Prest v Petrodel Resources Ltd and Others: SC 12 Jun 2013

In the course of ancillary relief proceedings in a divorce, questions arose regarding company assets owned by the husband. The court was asked as to the power of the court to order the transfer of assets owned entirely in the company’s names. The judge had made such an order, finding evidence that the companies had been used to attempt to circumvent the divorce court’s powers.
Held: The appeal succeeded, but on the ground that the properties at issue were held in trust for the wife by the company. The appeal was dismissed as regards her request that the court pierce the company veil.
The principle that the court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in the authorities: ‘there is a limited principle of English law which 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 for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality.’ No wider principle applied in cases under the 1973 Act.
Lord Neuberger set out what he thought of the doctrine that is open to a court, without statutory authority (or, possibly, in the absence of the intention of contracting parties), to pierce the veil of incorporation: ‘It is . . clear from the cases and academic articles that the law relating to the doctrine is unsatisfactory and confused. Those cases and articles appear to me to suggest that (i) there is not a single instance in this jurisdiction where the doctrine has been invoked properly and successfully, (ii) there is doubt as to whether the doctrine should exist, and (iii) it is impossible to discern any coherent approach, applicable principles, or defined limitations to the doctrine.’
Lord Sumption said: ‘The recognition of a jurisdiction such as the judge sought to exercise in this case would cut across the statutory schemes of company and insolvency law. These include elaborate provisions regulating the repayment of capital to shareholders and other forms of reduction of capital, and for the recovery in an insolvency of improper dispositions of the company’s assets. These schemes are essential for the protection of those dealing with a company, particularly where it is a trading company like PRL and Vermont. The effect of the judge’s order in this case was to make the wife a secured creditor. It is no answer to say, as occasionally has been said in cases about ancillary financial relief, that the court will allow for known creditors. The truth is that in the case of a trading company incurring and discharging large liabilities in the ordinary course of business, a court of family jurisdiction is not in a position to conduct the kind of notional liquidation attended by detailed internal investigation and wide publicity which would be necessary to establish what its liabilities are. In the present case, the difficulty is aggravated by the fact that the last financial statements, which are not obviously unreliable, are more than five years old. To some extent that is the fault of the husband and his companies, but that is unlikely to be much comfort to unsatisfied creditors with no knowledge of the state of the shareholder’s marriage or the proceedings in the Family Division. It is clear from the judge’s findings of fact that this particular husband made free with the company’s assets as if they were his own. That was within his power, in the sense that there was no one to stop him. But, as the judge observed, he never stopped to think whether he had any right to act in this way, and in law, he had none. The sole shareholder or the whole body of shareholders may approve a foolish or negligent decision in the ordinary course of business, at least where the company is solvent: Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258. But not even they can validly consent to their own appropriation of the company’s assets for purposes which are not the company’s: Belmont Finance Corpn Ltd v Williams Furniture Ltd [1979] Ch 250, 261 (Buckley LJ), Attorney-General’s Reference (No 2 of 1982) [1984] QB 624, Director of Public Prosecutions v Gomez [1993] AC 442, 496-497 (Lord Browne-Wilkinson). Mr Prest is of course not the first person to ignore the separate personality of his company and pillage its assets, and he will certainly not be the last. 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.
It may be said, as the judge in effect did say, that the way in which the affairs of this company were conducted meant that the corporate veil had no reality. The problem about this is that if, as the judge thought, the property of a company is property to which its sole shareholder is ‘entitled, either in possession or reversion’, then that will be so even in a case where the sole shareholder scrupulously respects the separate personality of the company and the requirements of the Companies Acts, and even in a case where none of the exceptional circumstances that may justify piercing the corporate veil applies. This is a proposition which can be justified only by asserting that the corporate veil does not matter where the husband is in sole control of the company. But that is plainly not the law.’

