Mujih, Piercing The Corporate Veil As A Remedy of Last Resort After Prest V Petrodel Resources LTD

Piercing the corporate veil as a remedy of last resort after Prest v
Petrodel Resources Ltd: inching towards abolition?

Company Lawyer
Search Details
Search Query: Edwin C. Mujih Piercing the corporate veil as a remedy of last resort after Prest v
Petrodel Resources Ltd: inching towards abolition
Delivery Details
Date: 11 February 2024 at 8:53 pm
Delivered By: Lisa Hyatt
Client ID: NOCLIENTID
Status Icons:
© 2024 Thomson Reuters.

Piercing the corporate veil as a remedy of last resort after..., Comp. Law. 2016,...
For educational use only

Piercing the corporate veil as a remedy of last resort
after Prest v Petrodel Resources Ltd: inching towards
abolition?
Dr Edwin C. Mujih *
Table of Contents
Introduction
Criticisms of the rule and doubts over its existence—a redefinition
The family law and company law conflict
Conclusion
Journal Article
Company Lawyer
Comp. Law. 2016, 37(2), 39-50
Subject
Company law
Other related subjects

Family law
Keywords
Assets; Concealment; Corporate personality; Divorce; Financial provision; Limited liability
Cases cited
Petrodel Resources Ltd v Prest [2013] UKSC 34; [2013] 2 A.C. 415; [2013] 6 WLUK 283 (SC)
Salomon v Salomon & Co Ltd [1897] A.C. 22; [1896] 11 WLUK 76 (HL)
*Comp. Law. 39 Introduction

In a landmark judgment delivered on 12 June 2013 in the case of Prest v Petrodel Resources Ltd , 1 the UK
Supreme Court (UKSC) reviewed the law relating to piercing the corporate veil. The case is of great significance.
It intersects two main areas of law, that is, company law and family law, and addresses, or perhaps settles, the
long-running conflict between these two areas of law about the circumstances in which it is possible to attack in a
© 2024 Thomson Reuters. 1

divorce assets held in a corporate structure. 2 Lawyers in both subject areas had anxiously awaited the judgment.
Equally noteworthy is the relationship between the veil piercing rule and the concept of limited liability (which
is a consequence of the fundamental company law principle of separate legal personality), although as we shall
see later the exact relationship between the veil piercing rule and limited liability is still debatable. Thus, the
relationship between the veil piercing rule and limited liability means that the Supreme Court’s decision inevitably
impacted on the fundamental principle of separate legal personality.
The case involves an application by Mrs Prest for financial relief ancillary to a divorce. She sought the transfer of
seven properties belonging to companies in the Petrodel group in order to satisfy a divorce settlement, claiming
that in reality the properties belonged to her husband. The companies were wholly owned and controlled by her
husband. The question before the court was whether the court had the power to order the transfer of the properties
to the wife, given that they legally belonged not to her husband but to his companies. The court considered three
legal bases on which such a transfer might be ordered: (1) by piercing the corporate veil in order to give effective
relief; (2) transfer under s.24 of the Matrimonial Causes Act 1973 ; and (3) transfer on the ground that the properties
belong beneficially to the husband by virtue of the circumstances in which they came to be vested in the companies.
At first instance, the Family Division court concluded that in the absence of any impropriety, there was no general
principle of law which entitled the court to reach the companies’ assets by piercing the corporate veil. However,
the judge, Moylan J, held that in a case such as this where the wife was seeking financial relief ancillary to a
divorce, the court had the power to pierce the corporate veil under s.24 of the 1973 Act . The Court of Appeal
reversed the decision, with Patten LJ warning that the practice whereby Family Division judges applied rules
not relevant to English property and company law when dealing with company-owned assets in ancillary relief
applications "now had to cease". On appeal to the Supreme Court, their Lordships held that Mrs Prest’s appeal
could succeed on the third basis, that is, that the properties were acquired and held by the respondent companies
on trust for the husband, but it was dismissed insofar as it relied on piercing the veil of incorporation or on s.24(1)
of the Matrimonial Causes Act 1973 .
The aim of this article is to analyse the law on lifting the corporate veil in the light of the Supreme Court’s decision
in Prest v Petrodel with a view to determining whether the decision is a step towards the abolition of piercing
the corporate veil doctrine. The case provides a framework for an examination of a number of issues relating to
the veil piercing rule. These issues will be examined below in order to meet the aim of this article.
Criticisms of the rule and doubts over its existence—a redefinition
Criticisms of the rule

Despite its long, albeit somewhat chequered, history the veil piercing rule has been criticised and its existence
even questioned by the judiciary and academic writers alike on both sides of the Atlantic. Easterbrook and Fischel
have observed that "piercing seems to happen *Comp. Law. 40 freakishly. Like lightning, it is rare, severe
and unprincipled". 3 Professor Stephen Bainbridge echoes Easterbrook and Fischel’s sentiments and describes
veil piercing as unjustifiable, unprincipled, rare and arbitrary, and goes as far as advocating its abolition. 4 Part
of the problem with the doctrine is its raison d’être. The doctrine exists as an exception to the general rule of
limited liability, in order to prevent injustice. Consequently, the application of the doctrine has always been fact
specific and open-ended. 5 Similar criticisms have been made by Professor Millon, who observes that the rule is
notoriously incoherent and the results unpredictable. 6 Writing in 2001, Huss noted that the application of the rule
is so seriously flawed that the time has come to reconsider its use. 7 As far back as 1946, Professor Ballantine
observed that "the formulae invoked usually give no guidance or basis for understanding the results reached". 8
As observed by Professor Strasser, the core charge is that the rule "is expressed at such high level of abstraction
that decisions in individual cases are in fact highly discretionary with the courts". 9 However, one commentator
who has come out in defence of the rule is Professor Kurt Strasser. 10 He argues that criticisms of the rule are
exaggerated—that if the rule was so bad, the courts would long have abandoned it. And, as will be seen later, the
UKSC came close to doing so in Prest .

