The judge described this as "puzzling" but made no finding as to whether it was true. !� 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. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. The husband's evidence was that the shares of PRL Nevis were owned by its own subsidiary PRL Nigeria. There is only one law of 'sham', to be applied equally in all three Divisions of the High Court, just as there is but one set of principles, again equally applicable in all three divisions, determining whether or not it is appropriate to 'pierce the corporate veil'". But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company. The issue requires an examination of evidence which is incomplete and in critical respects obscure. 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. But when we speak of piercing the corporate veil, we are not (or should not be) speaking of any of these situations, but only of those cases which are true exceptions to the rule in Salomon v A Salomon and Co Ltd [1897] AC 22, i.e. ... At any rate, it was up to him to show that any one else had a say in their affairs and he never did so: cf Gilford". 17. 16 0 obj <> endobj But for my part I think it would be a lost opportunity - even perhaps a minor dereliction of duty - if we were to abstain from any further comment. Whether that is characterised as a common law rule or a consequence of the companies legislation (or an amalgam of both), it is a very well established principle of long standing and high authority. The Supreme Court has just handed down its judgment in the landmark case of Prest v. Petrodel. 11, South Lodge, Circus Road, was bought in the name of Vermont for £700,000. 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. However, if either or both those points were correct, it would not undermine Lord Sumption's characterisation of the doctrine: it would, if anything, serve to confirm the existence of the doctrine, albeit as an aspect of a more conventional principle. It does not follow that JM Horne & Co Ltd was to be identified with Mr Horne for any other purpose. Since no explanation has been forthcoming for the gratuitous transfer of these properties to PRL, there is nothing to rebut the ordinary presumption of equity that PRL was not intended to acquire a beneficial interest in them. endstream endobj 20 0 obj <>stream The judge's findings about the ownership and control of the companies mean that the companies' refusal to co-operate with these proceedings is a course ultimately adopted on the direction of the husband. The Vice-Chancellor's statement of principle at para 23 that the court was entitled to pierce the corporate veil if the company was used as a "device or facade to conceal the true facts thereby avoiding or concealing any liability of those individual(s)" elides the quite different concepts of concealment and avoidance. Flat 5, 27 Abbey Road was transferred to PRL by the husband's younger brother Michel. But he adopted, as it seems to me, both the general reasoning of the Court of Appeal and the view of Munby J that any doctrine permitting the court to pierce the corporate veil must be limited to cases where there was a relevant impropriety: see paras 128, 145.27. Petrodel. The Supreme Court ordered that seven disputed properties, owned by companies controlled by Mr Prest, be transferred to Mrs Prest in partial satisfaction of their £17.5 million divorce settlement. It is difficult to imagine that any commercial partners could enjoy rights of confidence over information concerning residential investment properties in London, and on the judge's findings the only shareholder was the husband himself. To decide that question, it was necessary to establish the facts which demonstrated the true legal relationship between Mr Smallbone and Introcom. If 11, South Lodge was the exception, then it was a break with past practice. The judge recorded the wife's evidence that the husband had once advised her that if anything were to happen to him, she should sell all the properties, move to Nevis and use the proceeds of sale to meet her living expenses there.47. 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 divorcing couple, Mr … The same legal incidents will not necessarily apply if they are not. 26 0 obj <>/Filter/FlateDecode/ID[<6DD5C0427EA31A394BE6BB89A85FEF3A>]/Index[16 24]/Info 15 0 R/Length 71/Prev 103603/Root 17 0 R/Size 40/Type/XRef/W[1 3 1]>>stream 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. Burnstead itself was liable to account to ACP because, as the judge went on to point out, Mr Dalby's knowledge of the prior equitable interest of ACP was to be imputed to it. The only relevance of the interposition of the company was to maintain the pretence that it was being carried on by others. 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. Of course, structures can be devised which give a different impression, and some of them will be entirely genuine. The most important of those cases are discussed by Lord Sumption in paras 20-3 5 above. 72. The situation was not the same as it had been in Gilford Motor Co v Horne and Jones v Lipman, for in these cases the real actors, Mr Horne and Mr Lipman, had a liability which arose independently of the involvement of the company.34. There may have been good reasons for not imposing such terms, but on the face of it the possibility was not even considered.Conclusion55. 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. It also chimes with Justice Cardozo's reference to the "mists of metaphor" in company law, which, "starting as devices to liberate thought, ... end often by enslaving it", in Berkey v Third Ave Ry 155 NE 58, 61 (1926).79. But judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing. The group was "effectively ... the husband's money box which he uses at will. Against this background, there are three possible legal bases on which the assets of the Petrodel companies might be available to satisfy the lump sum order against the husband: (1) It might be said that this is a case in which, exceptionally, a court is at liberty to disregard the corporate veil in order to give effective relief. Appeal to the Supreme Court by a wife concerning properties vested in several companies and whether they could be treated in ancillary relief proceedings as beneficially belonging to the husband. In Prest v Petrodel [2013] UKSC 34 the English Supreme Court undertook a review of the principles of English law which determine in what circumstances, if any, a court may set aside the separate legal personality of a company from its members and attribute to its members the legal consequences of the company’s acts. 