Prest: 'Evasion' will make the court look behind corporate personality
Following judgment in VTB v Nutritek [2013] UKSC 5, Mrs Prest was cautioned on several occasions not to hold her breath with regard to a favourable outcome in her own appeal to the Supreme Court. So no doubt Mrs Prest is now breathing a hearty sigh of relief after a unanimous Supreme Court allowed her appeal last week. Sumption SCJ's leading judgment was very clever. Successive courts had taken a particularly dim view of the litigation conduct of the husband and the companies, and the “abject failure of the husband to comply with his disclosure obligations”. Everyone knew what the fair and just result was – but could this be at the expense of well-settled principles of company commercial law? Ultimately the Supreme Court, perhaps “pour encourager les autres”, found that on a factual basis the properties could be said to be held on trust for the husband, not because of his status as sole owner and shareholder but because the particular facts of the case justified this conclusion. Sumption SCJ determined that there ?was nothing in the scope of section 24(1)(a) of the Matrimonial Causes Act 1973 that permitted Moylan J to dispose of the properties that were the subject of the dispute, in the way in which he had. Likewise, family practitioners were once again reminded that “courts exercising a family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different.” So the law applies in all divisions equally. So far, so good. Commercial litigators have always held this as a truism. But, interestingly, there was confirmation of sorts that the doctrine of “lifting” or “piercing the corporate veil” is a tool which is available to the courts but exists in very confined circumstances. Neuberger SCJ considered that he had been strongly attracted to the idea of giving the controversial doctrine its quietus. Walker SCJ posited that it was not a doctrine at all but a label used somewhat indiscriminately by the courts to overcome the hurdle of separate juristic personality of a body corporate. Clarke SCJ decided that there was a doctrine of piercing the corporate veil although its limits were not clear. That being said, Clarke SCJ considered it could be deployed by courts only where more conventional remedies have proved to be of no assistance. Ultimately however, the definition Sumption SCJ considered is the one which is likely to be applied in the future; that is “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 Supreme Court referred to the above, at time, as the “evasion principle” and Clarke SCJ cautioned us all not to be encouraged to think that an extension to this principle was likely to be easy to establish – “it is not”.So what are practitioners to think? Ultimately, in almost all cases, attacking an opposing party on the basis that a court should “pierce the corporate veil” will not succeed. Given the Supreme Court's guidance, other, more attractive arguments will be capable of being deployed in any event. Only after these have been exhausted and a client can demonstrate that they fall within the “evasion principle” should a court be invited to go behind corporate personality.
Following judgment in VTB v Nutritek [2013] UKSC 5, Mrs Prest was cautioned on several occasions not to hold her breath with regard to a favourable outcome in her own appeal to the Supreme Court.
So no doubt Mrs Prest is now breathing a hearty sigh of relief after a unanimous Supreme Court allowed her appeal last week.
Sumption SCJ’s leading judgment was very clever. Successive courts had taken a particularly dim view of the litigation conduct of the husband and the companies, and the “abject failure of the husband to comply with his disclosure obligations”.
Everyone knew what the fair and just result was – but could this be at the expense of well-settled principles of company commercial law?
Ultimately the Supreme Court, perhaps “pour encourager les autres”, found that on a factual basis the properties could be said to be held on trust for the husband, not because of his status as sole owner and shareholder but because the particular facts of the case justified this conclusion.
Sumption SCJ determined that there '¨was nothing in the scope of section 24(1)(a) of the Matrimonial Causes Act 1973 that permitted Moylan J to dispose of the properties that were the subject of the dispute, in the way in which he had. Likewise, family practitioners were once again reminded that “courts exercising a family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different.”
So the law applies in all divisions equally. So far, so good. Commercial litigators have always held this as a truism. But, interestingly, there was confirmation of sorts that the doctrine of “lifting” or “piercing the corporate veil” is a tool which is available to the courts but exists in very confined circumstances.
Neuberger SCJ considered that he had been strongly attracted to the idea of giving the controversial doctrine its quietus. Walker SCJ posited that it was not a doctrine at all but a label used somewhat indiscriminately by the courts to overcome the hurdle of separate juristic personality of a body corporate.
Clarke SCJ decided that there was a doctrine of piercing the corporate veil although its limits were not clear. That being said, Clarke considered it could be deployed by courts only where more conventional remedies have proved to be of no assistance.
Copyright & permissions