Faced with such a barrage of criticisms, it was interesting to see how the highest court in the country would deal
with the rule when the opportunity arose. And the opportunity did arise in 2003—not just once. Like London
buses, the opportunity to consider the rule suddenly came before the UKSC twice that year after a long wait: first
in VTB Capital Plc v Nutritek International Corp 11 and a few months later in the Prest case. Rarely does
the Supreme Court have the opportunity to consider, in such quick succession, a rule (intersecting two key areas
of law) that has faced mounting criticism from both academic writers and the judiciary. Did the Supreme Court
disappoint? This question underlies the discussion in this article of the various issues relating to the rule. In the
Prest case the Supreme Court echoed these criticisms in reaching its decision, 12 with Lord Neuberger observing
that "it is also clear from cases and academic articles that the law relating to the doctrine is unsatisfactory and
confused". 13 He agreed with critics of the rule, such as Easterbrook and Fischel, that the rule is unprincipled.
Earlier in the judgment, Lord Sumption said that piercing the corporate veil is an expression used indiscriminately
to describe a number of different things. 14 Lord Walker agreed with him, stating that it "is not a doctrine at all
in the sense of a coherent principle or rule of law. It is simply a label". 15 In VTB Capital v Nutritek , 16 Lord
Neuberger observed that the obscure nature of the rule provides support for the claim that it is unprincipled. It
is interesting to see not only how their Lordships dealt with the rule beyond acknowledging the criticisms in the
Prest case, but also how the rule has fared after Prest .
Critics find problems not only with the operation of the rule but with the semantics associated with it as well,
and this has contributed in no small way to the controversy surrounding the rule. Professor Christopher Nicholls
notes that the phrase "piercing the corporate veil", which has been used by the courts in a number of distinct
contexts, is analytically vague. 17 As seen above, Lord Sumption made similar remarks in the Prest case about
the indiscriminate use of the phrase. Earlier in The Tjaskemolen 18 Clarke J observed "rightly", according to Lord
Neuberger in the VTB Capital v Nutritek case, that "the cases have not worked out what is meant by ‘piercing
the corporate veil’. It may not always mean the same thing". The lack of consensus among the judiciary of the
true meaning of the phrase "piercing the corporate veil" is compounded by the interchangeable use of the phrase
with "lifting the veil", although in Yukong Line Ltd of Korea v Rendsberg Investments Corp of Liberia (No.2)
, 19 Toulson J observed that it may not matter what language is used as long as the principle is clear. And, in
Atlas Maritime Co SA v Avalon Maritime Ltd (No.1) , 20 Staughton LJ expressly separated the two on the basis
that *Comp. Law. 41
"piercing is reserved for treating the rights or liabilities or activities of a company as the rights or liabilities of its
shareholders, whereas lifting is to have regard to the shareholding in the company for some legal purpose".
As seen later, this distinction, which the Supreme Court appears to have adopted in Prest , has far-reaching
consequences on the future of the veil piercing rule.
Although "piercing or lifting the veil" is the common nomenclature used in England, "veil" is only one of
many metaphors used by the courts. 21 Other labels, which according to Nicholls are regularly recited but rarely
explicated by the courts 22 include "cloak", "alter ego", "agent", "mask", "cloak", "device", "dummy", "sham"
and "puppet". In Ben Hashem v Al Shayif , 23 Munby J said that the expressions are synonymous. In the VTB
Capital case, Lord Neuberger observed that these expressions may be useful metaphors; however, expressions
are often dangerous as they risk assisting moral indignation to triumph over legal principle, "and while they may
enable the court to arrive at a result which seems fair in the case in question, they can also risk causing confusion
and uncertainty in the law". 24
Ottolenghi questions whether such labels help us or they divert attention from the real substance. 25 He refers
to a much-quoted statement by the New York Court of Appeals Judge Cardozo, in which he said: "Metaphors
in law are to be narrowly watched, for starting as devices to liberate thought, they end often by enslaving it." 26
According to Ottolenghi, the blanket use by the courts of the term "veil" as a metaphor in various circumstances
without distinguishing between the individual cases adds to the confusion. 27 Peter Oh laments that "the inherent
imprecision in metaphors has resulted in a doctrinal mess". 28 Further problems with terminology are identified
by Professor Gelb, who observes that the terminology used by courts does little to explain the basis of a court’s

decision. 29 Daniel Prentice describes the word "façade", which the Court of Appeal in Adams v Cape Industries
Plc 30 stated to be the only ground on which it would pierce the corporate veil, as a word of no real clear
meaning. 31
The numerous labels used by the courts are aimed at identifying the relevant wrongdoing for which the principle
of separate legal personality is being abused. In Prest , Lord Sumption stated that the labels embody two distinct
principles, and acknowledged that much confusion has been caused by failing to distinguish them. He called them
the concealment principle and the evasion principle. 32 It goes without saying that the absence of a clear label
clearly adds to the confusion surrounding the veil piercing rule.
Does the rule exist?

Not only has the rule been criticised, but its existence has been questioned. Although Lord Sumption acknowledged
the existence of the principle 33 in the Prest case, the extent to which their Lordships went to redefine the rule
at the same time placed doubts on its existence. Lord Neuberger did not take for granted that the rule exists.
He expressed the need for "seeking to decide whether it exists and if so to identify some coherent, practical and
principled basis for it". 34 Lord Sumption noted that, in strict terms, piercing the corporate veil would only apply
as an exception to the rule in Salomon v Salomon 35 where a person who owns and controls a company is said
in certain circumstances to be identified with it in law by virtue of that ownership and control. Other methods
that the courts have used to attribute the acts of a company to the controller such as agency and trust are not veil
piercing cases. 36 His Lordship observed that, unlike other legal systems, English law has no general principle
permitting the piercing of the corporate veil in cases of misuse, fraud, malfeasance or evasion of legal obligations.
The result, in English law, is achieved through a variety of specific principles used in some cases. 37
This redefinition of the rule led the Supreme Court to observe that most cases in which the corporate veil was
pierced could have been decided on other grounds and that these were not really veil piercing cases. 38 Their
Lordships observed that the grounds on which the rule was invoked in these cases are inappropriate. Lord Sumption
reviewed Gencor ACP Ltd v Dalby , 39 in which the judge held that Burnstead, a nominee company *Comp.
Law. 42 controlled by the defendant, Mr Dalby, was simply his alter ego through which he paid secret profit
made from his position as a former director of the claimant company. Although the judge considered that he was
piercing the corporate veil, Lord Sumption believed that he was not and that both Mr Dalby and Burnstead were
independently liable to account to the claimant company as distinct legal persons. 40 A similar review of the case
of Trustor AB v Smallbone (No.2) 41 led to the conclusion that the decision in the case did not involve piercing
the corporate veil but could be explained on the basis of agency. Their Lordships stated that concealment cases
such as Gilford Motor Co v Horne 42 and Jones v Lipman 43 which had been recognised as veil piercing cases
do not involve piercing the corporate veil at all. 44 Lord Neuberger felt that the application of the doctrine in the
Jones case was unnecessary. 45 Regarding Gilford Motor , he observed that there is nothing in the judgments to
suggest that any member of the Court of Appeal thought that he was "cutting into the well-established and simple
principle laid down in Salomon ". 46 Lord Neuberger restated his view expressed a few months earlier in the
VTB Capital 47 case that the decision in Gilford Motor was not based on piercing the corporate veil. He took
the view that the decision that an injunction should be granted against the company, JM Horne and Co Ltd, was
justified on the agency principle under which an injunction would have been justified both against Horne and
against the company. 48 His Lordship surmised that the use of the expression "cloak or sham" by the Court of
Appeal suggested a principal and agent relationship between Horne and the company. 49 He went as far as to say
that there is not a single case in England in which the doctrine has been invoked properly and successfully. 50
A major reason for the view that Gilford Motor does not involve veil piercing is that the injunction was granted
against both Mr Horne and his company. The argument is that it was not necessary to lift the veil for this purpose
as the same result could have been achieved on the grounds of agency. This much is tenable. However, this view
is restrictive as it looks at the outcome of the case only. It is submitted that in deciding whether or not a case is