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. 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. But the case is authority for what it decided, not for what it might have decided, and in my view the principle which the Court of Appeal applied was correct. �|@"��*�� Pb����"ऊ��]C� W� (3) The companies might be regarded as holding the properties on trust for the husband, not by virtue of his status as their sole shareholder and controller, but in the particular circumstances of this case. If it had been, there might have been an argument that the exception for bona fide purchasers for value contained in section 3 7(4) did not apply to a company where the controlling mind was acting with that intention. But it has been applied altogether more generally, in cases which can be rationalised only on grounds of public policy, for example to justify setting aside a public act such as a judgment, which is in no sense consensual, a jurisdiction which has existed since at least 1775: Duchess of Kingston's Case (1776) 2 Smith's LC, 13th ed, 644, 646, 651. The judge found that the matrimonial home was held by PRL on trust for the husband, but he made no corresponding finding about the seven other properties and refused to make a declaration that the husband was their beneficial owner. The principal parties before the judge, Moylan J, were Michael and Yasmin Prest. It is a fair inference from all these facts, taken cumulatively, that the main, if not the only, reason for the companies' failure to co-operate is to protect the London properties. 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. It is a very specific statutory power to order one spouse to transfer property to which he is legally entitled to the other spouse. It is simply a label - often, as Lord Sumption observes, used indiscriminately - to describe the disparate occasions on which some rule of law produces apparent exceptions to the principle of the separate juristic personality of a body corporate reaffirmed by the House of Lords in Salomon v A Salomon and Co Ltd [1897] AC 22. It follows that the piercing of the corporate veil cannot be justified in this case by reference to any general principle of law.Section 24(1)(a) of the Matrimonial Causes Act 197337. After examining the relevant findings about the acquisition of the seven disputed properties, the Court finds that the most plausible inference from the known facts was that each of the properties was held on resulting trust by the companies for the husband. Neutral citation number [2013] UKSC 34. Secondly, a transfer of this kind will ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets of the marriage. The words are those of Lord Atkin in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, 103 1-1032, but the principle is very familiar and has been restated by the courts in many contexts and at every level. So far as piercing the corporate veil is concerned, the court's reasons were given by Lord Neuberger. endstream endobj 17 0 obj <> endobj 18 0 obj <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageC]/XObject<>>>/Rotate 0/Tabs/S/Type/Page>> endobj 19 0 obj <>stream For years after it was decided, Cape Industries was regarded as having settled the general law on the subject. Since the decision in Salomon, there have been a number of cases where the courts have considered "piercing" or "lifting" the corporate veil. There is no information about the consideration paid either in 1996 or in 1998. [45]. r(��s}IQ>��Z�� :pZ��`�K��XM 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. This keeps people in the dark about the legal consequences of their acts ... ". Any discussion about the doctrine must begin with the decision in Salomon v A Salomon and Co Ltd [1897] AC 22, in which a unanimous House of Lords reached a clear and principled decision, which has stood unimpeached for over a century. The judge rejected his explanation that his health was not up to it. However, I can see considerable force in the view that it is appropriate for us to address those matters now. The judge found that PRL had always held this property on trust for the husband and that conclusion is not challenged on this appeal. 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. 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.65. That may affect the amount of any lump sum or periodical payment orders, or the decision what transfers to order of other property which unquestionably belongs to the relevant spouse. )ɩL^6 �g�,qm�"[�Z[Z��~Q����7%��"� I infer for the same reason that PRL was funded by the husband. 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. It had been found at the earlier stage of the litigation that Introcom was "simply a vehicle Mr Smallbone used for receiving money from Trustor", and that the company was a "device or facade" for concealing that fact. Section 24 cannot be construed as if it were directed to that problem. This was the main basis on which the judge found that the matrimonial home was held on trust for the husband from its acquisition in 2001. 39 0 obj <>stream 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. 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. The judge rejected his excuse that he was in bad health, and found that he was "unwilling rather than unable to attend court." Otherwise, apart from paying the children's school fees, the husband has not complied with any part of Moylan J's order and shows no intention of doing so if he can possibly avoid it.The issues8. Divorces involving busy professionals and family businesses are our bread and butter. In this case, the husband's conduct of the proceedings has been characterised by persistent obstruction, obfuscation and deceit, and a contumelious refusal to comply with rules of court and specific orders. I do not accept this, any more than the Court of Appeal did. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage upon its dissolution. On that footing, the company received the money on Mr Smallbone's behalf. 