Prest v Petrodel. Veil piercing, corporate veil and the dichotomy introduced by Lord Sumption

The following essay will examine the area of corporate piercing; post- Prest¹ and with the support of case-laws and commentary by critics, it will be demonstrated that besides Prests' efforts , it has immensely failed in its' aims of providing clarity to the law. The following arguments will be discussed: veil piercing as the remedy of last resort; corporate veil is just a label of an existent principle; and the dichotomy introduced by Lord Sumption in evasion and concealment, with support of case laws. Throughout the essay, lack of judicial consensus on the rationale of Prest will signal a cumbersome journey within the doctrine of corporate veil, in English corporate law.² Critics find problems with not only operation of the rule, but with semantics associated with it, as well and this has hugely contributed to the controversy surrounding the rule.³ This essay will ultimately conclude that the judgement in Prest has generated further confusion rather than simplifying the law, and several matters are still unresolved.

The majority including several commentators recognised and took the position that corporate veil should only be 'pierced' as a last resort.⁴ Easterbrook and Fischel- two critics- have observed that "piercing seems to happen freakishly, like lightning, it is rare, severe and unprincipled".⁵ Nonetheless, it is necessary to provide a remedy fora particular wrong which those controlling the company have committed. In the case of Ben Hashem ⁶, Munby J held that the assessment is whether a company is being used as a facade at the time of the relevant transaction(s). A company may well still be a facade even-though, it was not originally incorporated with any deceptive intent. Moreover, it was held that if court pierce the veil for one purpose, it does not mean that it will necessarily be pierced for all purposes. It is worth nothing that the language used was of necessity, not of last resort and needless to say, the test of necessity did not require the remedy to be one of last resort. Similarly, Lloyd LJ's judgement rightly draws the attention towards several cases such as Gilford v Horn e⁷ and Jones v Lipman ⁸, these are some of the many cases, where courts have 'pierced' the corporate veil unnecessarily, because the outcomes were obtainable by other common law principles. For-example, the injunction granted against the company in Gilford is not piercing the corporate veil,⁹ because this could have instead been granted asan equitable remedy on the grounds of tort law.¹⁰

At another similar instance of Wood v Baker, [1] evasion principle was held to justify the conclusion that certain one-man companies were "agents and nominees” of their controlling shareholder.^{11 12} Besides courts having the possibility of comprehending the law and applying remedies available through other ways, the court relied upon evasion, even though it had been refused previously. Likewise, Pennyfeathers ¹³ could have been resolved by Trust law, rather than piercing the veil. This was seen as an odd decision, because even after Lord Sumption had conceived the piercing principle¹⁴ to only apply when it was not possible for the case to be resolved by any other established legal mechanism, this was still not followed, and breach of fiduciary duty was still resolved by piercing the veil. By now, it was clear that piercing principle was being applied in situations, even where separate legal entity and limited liability doctrine should have been given full effect, based on existing common law principles such as trust law.

This was further evident, in the case of Commonwealth Affairs ¹⁵, the court went beyond, and held there was nothing in any authority to justify a more stringent requirement than necessity, by elevating the remedy to being one of last resort.¹⁶ The UK Supreme Court, more recently, in the case of Rugby Football Union ¹⁷ held the same effect, by determining that test of necessity did not require a remedy to be one of last resort.¹⁸ Hence, the suggestion did not support that piercing corporate veil to be only available where other remedies have proved to be of no assistance.

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¹ [2013] UKSC 34

² Dr Hamiisi Junior Nsubuga, Los Watkin, ‘The road to Prest v Petrodel: an analysis of the UK judicial approach to the corporate veil -Part 2: post Prest, I.C.C.L.R. 2020, 31(11), 597-608

³ Edwin Mujih, ‘Piercing the corporate veil as a remedy of last resort after Prest v Petrodel Resources Ltd: inching towards abolition?', Comp. Law. 2016, 37(2), 39-50

⁴ Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [77], quoting F.H Easterbrook and D.H. Fischel, "Limited Liability and the Corporation" (1985) 52 U. Chi. L. Rev. 89, 89.

⁵ Dr Edwin C. Mujih, ‘Piercing the corporate veil as a remedy of last resort after Prest v Petrodel Resources Ltd: inching towards abolition?' Comp. Law. 2016, 37(2), 39-40

⁶ Ben Hashem v Al Shayif [2008] EWHC 2380

⁷ Gilford Motor Co Ltd v Horne [1933] Ch 935.

⁸ [1962] 1 WLR 832

⁹ VTB Capital plc v Nutritek International Corp [2013] UKSC 5 [134].

¹⁰ Charlotte Kouo, ‘Post-Prest Corporate Group Veil Piercing: Alternative Avenues to Justice' (2016) 4(2) Legal Issues Journal 65.

¹¹ [2015] EWHC 2536 (Ch)

¹² Ibid at [32], as per Hodge QC sitting as High Court Judge.

¹³ Pennyfeathers Ltd v Pennyfeathers Co Ltd, [2013] EWHC 3530 (Ch)

¹⁴ Called principle because it is a dispute, had it been a doctrine it would have been more fundamental and strict

¹⁵ R v Secretary of State for Foreign and Commonwealth Affairs [2008] EWHC 2048

¹⁶ Ibidat [94].

¹⁷ Rugby Football Union v Consolidated Information Services Ltd [2012] UKSC 55, [2012] 1 W.L.R. 3333 (SC)

¹⁸ PrestvPetrodel[2013] UKSC 34; [2013] 2 A.C. 415 at [77], quoting F.H Easterbrook and D.H. Fischel, "Limited Liability and the Corporation" (1985) 52 U. Chi. L. Rev. 89, 89.