Lord Neuberger, President, Lord Walker, Lady Hale, Lord Mance, Lord Clarke, Lord Wilson, Lord Sumption
[2013] UKSC 34, [2013] WLR(D) 237, [2013] 3 FCR 210, [2013] 4 All ER 673, [2013] Fam Law 953, [2013] 2 FLR 732, [2013] BCC 571, [2013] 2 AC 415, [2013] WTLR 1249, [2013] 3 WLR 1, UKSC 2013/0004
Bailii, Bailii Summary, SC Summary, SC
Matrimonial Causes Act 1973 23
England and Wales
Appeal fromPetrodel Resources Ltd and Others v Prest and Others CA 26-Oct-2012
The parties had disputed ancillary relief on their divorce. The three companies, each in the substantial ownership of the husband, challenged the orders made against them saying there was no jurisdiction to order their property to be conveyed to the . .
CitedThe Duchess of Kingston’s Case 1-Apr-1776
On plea, sentence in ecclesiastical Court ex directo in a matter properly cognizable there, is conclusive evidence where the same matter comes into question collaterally in a court of law or equity.
A sentence of jactitation is not conclusive . .
CitedSalomon v A Salomon and Company Ltd HL 16-Nov-1896
A Company and its Directors are not same paersons
Mr Salomon had incorporated his long standing personal business of shoe manufacture into a limited company. He held nearly all the shares, and had received debentures on the transfer into the company of his former business. The business failed, and . .
CitedLazarus Estates Ltd v Beasley CA 1956
There was a privative clause in the 1954 Act. A landlord’s declaration under the Act that work of a specified value, supporting an increase in rent, had been carried out on leased premises, could not be questioned after 28 days of its service on the . .
CitedIn re Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) (second phase) ICJ 5-Feb-1970
ICJ The claim arose out of the adjudication in bankruptcy in Spain of Barcelona Traction, a company incorporated in Canada. Its object was to seek reparation for damage alleged by Belgium to have been sustained . .
CitedLonrho Ltd v Shell Petroleum Co Ltd HL 1980
In the absence of a presently enforceable right there was nothing in the court rules for discovery to compel a party to take steps that would enable that party to acquire such a right in the future. Documents of a subsidiary were not in the ‘power’ . .
CitedPuttick v Attorney General etc FD 1980
Astrid Proll, a former member of the Baader-Meinhof gang absconded while awaiting trial in Germany. She entered the UK using a passport which she had bought in the name of Senta Sauerbier, and married Robin Puttick under that name. The German . .
CitedBank of Tokyo Ltd v Karoon (Note) 1986
Robert Goff LJ considering a request for an anti-suit ijunction, said: ‘foreign proceedings are to be viewed as vexatious or oppressive only if there is nothing which can be gained by them over and above what may be gained in local proceeding’. He . .
CitedSecretary of State for Communities and Local Government and Another v Welwyn Hatfield Borough Council SC 6-Apr-2011
The land-owner had planning permission to erect a barn, conditional on its use for agricultural purposes. He built inside it a house and lived there from 2002. In 2006. He then applied for a certificate of lawful use. The inspector allowed it, and . .
CitedWoolfson v Strathclyde Regional Council HL 15-Feb-1978
The House considered the compensation payable on the compulsory purchase of land occupied by the appellant, but held under a company name.
Held: The House declined to allow the principal shareholder of a company to recover compensation for the . .
CitedAdams v Cape Industries plc CA 2-Jan-1990
Proper Use of Corporate Entity to Protect Owner
The defendant was an English company and head of a group engaged in mining asbestos in South Africa. A wholly owned English subsidiary was the worldwide marketing body, which protested the jurisdiction of the United States Federal District Court in . .
CitedNicholas v Nicholas CA 1984
The Court upheld an appeal against an order for the husband to procure the transfer to the wife of a property belonging to a company in which he held a 71% shareholding, the other 29% being held by his business associates. However, both members of . .
CitedGreen v Green FD 1993
In an ancillary relief application, Connell J awarded to the wife assets vested in a limited company whose entire share capital was owned by the husband. . .
CitedMubarak v Mubarak FD 30-Nov-2000
In ancillary relief proceedings, where a respondent company director conceded that the assets and income of a company could be treated as his own, it could be proper to draw aside the veil of incorporation. Nevertheless the court should be careful . .
CriticisedTrustor Ab v Smallbone and Another (No 2) ChD 30-Mar-2001
Directors of one company fraudulently diverted substantial sums to another company owned by one of them. The defrauded company sought return of the funds, from the company and from the second director on the basis that the corporate veil should be . .
CitedKremen v Agrest (No 2) FD 3-Dec-2010
An application was made in ancillary relief case to set aside the transfer of a share in a company said to have been backdated to defeat the court’s jurisdiction.
Held: Mostyn J considered an There was a ‘strong practical reason why the cloak . .
CitedGilford Motor Co Ltd v Horne CA 1933
The defendant was the plaintiff’s former managing director. He was bound by a restrictive covenant after he left them. To avoid the covenant, he formed a company and sought to transact his business through it. At first instance, Farwell J had found . .
CitedA v A FD 29-Jan-2007