a veil piercing case, one should not look at the outcome only. The court had to pierce the veil of the company, as
a procedural matter, coupled with the fact that Mr Horne was also made liable. This procedural piercing of the
veil and Mr Horne’s liability make the case a veil piercing case. It can thus be described as a case in which the
court pierced the veil but also held the company liable, unless we are to say that it is the imposition of liability on
the shareholder alone that determines whether or not a case is a veil piercing case. If this were so, company law
textbooks would have to be rewritten to explain why the case and others have always been wrongly classified as
veil piercing cases. What this problem highlights is the lacuna in English law on the distinction between forward
veil piercing and backward piercing. Gilford is a backward piercing case and the difficulties of recognising such
cases as veil piercing cases is based on this non-recognition, compounded by the fact that the veil piercing rule
was developed in and perhaps for forward piercing cases, and hence does not easily fit into backward piercing
cases, nor satisfy their oddity.
Prest is not the first case in which the courts have doubted the applicability of the veil piercing rule in previous
cases. In the Yukong decision, the court doubted whether many of the cases which are viewed as exceptions to
Salomon could really be classified as such. Instead it similarly felt that there was really no need to lift the veil
as the cases presented situations where the statute, contract or doctrine in question was wide enough to embrace
the company and its shareholders, as in Gilford Motor . 51
Not only did the Supreme Court seek to redefine the rule, but their Lordships went as far as casting doubt on the
existence of the doctrine. Lord Neuberger’s speech is instructive in this regard. After observing that the rule has
never been successfully invoked in England, he went on to say there is doubt as to whether the doctrine should
exist, adding that there is value in seeking to decide whether the doctrine exists. 52 He further said at [68] that the
application of the doctrine to family cases "even if it exists" is unsound. *Comp. Law. 43
The veil piercing trajectory from Salomon to Prest —dissecting the limited liability and veil piercing
relationship
A brief consideration of the history of veil piercing is necessary for present purposes, particularly given that, in
Prest , the Supreme Court discussed cases where the courts have considered piercing the veil. The veil piercing
rule cannot be discussed in isolation from the doctrine of limited liability, which is itself an upshot of corporate
personality, a cornerstone principle in company law. 53 Corporate personality is inextricably connected with the
case of Salomon v Salomon & Co . In that case, the House of Lords (now the Supreme Court) firmly affirmed
the primacy of separate corporate personality and limited liability. Although the concept of limited liability was a
statutory invention which pre-dated the Salomon case, 54 its affirmation by the House of Lords in Salomon was
a milestone as it settled, or so it seems, the controversy, indeed opposition, which had existed hitherto regarding its
application to "one-man companies". 55 However, this opposition to the statutory concept of limited liability with
regard to one-man companies in particular was not laid to rest with the House of Lords’ decision in Salomon .
Like the phoenix in Greek mythology, it re-emerged after Salomon in the form of exceptions to the case, allowing
the court to pierce the corporate veil for varied reasons, first with regard to one-man or closely held companies
and later in respect of large companies.
Despite its merits, the veil piercing rule attenuates the effectiveness of limited liability (a concept enshrined in
the Limited Liability Act 1855), which as mentioned earlier is a consequence of the fundamental principle of
corporate personality. This is the pith of the debate on whether or not to pierce the corporate veil and is what
both the judiciary and academic writers have grappled with. But the debate has gone even further, with some
advocating, on the one hand, the abolition of the veil piercing rule 56 and others advocating, on the other hand,
the abolition of limited liability in some areas. 57 In which of these opposing directions did the UKSC gravitate
in Prest ? This debate among academic commentators and in the judiciary is examined briefly below in the light
of the UKSC decision in Prest , mainly in the context of the effects of veil piercing on corporate personality.
The effects of veil piercing on corporate personality—academic

It is clear that veil piercing limits the operation of the concept of limited liability. But the position is less
straightforward when corporate personality, that is, the doctrine from which limited liability is generally thought
to derive, comes into play. This is because although limited liability is generally regarded as a corollary of the

doctrine of corporate personality, there are views to the contrary. For example, Christopher Nicholls postulates
that limited liability is a distinct concept from corporate personality, conceptually, historically and as a matter of
company law statute. 58 According to him, limited liability is not "merely the product of the court’s interpretation
of the scope of the doctrine of separate legal [corporate] personality". 59 He argues that shareholders did not enjoy
limited liability in the earliest general incorporation statutes in England. It was not regarded as a sine qua non of
incorporation. 60 He claims that any presumed link between the twin concepts of limited liability and traditional
incorporation has been severed. 61
The question for consideration is what is the effect on veil piercing of either treating limited liability as a
consequence of corporate personality or as a distinct concept from it? It has been seen above that veil piercing limits
the operation of limited liability, although it has been argued that if veil piercing is applied with proper reluctance,
it does not subvert limited liability policy. 62 If the widely held view that limited liability is a consequence of
corporate personality is maintained, veil piercing will by implication impact on the fundamental principle of
corporate personality. It will gradually erode corporate personality. This is because every time the court pierces the
veil, it is violating this principle and treating the controlling shareholder as the same person as the company. 63 In
this regard, it would appear that the effect of the Supreme Court’s reluctance to pierce the corporate veil in Prest
is to uphold the fundamental principle of corporate personality. Or is it the case that it was in *Comp. Law. 44
recognition of the fact that limited liability is not only a consequence of this fundamental company law principle
but that veil piercing impacts on it as well that the Supreme Court avoided piercing the corporate veil in Prest
and sought other ways to arrive at a just outcome?
Not only is the interrelation between veil piercing and limited liability widely recognised, but the confused state
of the law on veil piercing has been blamed on a lack of understanding of the policy basis of limited liability. 64
However, veil piercing would appear to have no direct effect on corporate personality under the view that limited
liability is distinct from corporate personality. Thus, under this view, the courts can pierce the veil without any
concern of disturbing the principle of corporate personality.
The lack of consensus on the relationship between limited liability and corporate personality is not surprising,
given that limited liability has itself elicited as much criticism as praise. For example, in its early days it was
described by one commentator as the greatest single discovery of modern times, surpassing even steam and
electricity. On the other hand, it has been attacked as a "mode of swindling" and a "fraud on the honest and
confiding part of the public". 65 Our perception of limited liability might in turn shape our perception of veil
piercing. Accepting the latter view that limited liability is a fraud would lead to a welcome reception for veil
piercing and indeed its indiscriminate use as a legitimate weapon to quell the perceived fraud that limited liability
is. On the other hand, accepting the former view might have one of two effects on the veil piercing rule. In one
sense, it might lead to hostility towards the rule, as veil piercing would be seen as a threat to this perceived greatest
discovery of modern times. Alternatively, the former view might see veil piercing as nothing more than a necessary
weapon to prevent the sanctity of limited liability from abuse.
It can be gleaned from the foregoing that the effect of veil piercing on corporate personality is not entirely clear
because of the apparent lack of consensus in academic circles on the relationship between limited liability and
corporate personality. However, in the reverse, it appears to be the case that corporate personality has shaped,
indeed contributed in no small way to the aforementioned problems bedevilling the veil piercing rule. Corporate
personality is an artificial legal construct which encapsulates our understanding of the nature of the corporation.
This artificial legal construct bequeaths the problems arising from its artificial nature to any rule remotely
connected to it such as veil piercing. Using a contractual exposition, Easterbrook and Fisher postulate that limited
liability takes on the fictitious nature of the corporation, which has no existence independent of the contractual
relationships between the various corporate stakeholders. In essence "the liability of the corporation is limited
by the fact that the corporation is not real". 66 They argue that limited liability is not unique to companies. It
applies equally to partnerships in the sense that a creditor is not required to contribute additional capital to a
partnership whose liabilities have exceeded its assets. 67 Essentially, they question why shareholders should enjoy
the protection of limited liability when the other providers of capital to the company, such as lenders, have no such

protection. 68 Indeed, a common criticism of limited liability is the social cost it imposes particularly in respect
of tort claimants who have no opportunity of protecting themselves by bargaining with the company. 69
A similar attack on limited liability which seeks to limit its operation is made by Hansmann and Kraakman. They
argue in favour of the elimination of the doctrine in respect of tort claims in order to force investors to internalise
risk. 70 This would have a veil piercing effect in respect of these types of claims. If limited liability were to be
restricted in its operation, piercing the corporate veil would be a useful tool for achieving that result. But from
the other end of the spectrum, critics have been influenced to call for its abolition, perhaps not so much by the
damage this veil piercing tool is doing to the fundamental doctrine of corporate personality as by the fact that it is
dysfunctional and an arbitrary use of the tool. 71 Similarly, Millon advocates that limited liability should not be
so broad as to protect illegitimate behaviour. 72 In respect of contract creditors, he suggests that the availability of
limited liability should depend on whether the controlling shareholders have managed the business in a financially
responsible manner. 73
The vexed nature of the debate means that rejoinders are inevitable. For example, Stephen Bainbridge, while
advocating the abolition of the veil piercing rule on the other hand, takes issue with Hansmann and Kraakman’s
proposal for the elimination of limited liability in respect of tort claims. Hansmann and Kraakman limit this
*Comp. Law. 45 proposal to shareholders. And for Bainbridge, this singling-out of shareholders to effectively
make them personally liable for tort claims against the company is a problem. He ceases, upon the nexus of contract
premise used by Hansmann and Kraakman for their proposal, to ask why other constituents in this nexus such as
creditors, employees and managers are not liable as well. Shareholders, he posits, are simply one of numerous
different sets of inputs and the fact that they hold an equity stake in the company is no answer to the question,
as ownership is not a meaningful concept in nexus of contracts theory. But Bainbridge’s views have not escaped
criticism. Millon takes issue with his postulation that the laws of fraudulent misrepresentation and fraudulent
conveyance provide sufficient safeguard against abuse of limited liability, thereby making the need for veil piercing
unnecessary. Millon argues that the law of fraud offers inadequate protection to victims in some cases; it would
not reach all of the cases in which shareholders have used limited liability in ways that offend public policy. 74
The veil piercing trajectory—judiciary