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. Where assets belong to a company owned by one party to the marriage, the proper claims of the other can ordinarily be satisfied by directing the transfer of the shares. In an age of internationally mobile spouses and assets this is a more significant problem than it once was, but such cases remain the exception rather than the rule. There is a statutory power to set aside certain dispositions made with the intention of defeating a claim for financial provision or property adjustment in section 37 of the Matrimonial Causes Act 1973. 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. At para 21, he observed: "In this sense, and to this limited extent, the typical case in the Family Division may differ from the typical case in (say) the Chancery Division. 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. Flat 6, 62-64 Beethoven Street was transferred to PRL by the husband for £85,000. The Court inferred that the reason for the companies' failure to co-operate was to protect the properties, which suggested that proper disclosure would reveal them to beneficially owned by the husband [47]. In Gilford Motor, the legal argument at first instance and on appeal seems to have concentrated on the validity of the restrictive covenant (see at [1933] Ch 935, 936-93 7 and 950-952). The ownership of the respondent companies proved to be more difficult to establish. The only question is who did hold the beneficial interest. In the upshot, the only cases which Lord Sumption identifies in which a principle of "piercing the veil" can be said to have been critical to the reasoning can be rationalised as falling within what he describes as the evasion principle. 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". The Vice-Chancellor concluded that the authorities supported the submission in case (i), and also in case (ii) provided that the impropriety was a relevant one, i.e. In Nicholas v Nicholas [1984] FLR 285, the Court of Appeal (Cumming-Bruce and Dillon LJJ) overturned the decision of the judge to order 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, he declined to decide whether the consensus was right on an appeal from an interlocutory decision, given that, like the Court of Appeal, he considered that even if the veil were pierced the result would not be to make a company's controllers party to its contracts with third parties. They can conveniently be called the concealment principle and the evasion principle. The judge ordered the husband to procure the transfer of the seven UK properties legally owned by PRL and Vermont to the wife in partial satisfaction of the lump sum order. The companies were joined to these proceedings only because they were alleged to be trustees for the husband of the shareholdings and the properties and because orders were being sought for their transfer to the wife. 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. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. This has significant practical implications. His conclusion that they are all in the beneficial ownership of Mr Prest is in my view irresistible, based as it is on positive evidence of the sources from which the purchases were funded, as well as on inferences drawn from the failure of Mr Murphy, a director of PRL, to attend court for cross-examination. Lord Buckmaster, at pp 626-627 said: "no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. The property is charged to secure the loans made to Ahli United Bank and BNP Paribas. I agree that this appeal should succeed, on the basis that the properties in question were held by the respondent companies on trust for the husband. In this connection, I have however in mind that, in giving the recent Privy Council judgment in La Générale des Carrières et des Mines v FG Hemisphere Associates LLC [2012] UKPC 27, I said at para 77 (in a context where Gécamines was a state corporation, not susceptible of being wound up): "The alternative way in which Hemisphere puts its case is to submit that, if Gécamines is otherwise accepted as a separate juridical entity, the facts found justify the lifting of the corporate veil to enable Hemisphere to pursue Gécamines as well as the State. His conclusion was that "as a result of the husband's abject failure to comply with his disclosure obligations and to comply with orders made by the court during the course of these proceedings, I do not have the evidence which would enable me to assemble a conventional schedule of assets." The intention will normally be that the spouse in control of the company intends to retain a degree of control over the matrimonial home which is not consistent with the company's beneficial ownership. 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. At an earlier stage of the litigation, Trustor had obtained summary judgment on some of its claims against Introcom, on the footing that the payments were unauthorised and a breach of Mr Smallbone's duty as managing director, that the company was "simply a vehicle Mr Smallbone used for receiving money from Trustor", and that his knowledge could be imputed to the company. The recent Supreme Court judgment in Prest v Petrodel has prompted an avalanche of comment in the legal literature ‒ much of it on the implications for corporate rather than family law. The court was asked as to the power of the court to order the transfer of assets owned entirely in the company’s names. Subject to very limited exceptions, most of which are statutory, a company is a legal entity distinct from its shareholders. For specific statutory purposes, a company's legal responsibility may be engaged by the acts or business of an associated company. 85. The only evidence on behalf of the respondent companies was an affidavit sworn by Mr Jack Murphy, a director of PRL and the corporate secretary of the three respondent companies, who failed to attend for cross-examination on it. The decision in Salomon plainly represents a substantial obstacle in the way of an argument that the veil of incorporation can be pierced. Vermont was and possibly still is a trading company. Fraud unravels everything. 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. The exact nature of Upstream's business (if any) is unclear. But there are a few cases where the courts have apparently been prepared to disregard the separate personality of a company in order to grant a remedy, not only against the company, but also against the individual who owns and/or controls it. If there is no justification as a matter of general legal principle for piercing the corporate veil, I find it impossible to say that a special and wider principle applies in matrimonial proceedings by virtue of section 24(1)(a) of the Matrimonial Causes Act 1973.