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23rd April 2015

The dance of the corporate veil


23rd April 2015

The dance of the corporate veil


Two o’clock in the afternoon of the day after the night before. The graveyard shift, Tim Amos called it, as he gazed haplessly (although not without a twinkle of mischief) into the grey faces of the remaining conference delegates.

Tim and Duncan were here to explain, through the medium of dance, the ramifications of the decision in Petrodel Resources Limited v Prest [2012] EWCA Civ 1395, which involved a wealthy oil trader who was ordered to pay £17.5 million to his wife, including 11 properties. The properties were however all owned by the Petrodel group, and not by Mr Prest himself. Nevertheless, on the basis that Mr Prest was the “effective” controller and owner of the group; and could without impediment (eg third party interests) procure the transfer of the properties, Moylan J held that they were all properties to which Mr Prest was “entitled” within the meaning of section 24(1)(a) Matrimonial Causes Act 1973 and he was therefore entitled to make the order. The companies appealed.

The companies claimed that the properties belonged to them, and the Judge was not entitled to order Mr Prest to transfer them. Tim and Duncan took us through the history of the dance of the corporate veil, which began with the Gospel of St Matthew and continued a couple of millennia later to a case beloved of all law students: Salomon v A Salomon & Co Ltd [1897] AC 22, when the House of Lords upheld the doctrine of corporate personality, and refused to pierce the veil. More recently still, pop duo Oscar Wilde and Richard Strauss teamed up to write “Salome”, an opera in which Salome removes all seven of her veils in return for the head of John the Baptist. Bang up to date the Petrodel group is complaining that it had but one veil which had been unceremoniously removed, and without which it stood naked and vulnerable.

By a majority, the Court of Appeal agreed with the companies (Thorpe LJ dissenting against Rimer and Patten LLJ). The judgments highlight the “ Great Schism” between the Family Division and the Chancery Division respectively, with the former willing to peek beneath the veil; and the other shackled by it. The Chancery judges enthusiastically seized another opportunity to bring the Family Division back into line:

  • A person is not “entitled” to property within the meaning of section 24(1)(a) unless he is entitled “as of right” (and being the sole owner and controller of the property-owning company is not an entitlement “as of right”)
  • The corporate veil may not be pierced without relevant impropriety on the part of the shareholding spouse and this would be an “exceptional jurisdiction”
  • The dicta in Nicholas v Nicholas [1984] FLR 285 was wrong to the extent that it had enabled the Family Division to pierce the corporate veil without establishing relevant impropriety.

Mrs Prest appealed to the Supreme Court, which heard the appeal on 5 and 6 March. The grounds of appeal encompass the questions of whether:

  • it is lawful to treat the assets of a company of which the respondent spouse is the sole controller as assets to which that spouse is “entitled”;
  • such companies are capable of being nuptial settlements (and therefore subject to variation by the Court) – Tim said that an indication had already been given to counsel not to pursue that point; and
  • whether the concept of “impropriety” should be defined more widely in family cases.

According to Tim, the case before the Supreme Court is really Should husbands get away with it? vs Should third parties be prejudiced?

Awaiting the Supreme Court’s decision with keen interest is Duncan, who acts for the wife in Hope v Krejci [2012] EWHC 1780 (Fam). In this case, Mostyn J awarded the wife a lump sum of £268,000 plus £100,000 towards her costs notwithstanding that the husband owned nothing but was the beneficiary of a Jersey trust which owned companies which in turn owned properties in England. The judge reviewed whether it was necessary to establish impropriety in order to pierce the corporate veil. Ultimately, he followed Nicholas and decided that it was not necessary. Whether Mr Krecji appeals will depend on the Supreme Court’s decision in Petrodel.

Following our polka with Prest and kalinki with Krecji, Tim and Duncan presented a case study, involving a fictional company, which owned the matrimonial home, but was a genuine trading company. We considered various scenarios, including the possibility that the husband was entitled to the property by means of a resulting trust; the company was a nuptial settlement (unlikely in light of the Supreme Court’s indication); there was another shareholder who may or may not have been a sham; and the company was registered in Zenda (a jurisdiction which does not recognise English judgments). As tired and emotional as we all were, we were able to benefit from Tim and Duncan’s wisdom and we all staggered out of the workshop to begin the journey home that bit wiser.

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