Munby J referred to the robust approach which had always been adopted in the Family Division in seeing through sham arrangements designed to hide the ownership of assets of the marriage by vesting them in relatives or companies which were in reality . .
CitedBen Hashem v Ali Shayif and Another FD 22-Sep-2008
The court was asked to pierce the veil of incorporation of a company in the course of ancillary relief proceedings in a divorce. H had failed to co-operate with the court.
After a comprehensive review of all the authorities, Munby J said: ‘The . .
CitedVTB Capital Plc v Nutritek International Corp and Others ChD 29-Nov-2011
The appellant bank had granted very substantial lending facilities to the defendant companies, and now alleged fraudulent misrepresentation. The defendants now sought to have the service set aside. The claimants also sought permission to amend the . .
CitedVTB Capital Plc v Nutritek International Corp and Others CA 20-Jun-2012
The claimant bank said that it had been induced to create very substantial lending facilities by fraudulent misrepresentation by the defendants. They now appealed against findings that England was not clearly or distinctly the appropriate forum for . .
CitedVTB Capital Plc v Nutritek International Corp and Others SC 6-Feb-2013
The claimant bank said that it had been induced to create very substantial lending facilities by fraudulent misrepresentation by the defendants. They now appealed against findings that England was not clearly or distinctly the appropriate forum for . .
CitedJones v Lipman and Another ChD 1962
The defendant had contracted to sell his land. He changed his mind, and formed a company of which he was owner and director, transferred the land to the company, and refused to complete. The plaintiff sought relief.
Held: Specific performance . .
DoubtedGencor ACP Ltd v Dalby ChD 2000
The plaintiff made a large number of claims against a former director, Mr Dalby, for misappropriating its funds. These included a claim for an account of a secret profit which Mr Dalby was said to have been procured to be paid by a third party, . .
CitedBritish Railways Board v Herrington HL 16-Feb-1972
Land-owner’s Possible Duty to Trespassers
The plaintiff, a child had gone through a fence onto the railway line, and been badly injured. The Board knew of the broken fence, but argued that they owed no duty to a trespasser.
Held: Whilst a land-owner owes no general duty of care to a . .
CitedBelmont Finance Corporation Ltd v Williams Furniture Ltd CA 1979
The company directors operated an elaborate scheme to extract value from Belmont by causing it to buy the shares of a company called Maximum at a considerable overvalue. This was a breach of the fiduciary duties of the directors. They sought to . .
CitedMultinational Gas and Petrochemical Co Ltd v Multinational Gas and Petrochemical Services Ltd CA 1983
The court considered the way that the duty of a director to his company arose: ‘The directors indeed stand in a fiduciary relationship to the company, as they are appointed to manage the affairs of the company and they owe fiduciary duties to the . .
CitedAttorney-General’s Reference (No. 2 of 1982) CACD 1984
Two men were charged with theft from a company which they wholly owned and controlled. The court considered the actions of company directors in dishonestly appropriating the property of the company, and whether since the title to the goods was . .
CitedRegina v Inland Revenue Commissioners, Ex parte T C Coombs and Co HL 1991
The House heard an application judicially to review a notice served by an inspector of taxes under section 20 of the 1970 Act, requiring T C Coombs and Co to deliver or make available for inspection documents in their possession relevant to the tax . .
CitedDirector of Public Prosecutions v Gomez HL 3-Dec-1992
The defendant worked as a shop assistant. He had persuaded the manager to accept in payment for goods, two cheques which he knew to be stolen. The CA had decided that since the ownership of the goods was transferred on the sale, no appropriation of . .
CitedWisniewski v Central Manchester Health Authority CA 1997
The court considered the effect of a party failing to bring evidence in support of its case, as regards the court drawing inferences: ‘(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a . .
CitedAtlas Maritime Co SA v Avalon Maritime Ltd (‘the Coral Rose’) (No 1) CA 1991
Whilst it would be wrong to find a principal/agency relationship between a creditor and a debtor which was a shell company whose sole activity was sponsored, funded and controlled by the creditor (a proposition described by Staughton LJ as . .
See AlsoPrest v Prest and Others CA 16-Feb-2012
. .

Cited by:
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CitedGohil v Gohil SC 14-Oct-2015
The Court was asked ‘Do the principles referable to the admissibility of fresh evidence on appeal, as propounded in the decision of the Court of Appeal in Ladd v Marshall [1954] 1 WLR 1489, have any relevance to the determination of a spouse’s . .
See AlsoPrest v Prest FD 28-Jul-2014
W sought H’s committal to prison for failing to pay sums due under the provisions an Order for the payment of periodical payments to the wife for her own benefit and for the benefit of the children of the parties, so accordingly maintenance orders. . .
See AlsoPrest v Prest FD 29-Jul-2014
. .
See AlsoPrest v Prest CA 7-Jul-2015
H appealed against an order made under the 1869 Act as respects arrears under a maintenance order. . .
CitedGoldtrail Travel Ltd v Onur Air Tasimacilik As SC 2-Aug-2017
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Family, Company

Leading Case

Updated: 10 November 2021; Ref: scu.510793