Prest v Petrodel Resources Ltd [2013] UKSC 34

The modern starting point for every argument about piercing the corporate veil, and a case that is more often misquoted than correctly applied. The Supreme Court confirmed the doctrine exists, confined it to a vanishingly narrow set of circumstances, and then decided the actual case in front of it without using the doctrine at all.

The Facts

Mr Michael Prest and Mrs Yasmin Prest divorced after a long marriage. In the ancillary relief (financial remedy) proceedings, the wife sought an order under the Matrimonial Causes Act 1973 in respect of a portfolio of substantial London properties that were legally owned not by the husband personally, but by a group of companies he controlled, referred to as the Petrodel group.

The trial judge found, as a fact, that the husband had behaved with persistent obstruction throughout the proceedings, had deliberately failed to give full and frank disclosure of his assets, and had given evidence the judge did not accept as truthful. Faced with an uncooperative respondent and a corporate ownership structure standing between the wife and the properties, the judge made an order piercing the corporate veil, treating the properties as the husband’s own for the purposes of satisfying the wife’s award. The companies appealed.

Procedural History

• High Court, Family Division (Moylan J): pierced the corporate veil and ordered the properties transferred to satisfy the wife’s award, based on the husband’s ownership and control of the companies and his conduct in the proceedings.
• Court of Appeal [2012] EWCA Civ 1395: allowed the companies’ appeal by a majority, holding that the family courts had no special power to pierce the veil beyond the ordinary principles applied elsewhere in English law, and that those principles were not satisfied on the facts.
• Supreme Court [2013] UKSC 34: allowed the wife’s appeal, restoring the practical outcome (the properties available to satisfy her award), but on an entirely different legal basis, a resulting trust, rather than by piercing the corporate veil, which the Court unanimously declined to do.

The Issues

1. Does English law recognise a distinct doctrine allowing a court to pierce the corporate veil, and if so, what are its limits?
2. Do the Family Division and the Matrimonial Causes Act 1973 permit a more relaxed approach to piercing the veil than applies in company and commercial law generally?
3. Were the London properties, although legally owned by the companies, nevertheless held on trust for the husband, such that they were his property without any need to pierce the veil?

The Ratio: Evasion, Not Concealment

Lord Sumption, giving the lead judgment, drew a sharp distinction between two categories previously blurred in the case law. Concealment cases are those where a company or trust structure is used to hide the identity of the real parties involved in a transaction, or to obscure who really owns an asset. These cases require no special veil-piercing doctrine at all: the court simply looks behind the concealment using ordinary legal techniques, such as establishing who the true contracting party or beneficial owner is, exactly as it would in any case involving nominees or agents. Evasion cases are different in kind: here the corporate structure is not hiding a pre-existing fact, but is being actively used as a legal shield to defeat a right the claimant already has against the individual. Only this second, narrower category properly engages the veil-piercing doctrine, and Lord Sumption held that on the facts of Prest itself, this narrow evasion principle was not engaged, because the companies had not been interposed by the husband to evade a pre-existing obligation to his wife; they had simply always owned the properties.

The Resulting Trust: How the Case Was Actually Won

Having declined to pierce the veil, the Supreme Court nevertheless allowed the wife’s appeal and restored her practical remedy, using an entirely orthodox and, in the Court’s words, more principled route: a resulting trust. Where a person provides the purchase money for a property that is put into the name of another (here, a company), and there is no evidence of any other intention, equity presumes that the property is held on trust for the person who provided the money. Because the husband had funded the purchase of the London properties and had given no truthful account of any different arrangement, the adverse inference drawn from his own lack of candour and false evidence was significant here, the Court held the properties were held by the companies on resulting trust for him personally. Being beneficially his, the properties counted as property "to which he is entitled" for the purposes of s24 of the Matrimonial Causes Act 1973, achieving exactly the outcome Mrs Prest needed without any need to disregard the companies’ separate legal personality at all.

Authorities Considered

Salomon v A Salomon & Co Ltd [1897] AC 22

The foundational House of Lords authority establishing that a validly incorporated company is a separate legal person from its shareholders, even where one person owns and controls the entire company. Prest reaffirms Salomon’s continuing central importance, treating any exception to it as requiring strong justification.

Gilford Motor Co Ltd v Horne [1933] Ch 935 and Jones v Lipman [1962] 1 WLR 832

The classic evasion-category precedents Lord Sumption approved as correctly decided within the narrow principle: in each, an individual already under an existing legal restraint (a restrictive covenant, a contract for sale of land) interposed a company specifically to defeat that pre-existing obligation, and the court pierced the veil to prevent the device succeeding.

Ben Hashem v Al Shayif [2008] EWHC 2380 (Fam)

A first-instance family case Lord Sumption cited approvingly for its careful summary of the principles, treated as a helpful staging post in the law’s development towards the analysis the Supreme Court ultimately adopted.

Obiter on the Scope of the Principle

The Justices were not unanimous on every aspect of the reasoning, and some of the broader observations on the theoretical basis and precise boundaries of the evasion principle are properly regarded as obiter, since the principle was found not to apply on the facts in any event. Lady Hale and Lord Wilson expressed some reservations about the width of Lord Sumption's formulation and suggested the family courts' wider practice under the Matrimonial Causes Act might still have a role distinct from the general commercial law doctrine, though this qualification has not displaced Lord Sumption's analysis as the leading statement of principle in subsequent case law.

Relevance to HMRC Disputes

Prest is the standard starting authority whenever HMRC, or a taxpayer resisting HMRC, raises an argument that a company's separate legal personality should be disregarded: for example, where HMRC wishes to treat company assets or company conduct as those of a controlling director personally, outside the specific statutory attribution routes such as Personal Liability Notices, s455 charges, or the managed service company debt-transfer provisions. Prest confirms this is genuinely difficult to achieve through veil-piercing itself: HMRC will usually do better, and more often succeeds, by using the ordinary techniques Prest endorses in the concealment category (establishing who beneficially owns an asset, who a company is really acting as agent for), or by relying on specific statutory attribution powers, rather than by asking a tribunal to pierce the veil as a general remedy.

Practitioner Application

Assessing a veil-piercing argument

• Ask whether this is really an evasion case or a concealment case. If the company structure is simply obscuring who owns an asset or who is really party to a transaction, look for a trust, agency or interpretation argument first, that route requires no special doctrine and is far more likely to succeed.
• Identify the pre-existing obligation being evaded. True veil-piercing requires an obligation that already existed before the company was interposed to defeat it. A company that has simply always owned an asset, with no antecedent personal obligation in the background, will not satisfy the test, as Prest itself shows.
• Look for a resulting or constructive trust before reaching for veil-piercing. Where an individual funded an asset personally, or diverted what should have been personal or company funds, equitable ownership arguments are usually the stronger and more conventional route.
• Treat veil-piercing as a last resort, available only where no other remedy achieves justice, exactly the framing Lord Sumption gave it.

Common mistakes

• Citing Prest as authority that courts readily pierce the corporate veil, when the actual outcome was the opposite. The veil was not pierced.
• Failing to plead or investigate a resulting trust or beneficial ownership argument as an alternative to veil-piercing, when it is very often the stronger route.
• Treating "the company is wholly owned and controlled by one person" as, by itself, sufficient for veil-piercing: Salomon and Prest both confirm it is not.

Frequently Asked Questions