the practice of piercing the corporate veil doctrine abandoned. Thus, the case of Prest v Petrodel Resources Ltd.[13] has clarified a very important principle. Even though the conditions to pierce the corporate veil is provided in the case; it has come to the agenda that this proper conditions will not prevent the search for other remedies and it showed that it interests the law by taking the decision of piercing the corporate veil as late as possible.[14]

Judges Views

Despite the clarity of Lord Sumption’s decision, the Supreme Court did not fully accept this new approach. In fact, the limits of these two principles, which have been re-established with regard to the piercing the corporate veil, have been controversially approached.

Lord Neuberger, who participated in the analysis of Lord Sumption, also reiterated that this doctrine can be applied when all other remedies are over.[15] Thus, he acted against the decision in the case of VTB Capital Plc v Nutritek International Corporation[16] taken by Court of Appeal. Moreover, Lord Neuberger’s decision consists of inquiries as to whether the doctrine actually exists and the extent to which it applies. Although he thinks that it is beneficial for the Supreme Court to practice this doctrine when there is a wrongdoing[17], it is generally thought to create hesitation. Furthermore, the fact that the company’s control as an agent or trustee under the control of the individual; does not always imply that this doctrine should be applied.[18]

Lady Hale (with whom Lord Wilson agreed) questioned the difference between the principles of concealment and evasion draw by Lord Sumption. He also argued that there may be a principle that individuals managing limited companies should not benefit from the people they do business with.[19] She has also clarified the distinction between piercing the corporate veil to pursue a single individual and converting the responsibility of an individual into company responsibility.

Lord Mance participated in the definitions put forward by Lord Sumption and added by Lord Neuberger. He has clearly demonstrated his will to expand the doctrine. But he also mentioned that this enlargement would lead to longer processes on behalf of the court.

Lord Clarke likewise decided that this doctrine should be used as a last resort principle in line with the additions of Lord Sumption and Lord Neuberger.[20]

Finally, while Lord Walker acknowledges the existence of the doctrine, he argued the line which the court distinguishes between individuals and companies that put forward in the case of Salomon v A Salomon and Co Ltd.[21]; and he also added that it is nothing but a label.[22]

[1] [2013] UKSC 34

[2] Matrimonial Causes Act 1973

[3] Prest v Petrodel Resources Limited [2013] UKSC 34, Patten LJ at [161]

[4] Prest v Petrodel Resources Limited [2013] UKSC 34, Lord Sumption at [19]

[5] [1990] Ch 433 (CA)

[6] [2001] 3 All ER 987

[7] Prest v Petrodel Resources Limited [2013] UKSC 34, Lord Sumption at [29]

[8] Ibid, Lord Neuberger at [61]

[9] [2013] UKSC 5

[10] [2013] UKSC 34

[11] Ibid

[12] Prest v Petrodel Resources Limited [2013] UKSC 34, Lord Sumption at [53]

[13] [2013] UKSC 34

[14] Prest v Petrodel Resources Limited [2013] UKSC 34, Lord Sumption at [61]

[15] Prest v Petrodel Resources Limited [2013] UKSC 34, [62]

[16] [2013] UKSC 5

[17]  Prest v Petrodel Resources Limited [2013] UKSC 34, [80]

[18] Ibid, [83]

[19] Ibid, [92]

[20] Ibid, [103]

[21] [1897] AC 22

[22] Prest v Petrodel Resources Limited [2013] UKSC 34, [106]