It is no doubt in cognisance of the effect of veil piercing on limited liability that the courts have approached veil
piercing cautiously and have sought to limit its use. This appears to have been an overriding concern of their
Lordships in Prest . In every case in which the issue of piercing the corporate veil arises, the court has to balance
the need to uphold the core principle of corporate personality and the need not to allow the principle to be abused.
In other words, the courts will be reluctant to apply the rule if to do so will lead to a manifestly unjust outcome. 75
The need to balance these competing interests has contributed to the chequered history of the rule in English
courts. As observed by Cheng, "the attitude of the English courts toward the rule has oscillated from enthusiasm
to outright hostility". 76 Cheung divides the history of the doctrine into three periods. The first, lasting from the
Salomon case until around the Second World War—a period which he terms the experimentation period—is when
English courts experimented with different approaches to the doctrine. The second period began after the Second
World War and lasted until the case of Woolfson v Strathclyde RC 77 in 1978—a period during which the rule
enjoyed tremendous success. During this period, the courts demonstrated great flexibility towards the corporate
personality principle, as seen in the case of DHN Food Distributors Ltd v Tower Hamlets LBC , 78 where Lord
Denning warned against blind adherence to the principle in Salomon . The third period begins with the Woolfson
case and continues until the present. This period has seen the rule fall into disfavour, with the courts adopting a
cautious approach to the veil piercing rule. 79
Overall, the general approach of the courts has been to formulate exceptions to the Salomon principle on
a piecemeal basis to prevent manifestly unjust outcomes. These include the agency exception, which was
propounded by Atkinson J in the case of Smith, Stone & Knight v Birmingham Corp , 80 where the judge identified
six guiding questions in determining whether a subsidiary company can be said to be carrying on business on
behalf of its parent company which would justify piercing the corporate veil. Another exception which the courts

have used to pierce the veil is the fraud exception. This exception gained currency in the first half of the 20th
century and was used in cases such as Gilford Motor v Horne and Lipman v Jones . In Lazarus Estates Ltd
v Beasley , 81 Lord Denning clearly stated:
"No court in this land will allow a person to keep an advantage which he has obtained by fraud … Fraud unravels
everything."
Lord Denning sought to expand the veil piercing rule by using the "single economic unit" exception in the case of
DHN Food Distributors v Tower Hamlets LBC . 82 In that case, he treated a group of companies as a partnership
in which all the "companies are partners". But this approach was quickly criticised by the House of Lords in the
Woolfson case. In that case, their Lordships sought to restrict the operation of the veil piercing rule, with Lord
Keith stating that the veil should be pierced "only where special circumstances exist indicating that it is a mere
façade concealing the true facts". This affirms fraud as a main ground for piercing the corporate veil. Lord Keith’s
dictum in Woolfson was adopted by the Court of Appeal in the Adams v Cape Industries Plc case, in which the
Court of Appeal stated that the corporate veil could be disregarded only in cases where it was being used for a
deliberately dishonest purpose. Slade LJ said that "the court is not free to disregard the principle of Salomon v
A Salomon & Co Ltd merely because it considers that justice so requires".
It is worth noting that the concept of piercing the veil is, largely, subject-specific and limited in scope. In the recent
Appeal Tribunal case of Exmoor Coast Boat Cruises Ltd v Commissioners for Her Majesty’s Revenue & Customs
, 83 the judge, Barbara Mosedale, attributed the *Comp. Law. 46 human rights of the sole owner of the company
to the company, holding that while the Supreme Court reaffirmed the legal boundaries between a company and
its owner in Prest , 84 the veil piercing rule does not apply to the question of whether a company has human
rights. Such a question must be answered by reference not to English common law but the European Convention
on Human Rights incorporated into English law by the Human Rights Act 1998 .
The family law and company law conflict

Veil piercing cases are not limited to company law only. They also arise in different contexts, particularly in the
area of family law. One problem highlighted by the Prest case is the conflict between family law and company
law in veil piercing cases. Such a conflict arises in claims for financial relief ancillary to a divorce where assets are
vested in a company controlled by one of the parties to the marriage, as in Prest . Herein lies the nexus between
family law and company law in veil piercing cases, a nexus that has often given rise to conflict between the Family
Division of the High Court, which hears family cases, and the Chancery Division, which hears company cases.
Unlike judges in the Chancery Division, judges in the Family Division have, generally, shown a willingness to
extend the veil piercing rule and to pierce the veil under s.24 of the Matrimonial Causes Act 1973 . 85 In Prest ,
Lord Sumption observed that the reason for this independent line pursued by the Family Division was its concern
to make effective its statutory jurisdiction to distribute the property of the marriage upon a divorce. 86 Section
24(1)(a) provides that
"the court may order that a party to a marriage shall transfer to the other party … such property as may be so
specified, being property to which the first-mentioned party is entitled, either in possession or in reversion".
It is in the exercise of the powers vested in the courts by this section that the Family Division has generally
disregarded the limits placed on the operation of the veil piercing rule by the other Divisions of the High Court and
even the Court of Appeal. And to exercise this power, judges have advocated piercing the veil even where there
is no wrongdoing. For example in Kremen v Agrest (No.2) , 87 Mostyn J held that there was a strong practical
reason why the cloak should be penetrable, even absent a finding of wrongdoing. However, the Court of Appeal
has not always favoured the liberal approach of the Family Division. Patten LJ’s warning in the Prest case to
judges in the Family Division (seen earlier) is instructive. Furthermore, in Nicholas v Nicholas 88 the Court of
Appeal overturned a first instance decision ordering the husband to transfer to the wife property belonging to a
company in which he held a majority of the shares.

