Nonetheless, numerous cases have set outtests where this doctrine can be invoked by the court. The rationale for studying veil-piercing isthat their have been many inconsistent judgments concerning piercing thecorporate veil. A court may beencouraged to pierce the corporate veil if it causes injustice, in order toidentify a liability.1 For a long time courts have usedmetaphors to justify treating an act as a liability of a company. In the caseif Pres v Petrodel Resources Ltd (2013)it was accepted that piercing the corporate veil should only be accepted incases, which involve fraud or improper use to the corporate form.2 PRESTThe case of Prest v Petrodel Resources that argued whether or not English lawrecognizes the concept of corporate veil.3 In this case Mr.
Prest owned a networkof offshore companies where he was in total control. The business was limitedto owning residential properties including a house he owned with his wife.After their marriage failed Mrs.
Prest made a claim against her husband forfinancial assistance on the value of real estate owned by his company.4However, he denied they were his and denied to give full disclosure of hisassets. Originally according to section 24 of the Matrimonial Causes Act the Court ordered the companied to transferher husband’s assets to Mrs. Prest.5The Supreme Court then ordered that the assets owned by her husband alone couldbe transferred.6This case received a lot of attention due to how the doctrine of ‘piercing thecorporate veil’ was treated.
The two limitations of the Courts powerto pierce the corporate veil become clear. The first being Lord Sumption statedthat if it is not necessary to pierce the corporate veil then it is notnecessary to do so.7Whereas Lord Clarke stated that the court may only pierce the veil if theconventional remedies are of no help. The second limitation being if the Court canprovide the claimant a remedy if a controller who has a legal obligation provesthe control of the company, which he or she is evading.
8 Lord Sumption attempted to clarify thedoctrine in the case of Prest bystating that the term ‘piercing the corporate veil’ means disregarding the separatelegal personality of a company.9 He attempted to distinguish it from asituation where the law regards the acts of a company to those who are incontrol without ignoring the company’s legal personality. Lord Neuberger stated that it is evident fromthe leading case of Prest that the law relating to the doctrine is confusingand unsatisfactory.10 Thus, as claimed in the Denning lawjournal, Lord Sumption divided the cases into the ‘evasion principle’ and’concealment principle’.11 EVASION PRINCIPLE Lord Sumption explained that the evasionprinciple applies when a person under a legal obligation seeks to evade thatobligation by placing a company under their control. Only the first principle,evasion principle requires piercing of the veil. In which Lord Sumptionillustrated in the cases of Gilford MotorCo v Horne (1993) and Jones v Lipman(1962).
12In this case a court may pierce the corporate veil but only to deprive thecompany of the advantage it would otherwise have. It is only justified topierce the corporate veil if it is to prevent fraud. Although it must be demonstrated that thealleged wrongdoer is in control and that there was a wrongdoing where there wasthe misuse of corporate structure.13 In the case of Gilford Motor Co v Horne (1993), Lord Sumption stated that theevasion principle was invoked to make the company liable.14It was stated in the case that the company was a device that enabled Mr.
Horneto continue to breach.15 Just like in the case of Jones v Lipman (1962) where thecompany’s was a mask to avoid a specific performance order, and the evasionprinciple was invoked to make the company liable.16Russell J claimed that: “The defendant company is the creature ofthe first defendant, a device and a sham, a mask which he holds before his facein an attempt to avoid recognition by the eye of equity…an equitable remedy isto be granted against the creature in such circumstances.’17 Thus coming to the conclusion that the evasionprinciple is narrow when applied.
However it is also clear that the evasionprinciple is so narrow it can cause injustice as seen in the case of Ord v Belhaven Pubs Ltd (1998).18 CONCEALMENT PRINCIPLEThe concealment principle is when twolegal persons are able to grant a remedy without piercing the veil. Theconcealment principle intervenes when the company tries to conceal the identityof the actor, it does not require for the veil to be pierced.
19 Lord Sumption highlighted two main caseswhere the company was a sham but they should have been resolved withoutpiercing the veil as in the case of TrustorBV v Smallbone (2001).20 In this case the director breached hisduties when he transferred money to a company he personally owned. The company sought to make Mr.
Smallboneliable; the judgment held that there was enough evidence to life the veil.21In addition, the case of Gencor APC ltd.V Dalby (2000) it was held that Mr.
Dalby was liable and lifting thecorporate veil was appropriate.22However, Lord Sumption suggested that on both cases lifting the corporate veilcould have been avoided and resolved on the basis that the companies meremerely an agent of the controllers.231 (n-5)2 2013UKSC 34 (SC)3 ibid4 ibid5 ibid6 ibid7 (n-11) Lord Sumption 8 (n-11) Lord Clarke9 (n-11)10 (n-11)11 (n-11)12 1933 Ch 935 (CA), 1962 1 WLR 832 (EWHC) 13 ibid14 ibid15 ibid16 1962 1 WLR 832 (EWHC)17 (n-25) at 836-83718 1998 2 BCLC 447 (CA)19 (n-11)20 2001 EWHC 703 (Ch)21 ibid22 2000 EWHC 1560 (Ch) 23 ibid, Lord Sumption