In Prest v Petrodel Resources Limited the Supreme Court considered the basis on which the corporate veil might be pierced (see post). The comments were strictly speaking obiter and were made in the context of a case concerning transfer of properties following a divorce. The Court of Appeal (Criminal Division) has applied the principles in Prest in a case concerning a criminal confiscation order and has confirmed that the principles are of general application (R v Sale  EWCA Crim 1306). Continue reading
Tag: Piercing corporate veil
The Supreme Court has confirmed that a court can in very limited circumstances pierce the corporate veil. According to Lord Sumption, the principle applies when a person is under an existing legal obligation or liability or is subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The veil can be pierced only for the purpose of depriving the company or its controller of the advantage they would otherwise have obtained by the company’s separate legal personality: Prest v Petrodel Resources Limited & Others  UKSC 34.
There have been a number of cases over the last 80 or so years suggesting the corporate veil can be pierced, but they haven’t always been easy to reconcile. This has led to uncertainty over whether there is such a principle and if so when it applies. In the recent Supreme Court decision in VTB Capital v Nutritek the court declined to give guidance as it was not required for the purposes of determining that case (see post). There are differences of opinion in Petrodel amongst the seven Justices. Lord Walker expresses doubts over the doctrine’s existence. Lady Hale (with whom Lord Wilson agrees) is uncertain whether all previous cases come within Lord Sumption’s formulation. At the other end of the spectrum Lords Mance and Clarke leave open the possibility of piercing the corporate veil in circumstances beyond those envisaged by Lord Sumption. Lord Neuberger agrees with Lord Sumption but adds his own analysis to his judgment.
What seems clear, however, is that the majority of the Supreme Court acknowledge, albeit obiter, the existence of the doctrine of piercing the corporate veil and that it extends at least as far as the test formulated by Lord Sumption. Continue reading
The Supreme Court has today unanimously refused to pierce the corporate veil in order to treat an alleged fraudster as a party to a contract entered into by his puppet company: VTB Capital plc v Nutritek International Corp and others  UKSC 5. This meant that VTB Capital plc (VTB) could not rely on a jurisdiction clause in the contract giving non-exclusive jurisdiction to the English courts. Lord Neuberger, giving the judgment of the court on this issue, considered that piercing the corporate veil so as to treat a third party as if he were a co-contracting party would be contrary to authority and contrary to principle.
The court declined to give more general consideration to whether, and if so when, it is possible to pierce the corporate veil as it was unnecessary to do so on the facts, and inappropriate to decide an issue of such general importance on an interlocutory appeal.
The Supreme Court also refused, by a majority of 3 to 2, to set aside the decision of the lower courts that the English courts were not the appropriate courts to hear the dispute. Although it decided that the courts below had erred in some of their conclusions, the majority did not consider those errors were sufficient to interfere with the overall decision as to the appropriate forum. Whilst it is a useful rule of thumb, or prima facie starting point, that a defendant who has committed a wrong within the jurisdiction ought to answer for that wrong in the English courts, other factors may mean England isn’t the appropriate forum.
More generally, Lord Neuberger commented on the time spent and costs incurred in jurisdiction challenges and considered judges should exercise their case management powers to ensure that the evidence and argument are kept within proportionate bounds.
Starting today, the Supreme Court will hear an appeal against the Court of Appeal’s judgment in VTB Capital plc v Nutritek International Corporation and others  EWCA Civ 808). Herbert Smith Freehills is acting for the appellant, VTB, having been instructed at the Supreme Court stage in place of VTB’s previous solicitors. The appeal has been listed for a hearing of 3 days and can be viewed live over the internet on “Supreme Court TV”.
The Supreme Court will consider the important question of whether the court can “pierce the corporate veil” in order to treat a fraudster as a party to a contract, including a jurisdiction clause in that contract, where the fraudster has used a puppet company to enter into the contract in order to perpetrate fraud on a third party. It also raises the issue of when England will be held to be the appropriate forum, for the purposes of an application for permission to serve proceedings out of the jurisdiction, and in particular whether there is a presumption that a defendant who has committed a wrong within the jurisdiction of the English courts ought to answer for that wrong in the English courts.
This is our second Supreme Court outing in so many weeks, following last week’s appeal in the Prudential case on the question of whether legal professional privilege should be extended to advice from accountants, in which Herbert Smith Freehills is representing the Law Society as intervener (see post).