It is worth noting that not every Family Division decision followed the independent line. In A v A 89 and in Ben
Hashem v Ali Shayif , 90 Munby J warned against departing from fundamental legal principles, emphasising in
the A v A case that the same principle applies to both Divisions. In the Ben Hashem case, he formulated six
principles which effectively limited the instances of piercing the corporate veil. In Prest , Lord Sumption made it
clear that s.24 does not give the family courts wider veil piercing powers. The section only empowers the courts to
order the transfer of property to which a spouse was "entitled, either in possession or reversion". He stated that the
entitlement referred to in s.24 is a legal right in respect of the property in question and that the concepts invoked
in the section are recognised under the general law. Family courts are not to give them a different meaning. 91
Property concepts are to be applied consistently across all three Divisions of the High Court. 92
The decision in Prest has been interpreted variedly, with some writers arguing that it clarified the law on veil
piercing and others arguing that their Lordships missed the opportunity to do so. However, a preponderance of
observers are of the view that it settled the conflict between the Family Division and the other Divisions of the
High Court in veil piercing cases. Both family lawyers and company lawyers had anxiously awaited the Supreme
Court’s decision in the case. As observed by Professor Hannigan, the interest of company lawyers in the case lies
in what the court had to say on piercing the corporate veil, 93 while family lawyers waited to see how the court
would respond to the Court of Appeal’s decision that family courts did not have wider veil piercing powers under
s.24(1) of the Matrimonial Causes Act 1973 . Although the Supreme Court agreed with the Court of Appeal on the
restrictions of the powers of family courts, its decision to allow Mrs Prest’s appeal on the grounds of trust provided
some relief to family lawyers. Onaran notes that family law practitioners greeted the Supreme Court’s decision
with relief as they had feared that a Supreme Court approval of the Court of Appeal’s decision would result in more
husbands seeking to hide their assets *Comp. Law. 47 behind sham, artificial devices. The decision, she observes,
also appeases corporate lawyers who had been nervous that the Supreme Court might follow the approach taken
by judges of the Family Division. 94
In sum, it appears that Prest resolved the impasse between the Family Division and other Divisions of the High
Court on when to pierce the veil to provide financial relief in a divorce where assets are held by a company
controlled by one of the spouses. But the position is not so clear with regard to the general state of the law in this
area, particularly in terms of what the outcome might be in specific cases, taking into account the availability of
alternative remedies as the discussion below reveals.
Veil piercing after Prest —alternative remedies distinguished from piercing the veil on other grounds
Although the Supreme Court reviewed the law on veil piercing in many areas in Prest , it is not easy to predict
the general state of the law on veil piercing after the case. Within a few months of the decision, the case elicited
a divergence of opinion on the question of whether their Lordships had clarified the law or not. Matthews
argues vehemently that the court missed an opportunity to abandon a doctrine whose weaknesses it had itself
acknowledged. He argues that either the veil piercing rule should be clarified or it should be abandoned, and Prest
did neither. According to him, abandoning the doctrine would not prevent justice being done, as the courts have
always circumvented it by other routes. 95 While acknowledging that Prest clarified certain issues, Hannigan
similarly argues, particularly in respect of the evasion and concealment distinction, that post- Prest cases underline
a lack of clarity in Prest on the distinction between piercing and lifting the veil. Using the Court of Appeal
decision in R. v Sale , 96 where the court refused to pierce the veil on the evasion principle but then lifted it on the
concealment principle, she argues that the case suggests merely a change in terminology in Prest with the effect
of undermining the Salomon principle. 97 Lim criticises the court for failing to clarify definitively the exceptional
circumstances that would justify piercing the veil. 98 On the other hand, Onoran takes the view that the court
used the opportunity to finally resolve, at least, some of the issues relating to the veil piercing rule. 99 Despite the
criticisms of the decision seen above, a preponderance of commentators appear to be of the latter view, 100 and
on balance it is safe to say that commentators have extended a warm welcome to the decision.
The decision in Prest , where the court allowed Mrs Prest’s appeal without piercing the corporate veil, necessitates
a consideration of alternative remedies. This is also important as their Lordships questioned the existence of the veil
piercing rule, thereby raising doubts over its future. But a distinction must be made between alternative remedies,

such as remedies in equity, tort and statute, and piercing the veil on other grounds such as equity, tort and statute.
The Prest case falls in the former category 101 while the latter remedy was sought, unsuccessfully, in cases such
as Adam v Cape Industries . In simple terms, alternative remedies exist outside company law while piercing the
veil on other grounds occurs within company law. The relevant ground for piercing the veil is determined by
the details of the case, including the nature of the relationship between the parties. The Adam case shows the
conservative attitude of the courts towards piercing the veil on other grounds. 102 And this is reinforced in Prest
, which suggests that seeking alternative remedies would place the claimant in a better position than asking the
court to pierce the veil on other grounds applying company law rules.
Thus, following Prest , the court would, for example readily entertain an action in equity, tort or statute which
is pursued independently of veil piercing than pierce the veil on equitable, tortious or statutory grounds. This is
different from allowing alternative remedies to be used as a veil piercing tool, as feared by some. Patten LJ’s stern
warning (endorsed by the Supreme Court in Prest ) to the Family Division to stop using statute as a veil piercing
instrument is instructive in this regard. It shows a desire by the court to keep alternative remedies separate from
veil piercing rather than using the former as a weapon for the latter. As mentioned above, Lord Neuberger was clear
that veil piercing should be pursued only when there are no alternative remedies. Thus, it is submitted that Prest
has significantly clarified the law in this regard by separating alternative remedies from veil piercing rules. 103
It will be recalled that prior to Prest , the Family Division had confused the two by using statutory remedies as
a veil piercing tool. Post- Prest cases have followed the Supreme Court’s approach in Prest in *Comp. Law.
48 emphasising the separation of the concept of piercing the veil from the provision of remedies via alternative
routes. In the very recent joined cases of R. v McDowell and R. v Singh , 104 the Court of Appeal followed
Prest on this point, that in a family proceeding involving property legally owned by a company controlled by the
husband, the transfer of property where the beneficial interest was held by the husband was a route to enforcement
"that did not depend upon the concept of lifting the corporate veil". 105
The non-separation of alternative remedies from veil piercing rules as well as its relationship with limited liability
contributed to the muddled state of the law on veil piercing, resulting in the criticisms of the rule. Millon argues
that once a better understanding is achieved, limited liability will then serve the useful function of distinguishing
legitimate from illegitimate reliance on statutory limited liability. 106 Specifically, in respect of statute, Matthews
observes that " Prest suggests that the English courts will be reluctant to infer a statute permits corporate
personality to be disregarded absent clear wording". 107
This separation hopefully allays the fears of critics regarding the courts’ use of statutes in veil piercing cases. For
example, prior to Prest , Professor Nicholls had observed in relation to the statutory protection of shareholders that
"veil piercing cases are not examples of judge-made rules crafted to fill statutory lacuna. They appear instead to be
examples of … disregard of an explicit statutory provision" 108 protecting shareholders. He suggests that decisions
in this area of the law might be better described as instances of "judicial disregard of the express statutory law of
shareholder immunity" rather than as "examples of piercing the veil of separate legal personality". 109 Although
Nicholls’s argument is in relation to the statutory protection of shareholders, the theme of statutory disregard by
the courts also applies to the present argument in relation to the separation of alternative remedies, such as statute,
from piercing the veil on other grounds. Much of the confusion in this area of the law stems from a lack of such
a separation, as the practice whereby the Family Division used s.24 of the MCA 1973 to pierce the veil reveals.
This resonates with similar arguments made by both the judiciary and academic writers that cases that are regarded
as veil piercing cases could be explained on other grounds, as seen above. But our interest for present purposes is
in determining, broadly, how this position affects the relationship between alternative remedies and veil piercing,
or more specifically how it affects the suggestion that statute may be seen as an alternative to veil piercing. The
preceding arguments throw light on this question. The arguments work in favour of using statute as an alternative
to veil piercing, and uphold the integrity of the separate personality rule. This means that, where necessary, justice
could be achieved by using other methods that would not interfere with the separate personality of the company.
And statutory intervention is just one of these methods. Other alternatives would include agency and equity. In
Prest , the court did this by using the equitable concept of trust. The case provides an excellent example of where
a remedy was provided not on veil piercing grounds but on other grounds, precisely as a result of the intervention
of equity. It should be noted that although the courts have used some of these methods such as agency to pierce

