Robert Goddard reports:
Judgment was delivered today by the Supreme Court in Hurstwood Properties (A) Ltd & Ors v Rossendale Borough Council [2021] UKSC 16. The case provided the opportunity for the court - once more - to consider corporate veil piercing, against the background of its earlier decision in Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34.
...
Lords Briggs and Leggatt delivered the leading judgment (with whom Lords Reed, Hodge and Kitchen agreed) and observed:
[In Prest] Lord Walker of Gestingthorpe questioned whether “piercing the corporate veil” is a coherent principle or rule of law at all, as opposed to simply a label used to describe the disparate occasions on which some rule of law produces apparent exceptions to the principle of the separate juristic personality of a corporate body (para 106). Although this is not the occasion for reaching any final view, we are inclined to share Lord Walker’s doubts .... Even if there is an “evasion principle” which may in “a small residual category of cases” (per Lord Sumption) justify holding a company liable for breach of an obligation owed by its controlling shareholder, we are not ourselves convinced that there is any real scope for applying such a principle in the opposite direction so as hold a person who owns or controls a company liable for breach of an obligation which has only ever been undertaken by the company itself".The Prest decision makes very interesting reading for those of us who have toiled in the PCV vineyard.
"Piercing the corporate veil" is an expression rather indiscriminately used to describe a number of different things. Properly speaking, it means disregarding the separate personality of the company. There is a range of situations in which the law attributes the acts or property of a company to those who control it, without disregarding its separate legal personality. The controller may be personally liable, generally in addition to the company, for something that he has done as its agent or as a joint actor. Property legally vested in a company may belong beneficially to the controller, if the arrangements in relation to the property are such as to make the company its controller's nominee or trustee for that purpose. For specific statutory purposes, a company's legal responsibility may be engaged by the acts or business of an associated company. ... Equitable remedies, such as an injunction or specific performance may be available to compel the controller whose personal legal responsibility is engaged to exercise his control in a particular way. But when we speak of piercing the corporate veil, we are not (or should not be) speaking of any of these situations, but only of those cases which are true exceptions to the rule in Salomon v A Salomon and Co Ltd [1897] AC 22, i.e. 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.The question is heavily burdened by authority, much of it characterised by incautious dicta and inadequate reasoning.
In my view, the principle that the court may be justified in piercing the corporate veil if a company's separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in the authorities. It is true that most of the statements of principle in the authorities are obiter, because the corporate veil was not pierced. It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. But the consensus that there are circumstances in which the court may pierce the corporate veil is impressive. I would not for my part be willing to explain that consensus out of existence....The difficulty is to identify what is a relevant wrongdoing. References to a "facade" or "sham" beg too many questions to provide a satisfactory answer. It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle. The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases the court is not disregarding the "facade", but only looking behind it to discover the facts which the corporate structure is concealing. The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement.
Although there are many reported cases, the reasoning is even more typically ad hoc than the American experience. Commentators attribute this approach to the fact that the English courts were reluctant to invent a new doctrine from whole cloth, preferring instead to use existing precedents from agency law or the law of trusts to fashion remedies for frustrated creditors. ...
The case of Adams v. Cape Industries plc (1990) is widely cited as the death of expansive enterprise liability and veil piercing in Britain. ... The end result has been that veil piercing is now “a rarity under English law,” especially in tort cases, “[e]ven where the case for applying the doctrine may seem strong, as in the undercapitalized one-person company.”
As a U.S. court noted, there is a “key distinction in English law between using the corporate form to evade or conceal existing legal obligations or wrongs on the one hand, and using it to insulate oneself from future or contingent liabilities on the other.” In re Tyson, 433 B.R. 68, 94 (S.D.N.Y. 2010). Only the former could justify veil piercing.
As a result, we concluded that "British courts are more reluctant to pierce the veil or combine a corporate group than American courts."
I'm inclined to think it would be fun to revisit this issue and compare US and UK law in more detail.
The chapter from which I'm drawing, by the way, has discussion of veil piercing in the law of most major economies around the world.
For more on veil piercing in the UK, I suggest tracking down Marc Moore, "A temple built on faulty foundations": piercing the corporate veil and the legacy of Salomon v Salomon, J.B.L. 2006, Mar, 180-203. It's on Westlaw under International Materials.