the veil, the Prest case shows that these methods could on the contrary be used to achieve the same just outcome
but without piercing the veil. Any fears that statute would lead to an increase in veil piercing should be allayed
by the Supreme Court’s restriction of the application of s.24 of the MCA 1974 in Prest .
And, although the outcome might be the same (that is, circumventing the Salomon principle and ultimately
holding the controller liable as in Prest ), regardless of whether the case is pursued via the alternative remedy
route or the veil piercing route, keeping both separate has the advantage, among others, of clarifying the law and
achieving justice in specific cases. Treating both together has contributed to the untidy state of the veil piercing
rule. As observed by Ottolenghi, 110 there is no piercing of the veil when recourse is made to directors under
statute. He observes that when the court resorts to directors, it does so because it regards them as an organ of the
company, its alter ego or its agent. Similarly, when it uses its statutory powers, e.g. under s.213 of the Insolvency
Act 1986 , it is not lifting the veil.
It should be noted that this article does not advocate the creation of new alternative remedies, as these already exist.
What is needed is the increased utilisation of the existing remedies. As observed by Nicholls in relation to statute,
"typically modern corporate statutes do deal explicitly with at least one aspect of veil piercing (imposing personal
liability on shareholders), but the courts regularly neglect to consider this legislation". 111
Indeed, the search for alternative remedies is not a novelty as there is a huge mass of statutory provisions in
company law imposing personal liability on controllers without the need to pierce the corporate veil. The s.993
fraudulent *Comp. Law. 49 trading provision of the Companies Act 2006 and the fraudulent 112 and wrongful 113
trading provisions of the Insolvency Act 1986 are but a few examples. The confusion in this area, which resulted in
statute being used as a veil piercing weapon, was an unfortunate development in the law. But Prest has hopefully
laid this to rest.
It should be clear from the discussion in this article that the search for alternatives to veil piercing is not a novel
undertaking. This is implied in many veil piercing cases, including Prest , and when the courts state that cases
that have always been regarded as veil piercing cases are not really such, they are really looking for alternatives
to veil piercing. The Yukong case, in which the court adopted a narrow and strict approach to veil piercing and
doubted whether many of the cases which were viewed as exceptions to Salomon could really be categorised
as such, is instructive. 114 It will be recalled that the court observed that these cases presented situations where
"the statute, contract or doctrine in question was wide enough to embrace the company and its shareholders". 115
In other words, all the parties fell within the liability rule and there was simply no need to pierce the corporate
veil. 116 Other examples include cases such as Gilford Motor and Jones .
It is significant that in Prest Lord Neuberger approved Munby J’s suggestion in the Ben Hashem case that the
court should only exercise its veil piercing power after "all other, more conventional, remedies have proved to be
of no assistance". 117 And the rule should only be invoked, as Lord Sumption stated, where
"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".
118
In relation to where these alternative remedies sit vis-à-vis the veil piercing rule, this means that the court should
apply the alternative remedies first and only apply veil piercing as a last resort.
Post- Prest cases show that the Court of Appeal in particular has heeded this call to exercise restraint in disturbing
the principle in Salomon . In the recent case of R. v Hyde , 119 the Court of Appeal made a clear separation
between the controller of a company and the company by holding that the Crown Court had been wrong to order
the forfeiture of firearms on the basis that they had been in the possession of a company director who had been
convicted of unlawfully trading in firearms. The court held that the firearms had been in the possession of the
company, not the director, and there was no justification for piercing the corporate veil. Similarly, in the more
recent R. v McDowell and R. v Singh 120 case, two businessmen, Mr McDowell and Mr Singh, appealed against

a confiscation order. Mr McDowell and Mr Singh each traded openly through a company of which he was the sole
director and shareholder. The Crown Court lifted the corporate veil and treated all the company receipts earned
while unlicensed or unregistered as personal receipts. On appeal by the businessmen, the Court of Appeal held,
applying Prest , that the corporate veil would be lifted for the purpose of ascertaining who was in control and
who had obtained the benefit. It had not been necessary to lift the corporate veil of McDowell’s company but the
court had been entitled to examine the company’s receipts and profits to ascertain M’s personal benefit.
Prest was applied recently in C v C 121 where Roberts J. followed Lord Sumption’s restrictions on invoking
the veil-piercing rule by refusing to lift the veil on the ground that the degree of control exercised by a husband
over companies he owned was not sufficient to make him the alter ego of the company so as to pierce the veil
[68]. Prest was also applied by the Supreme Court more recently in Gohil v Gohil 122 in the unrelated context
of adverse inference [41].
Conclusion
The UK Supreme Court judgment in Prest resonates with academic and judicial opinion on the subject. It appears
that the effect of the court’s decision is to uphold the Salomon principle without denying justice in deserving
cases. Preventing a fundamental principle in law from abuse and achieving justice in specific cases is always a
delicate balance for courts to achieve. The court certainly clarified some issues relating to the veil piercing rule. The
seriousness of the problems bedevilling the rule is reflected by the fact that the court even considered abolishing
it. And, the court came close to doing this by severely restricting the circumstances under which the rule can be
used. Lords Sumption 123 and Neuberger 124 considered whether to abandon the rule but concluded in favour of
retaining it within recognised limits in order to have some flexibility for novel situations not yet envisaged. 125
In reaching this conclusion, Lord Neuberger acknowledged that abolishing the rule would render the *Comp.
Law. 50 law clearer and also reduce costs and complications in some cases. The question arises as to whether the
abolition of the rule will be reconsidered if the novel situations not yet envisaged do not arise in the foreseeable
future. Claimants would now probably be better off seeking alternative remedies first, and the circumstances under
which the courts would pierce the veil are hard to find following Prest . As observed by Hannigan, the veil piercing
jurisdiction is so narrow that it could have been abolished as being of little consequence. 126 She notes that it is
doubtful that the rule will be called upon to deal with the yet to be envisaged novel situations for which Lords
Sumption and Neuberger decided to retain the rule after considering abolishing it. 127
Although Prest restricted the circumstances under which the veil would be pierced, the Sale case suggests that
the same outcome might be achieved by the court lifting the veil in the absence of clarifications on the piercing/
lifting and concealment/evasion distinction made by the Supreme Court. Indeed, it has been predicted that instead
of applications to pierce the veil, there will be applications to lift the veil on the ground that lifting is unaffected
by the limitations imposed on piercing in Prest . 128 The effect would be to undermine the Salomon principle.
And, it may be that while Prest attempted to clarify the law on piercing, the lack of clarity on the aforementioned
distinction and the seemingly liberal approach to lifting may have the effect of introducing new levels of confusion
and undermining the Salomon principle.
Dr Edwin C. Mujih
Footnotes
1 Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 2 A.C. 415 .
2 N. Shepherd, Case Comment, "Petrodel v Prest: Cheat’s Charter or Legal Consistency?" (2013)
1 Private Client Business 40.

3 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.
4 S. Bainbridge, "Abolishing Veil Piercing", UCLA School of Law (July 21, 2000), p.1, http://
papers.ssrn.com/paper.taf?abstract_id=236967 [Accessed 19 November 2015]. Bainbridge
argues that the standards by which veil piercing is effected are vague, leaving judges great
discretion. The result has been uncertainty and lack of unpredictability, increasing transaction
costs for small business (p.3). He further argues that veil piercing cases are highly fact-
specific; that successful veil piercing claims differ only in degree, but not in kind, from
unsuccessful claims (pp.36–37).
5 T.K. Cheng, "The Corporate Veil Doctrine Revisited: A Comparative Study of the English and
the U.S. Corporate Veil Doctrines" (2011) 34 Boston College International and Comparative
Law Review 329, 330–301.
6 D. Millon, "Piercing the Corporate Veil, Financial Responsibility, and the Limits of Limited
Liability" (2007) 56(5) Emory L.J. 1305, 1305.
7 R.J. Huss, "Revamping Veil Piercing for all Limited Liability Entities: Forcing the Common
Law Doctrine into the Statutory Age" (2001) 70 U. Cin. L. Rev. 95, 96.
8 H.W. Ballantine, Ballantine on Corporations (Chicago: Callaghan and Co, 1946), quoted in K.
Strasser, "Piercing the Veil in Corporate Groups" (2005) 37 Connecticut L.R. 637, 641.
9 Strasser, "Piercing the Veil in Corporate Groups" (2005) 37 Connecticut L.R. 637, 641.
10 Strasser, "Piercing the Veil in Corporate Groups" (2005) 37 Connecticut L.R. 637, 650.
11 VTB Capital Plc v Nutritek International Corp [2013] UKSC 5; [2013] 2 A.C. 337 .
12 See in particular Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [75]–[77].
13 Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [64].
16 VTB Capital v Nutritek [2013] UKSC 5; [2013] 2 A.C. 337 at [123].
17 C. Nicholls, "Piercing the Corporate Veil and the ‘Pure Form’ of the Corporation as Financial
Innovation" (2008) 46 Can. Bus. L.J. 233, 238–239.
18 The Tjaskemolen [1997] 2 Lloyd’s Rep. 465 QBD at 472.
19 Yukong Line Ltd of Korea v Rendsberg Investments Corp of Liberia (No.2) [1998] 1 W.L.R. 294
QBD at 305.
20 Atlas Maritime Co SA v Avalon Maritime Ltd (No.1) [1991] 4 All E.R. 769 CA (Civ Div) at
779G.
21 S. Ottolenghi, "From Peeping Behind the Veil, to Ignoring it Completely" (1990) 53 Mod. L.R.
338, 339.
22 Nicholls, "Piercing the Corporate Veil and the ‘Pure Form’ of the Corporation as Financial
23 Ben Hashem v Ali Shayif [2009] EWHC 864 (Fam); [2009] 1 F.L.R. 115 at [150].
25 Ottolenghi, "From Peeping Behind the Veil, to Ignoring it Completely" (1990) 53 Mod. L.R.
338, 339.
26 Berkey v Third Avenue Ry 155 N.E. 58, 61 (1926). Justice Cardozo’s statement was also quoted
by Lord Neuberger in Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [78].
338, 339.
28 P. Oh, "Veil-Piercing" (2010) 89 Texas L. Rev. 81, 84, quoted in Prest v Petrodel [2013]
UKSC 34; [2013] 2 A.C. 415 at [77]. He further laments, more recently, that the doctrine
which started as a means for creditors to reach into the personal assets of a shareholder has
devolved into a doctrinal black hole. He posits vis-à-vis limited liability that veil piercing
is "misapplied because it is misconceived". See P. Oh, "Veil-Piercing Unbound" (2013) 93
Boston University L. Rev. 89, 91.
29 H. Gelb, "Limited Liability Policy and Veil Piercing" (2009) 9(2) Wyoming L. Rev. 2, 551,
555.
30 Adams v Cape Industries Plc [1990] 1 Ch. 433 CA (Civ Div) .
31 D. Prentice, "Some Aspects of the Law Relating to Corporate Groups in the United
Kingdom" (1999) 13 Conn. J. Int’l L. 305, 319.

32 Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [27] and [28].
35 Salomon v A. Salomon & Co [1897] A.C. 22 HL .
37 Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [17] and [18].
39 Gencor ACP Ltd v Dalby [2000] 2 B.C.L.C. 734 Ch D .
41 Trustor AB v Smallbone (No.2) [2001] 1 W.L.R. 1177 Ch D , discussed in Prest v Petrodel
[2013] UKSC 34; [2013] 2 A.C. 415 at [32].
42 Gilford Motor Co v Horne [1933] Ch. 935 CA . In that case, Horne entered into a contract in
restraint of trade not to compete with his employers, Gilford Motor. He formed a company
which acted in breach of the contract. The Court of Appeal held that the company was a mere
sham to cloak the breach and issued an injunction against him and the company as well, even
though he was neither a member nor a director of the company.
43 Jones v Lipman [1962] 1 W.L.R. 832 Ch D .
44 Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [29], [30], [61], [69]–[71]. Lord
Neuberger said at [61] that "cases concerned with concealment do not involve piercing the
corporate veil at all". This would include cases such as Gilford Motor and Jones , which Lord
Sumption classified as concealment cases (at [29] and [30]). Lord Sumption said the injunction
against Mr Horne in Gilford Motor and the specific performance against Mr Lipman and his
company in the Jones case were all granted on the concealment principle.
51 Prentice, "Some Aspects of the Law Relating to Corporate Groups in the United
52 Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [64], [65].
53 See, contra, Nicholls, "Piercing the Corporate Veil and the ‘Pure Form’ of the Corporation
as Financial Innovation" (2008) 46 Can. Bus. L.J. 233. Nicholls argues that the principle
of limited liability is separate from corporate personality. The principle has been described
by Lord Templeman as the unyielding rock on which company law is constructed. See L.
Templeman, "Forty Years On" (1990) 11 Company Lawyer 10.
54 It was granted by the Limited Liability Act 1855.
55 For a brief discussion of the early opposition to the concept of limited liability, see Cheng,
"The Corporate Veil Doctrine Revisited" (2011) 34 Boston College International and
Comparative Law Review 329, 335-337.
56 For example, Stephen Bainbridge advocates the abolition of veil piercing in Bainbridge,
"Abolishing Veil Piercing" (2000), SSRN, http://papers.ssrn.com/paper.taf?abstract_id=236967
[Accessed 19 November 2015].
57 Professors Henry Hansmann and Reiner Kraakman argue in favour of the elimination of
limited liability with respect to tort claims so as to force investors to internalise those risks.
See H. Hansmann and R. Kraakman, "Toward Unlimited Liability for Corporate Torts" (1991)
100 Yale L.J. 1879, cited in Bainbridge, "Abolishing Veil Piercing" (2000), p.22, SSRN, http://
papers.ssrn.com/paper.taf?abstract_id=236967 [Accessed 19 November 2015].
Innovation" (2008) 46 Can. Bus. L.J. 233, 256.
Innovation" (2008) 46 Can. Bus. L.J. 233, 253. He argues that limited liability developed

separately from corporate personality and is not an offshoot of the courts’ interpretation of the
scope of the doctrine of corporate personality: at 255–256.
62 Gelb, "Limited Liability Policy and Veil Piercing" (2009) 9 Wyoming L. Rev. 2, 551, 568.
To buttress his argument that veil piercing does not subvert limited liability, Professor Gelb
observes that the threat of veil piercing encourages lawyers to advise their clients to follow
proper business practices.
63 However, Glynn has noted the inadequacies of veil piercing theories as a vehicle for extending
liability to shareholders given the unpredictability, inconsistencies and unprincipled nature
of veil piercing. See T.P. Glynn, "Beyond ‘Unlimited’ Shareholder Liability: Vicarious Tort
Liability for Corporate Officers" (2004) 57(2) Vanderbilt L. Rev. 329, 333 and 349.
64 Millon, "Piercing the Corporate Veil, Financial Responsibility, and the Limits of Limited
65 Thomas Cooper, quoted in J.H. Matheson, "The Modern Law of Corporate Groups: An
Empirical Study of Piercing the Corporate Veil in the Parent Subsidiary Context" (2009) 87
North Carolina L. Rev. 1091, 1093.
66 Easterbrook and Fischel, "Limited Liability and the Corporation" (1985) 52 U. Chi. L. Rev. 89,
89.
90.
90. Similar arguments have been advanced by Glynn in relation to limited liability partnerships
in the US. He argues that shareholders are not the only firm participants who enjoy limited
liability. Other stakeholders such as employees, creditors, etc., risk only their investment in
the firm: Glynn, "Beyond ‘Unlimited’ Shareholder Liability" (2004) 57(2) Vanderbilt L. Rev.
329, 340–341. It is worth asking whether veil piercing addresses this apparent imbalance. It is
suggested that the imbalance is not real as other providers of capital such as lenders can protect
themselves in contract in addition to the protection they already enjoy in insolvency rules and
other statutory protections.
69 Glynn, "Beyond ‘Unlimited’ Shareholder Liability" (2004) 57(2) Vanderbilt L. Rev. 329, 330–
332, cites Professor Nina Mendelson, "A Control-Based Approach to Shareholder Liability for
Corporate Torts" (2002) 102 Colum. L. Rev. 1203, who argues that limited liability increases
social cost and encourages excessive risky activities.
70 Hansmann and Kraakman, "Toward Unlimited Liability for Corporate Torts" (1991) 100
Yale L.J. 1879, cited in Bainbridge, "Abolishing Veil Piercing" (2000), p.26, SSRN, http://
papers.ssrn.com/paper.taf?abstract_id=236967 [Accessed 19 November 2015].
71 Bainbridge, "Abolishing Veil-Piercing" (2000), SSRN, http://papers.ssrn.com/paper.taf?
abstract_id=236967 [Accessed 19 November 2015].
Liability" (2007) 56(5) Emory L.J. 1305, 1358–1359.
75 M. Moore, "A Temple Built on Faulty Foundations: Piercing the Corporate Veil and the Legacy
of Salomon v Salomon " [2006] J.B.L. 180, 182.
76 Cheng, "The Corporate Veil Doctrine Revisited" (2011) 34 Boston College International and
Comparative Law Review 329, 334.
77 Woolfson v Strathclyde RC 1978 S.C. (H.L.) 90 HL .
78 DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 1 W.L.R. 852 CA (Civ Div) . Lord
Denning’s reasoning in this case has come under severe criticism. In the case, Lord Denning
compared a group of companies to a partnership and held that a parent company could claim
compensation for disturbance of business even though the business and the land on which it sat
were owned by different corporate entities.

79 Cheng, "The Corporate Veil Doctrine Revisited" (2011) 34 Boston College International and
Comparative Law Review 329, 334–335.
80 Smith, Stone & Knight v Birmingham Corp [1939] 4 All E.R. 116 KBD .
81 Lazarus Estates Ltd v Beasley [1956] 1 Q.B. 702 CA at 712.
82 DHN Food Distributors v Tower Hamlets LBC [1976] 1 W.L.R. 852 CA (Civ Div) ; Moore, "A
Temple Built on Faulty Foundations" [2006] J.B.L. 180, 182.
83 Exmoor Coast Boat Cruises Ltd v Commissioners for Her Majesty’s Revenue & Customs
[2014] UKFTT 1103 (TC) .
84 See Lord Sumption’s speech in Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [8].
85 For example in Nicholas v Nicholas [1984] F.L.R. 285 CA (Civ Div) , the judge ordered 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. In Mubarak
v Mubarak [2001] 1 F.L.R. 673 , Bodey J went against the Court of Appeal’s proposition in
Adams v Cape Industries by holding that in claims to ancillary financial relief, the Family
Division would lift the veil not only where the company was a sham but "when it is just and
necessary" to do so. In Prest itself, as seen earlier, the Family Division continued its liberal
attitude towards the veil piercing rule by piercing the corporate veil.
87 Kremen v Agrest (No.2) [2011] 2 F.L.R. 490 at [46], cited in Prest v Petrodel [2013] UKSC
34; [2013] 2 A.C. 415 at [23].
88 Nicholas v Nicholas [1984] F.L.R. 285 .
89 A v A [2007] 2 F.L.R. 467 .
90 Ben Hashem v Ali Shayif [2009] EWHC 864 (Fam); [2009] 1 F.L.R. 115 .
92 C. Hare, "Family Division, 0; Chancery Division, 1: Piercing the Corporate Veil in the
Supreme Court (Again)" (2013) 72(3) Cambridge L.J. 511, 514.
93 B. Hannigan, "Wedded to Salomon: Evasion, Concealment and Confusion on Piercing the Veil
of the One-man Company" (2013) 50 Irish Jurist 11, 18.
94 L. Onaran, "The Trust Behind the Veil" (2013) 5 Private Client Business 273, 273.
95 R. Matthews, "Clarification of the Doctrine of Piercing the Corporate Veil" (2013) 28(12)
J.I.B.L.R. 516, 519–520.
96 R. v Sale [2013] EWCA Crim 1306; [2014] 1 W.L.R. 663 .
97 Hannigan, "Wedded to Salomon" (2013) 50 Irish Jurist 11, 35–37. She concludes that a major
weakness in Prest is the lack of clarity on the distinction between evasion and concealment
and between piercing and lifting the veil—an unfortunate one given that the consequences of
piercing and lifting are remarkably similar, that is, a disregard of Salomon . She predicts that
the significance of the judgment will be undermined in the long term by its lack of detail about
the basis on which the corporate veil might be lifted (at 39).
98 E. Lim, "Salomon Reigns" 129 (2013) 129 L.Q.R. 480, 485.
99 L. Onoran, Case Comment, "The Trust Behind the Veil: Prest v Petrodel" (2013) 5 Private
Client Business 273, 279.
100 Hare, "Family Division, 0; Chancery Division, 1" (2013) 72(3) Cambridge L.J. 511, 514
notes, in respect of the court’s conclusion on s.24(1) MCA 1973 that the "conclusion has
the advantage of ensuring that the property concepts, and insolvency provisions are applied
consistently across all three High Court Divisions".
101 The Supreme Court’s decision in Prest falls in the former category, as the court provided a
remedy without lifting the veil, although the court of first instance in that case had tried to
pierce the veil in the latter, that is, under the MCA 1973 .
102 However, the recent Court of Appeal case of Chandler v Cape Plc [2012] EWCA Civ 525;
[2012] 1 W.L.R. 3111 has been used to argue that the courts are now increasingly willing to
circumvent the veil piercing rule through more conventional causes of action where justice
demands this and it is consistent with existing principle. See Matthews, "Clarification of the
Doctrine of Piercing the Corporate Veil" (2013) 28(12) J.I.B.L.R. 516, 520. In that case, the
claimant who had contracted asbestosis in the course of his employment with a subsidiary
company successfully sued the parent company in tort.

103 Although, as seen above, the evasion/piercing and concealment/lifting distinction potentially
introduces complexities in the area.
104 R. v McDowell [2015] EWCA Crim 173; [2015] Crim. L.R. 623 .
105 R. v McDowell [2015] EWCA Crim 173; [2015] Crim. L.R. 623 at [37].
107 Matthews, "Clarification of the Doctrine of Piercing the Corporate Veil" (2013) 28(12)
J.I.B.L.R. 516, 519.
108 Nicholls, "Piercing the Corporate Veil and the Pure Form of the Corporation as Financial
Innovation" (2008) 46 Can. Bus. L.J. 233, 257. See also at 236.
338, 342.
112 Insolvency Act 1986 s.213 .
113 Insolvency Act 1986 s.214 .
Kingdom" (1999) 13 Conn. J. Int’l L. 305, 320–321.
115 Yukong v Rendsberg Investments [1998] 1 W.L.R. 294 at 306.
119 R. v Hyde [2014] EWCA Crim 713 .
120 R. v McDowell [2015] EWCA Crim 173; [2015] Crim. L.R. 623 .
121 [2015] EWHC 2795 (Fam).
122 [2015] UKSC 61.
124 Prest v Petrodel [2013] UKSC 34; [2013] 2 A.C. 415 at [79]–[80].
125 Hannigan, "Wedded to Salomon" (2013) 50 Irish Jurist 11, 30
126 Hannigan, "Wedded to Salomon" (2013) 50 Irish Jurist 11, 30.
127 Hannigan, "Wedded to Salomon" (2013) 50 Irish Jurist 11, 30.
128 Hannigan, "Wedded to Salomon" (2013) 50 Irish Jurist 11, 30, 37.

Mujih, Piercing The Corporate Veil As A Remedy of Last Resort After Prest V Petrodel Resources LTD

Uploaded by

Copyright:

Available Formats

Mujih, Piercing The Corporate Veil As A Remedy of Last Resort After Prest V Petrodel Resources LTD

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Mujih, Piercing The Corporate Veil As A Remedy of Last Resort After Prest V Petrodel Resources LTD

Uploaded by

Copyright:

Available Formats

Piercing the corporate veil as a remedy of last resort after Prest v

Petrodel Resources Ltd: inching towards abolition?

© 2024 Thomson Reuters.

For educational use only

Criticisms of the rule and doubts over its existence—a redefinition

The family law and company law conflict

Comp. Law. 2016, 37(2), 39-50

Other related subjects

*Comp. Law. 39 Introduction

© 2024 Thomson Reuters. 1

Criticisms of the rule and doubts over its existence—a redefinition

Criticisms of the rule

© 2024 Thomson Reuters. 2

© 2024 Thomson Reuters. 3

Does the rule exist?

© 2024 Thomson Reuters. 4

The effects of veil piercing on corporate personality—academic

© 2024 Thomson Reuters. 5

© 2024 Thomson Reuters. 6

The veil piercing trajectory—judiciary

© 2024 Thomson Reuters. 7

The family law and company law conflict

© 2024 Thomson Reuters. 8

© 2024 Thomson Reuters. 9

© 2024 Thomson Reuters. 10

© 2024 Thomson Reuters. 11

© 2024 Thomson Reuters. 12

© 2024 Thomson Reuters. 13

© 2024 Thomson Reuters. 14

© 2024 Thomson Reuters. 15

© 2024 Thomson Reuters. 16

© 2024 Thomson Reuters. 17

You might also like