SUPREME Court decisions are like buses. Following a decades-long wait for the House of Lords to clarify Lord Keith's dictum in Woolfson v Strathclyde Regional Council 1978 S.C. (H.L.) 90 that the corporate veil can only be “pierced” at common law “where special circumstances exist indicating that [a company] is a mere façade concealing the true facts”, the Supreme Court has now considered this jurisdiction twice in quick succession (its first decision being VTB Capital plc v Nutritek International Corporation [2013] UKSC 5; noted [2013] C.L.J. 280).

Prest v Petrodel Resources Ltd. [2013] UKSC 34 concerned an application by Mrs Prest against her husband for ancillary relief under the Matrimonial Causes Act 1973 (“MCA”), ss. 23–24 following their divorce. Mrs Prest joined seven companies, ultimately owned and controlled by her ex-husband, as co-respondents to her application, alleging that they held certain London properties (including the matrimonial home) on behalf of Mr Prest. Moylan J. ordered Mr Prest to pay his ex-wife £17.5m ([2011] EWHC 2956 (Fam)) and to procure the transfer of seven London properties held by Petrodel Resources Ltd (“PRL”) and Vermont Petroleum Ltd (“Vermont”) in satisfaction of that liability. His Lordship considered that, as Mr Prest “effectively” owned those properties, the MCA's “purpose and intention” justified his ordering their transfer. A majority of the Court of Appeal disagreed ([2012] EWCA Civ 1395), finding no basis at common law or under the MCA for Moylan J.'s property transfer order.

Before a seven-member Supreme Court, Mrs Prest argued that Moylan J.'s property transfer order was justifiable if the court was prepared to pierce the companies' veil (either at common law or pursuant to the MCA) or to accept that the companies held the London properties on trust for Mr Prest, so that he was “entitled, either in possession or reversion” to them under MCA, s. 24(1)(a). The Supreme Court unanimously accepted the latter suggestion. Lord Sumption considered that the meagre evidence pointed to Mr Prest having directly or indirectly provided the purchase price for the London properties. Accordingly, it was presumed that “PRL was not intended to acquire a beneficial interest in [those properties]” and held them on resulting trust for Mr Prest. Moreover, Mr Prest's deliberate refusal to explain the circumstances surrounding the London properties' acquisition meant that there was no evidence to rebut that presumption and that it was open to the Court to draw adverse inferences regarding the ownership of the London properties from Mr Prest's silence. Three points are noteworthy. First, Lord Sumption (with Lord Wilson and Lady Hale) stressed that both the special inquisitorial nature of ancillary relief proceedings (with its concomitant duty of full and frank disclosure on spouses) and the public interest in preventing uncommunicative spouses from avoiding their maintenance obligations made it particularly appropriate for Family Division judges, without engaging in “pure speculation”, to draw such adverse inferences from a spouse's silence as the judge's experience and the “inherent probabilities” suggested. Secondly, Lord Sumption's conclusion that the matrimonial home in Prest was held on resulting trust might indicate that such trusts have not yet been totally eclipsed by the constructive trust in the matrimonial home context: Jones v Kernott [2011] 3 W.L.R. 1121. Thirdly, his Lordship's formulation of the presumption of resulting trust supports Lord Millett's suggestion in Air Jamaica Ltd v Charlton [1999] 1 W.L.R. 1399 that the resulting trust “responds to the absence of any intention on [the transferor's] part to pass a beneficial interest to the recipient”.

Although strictly unnecessary, the Supreme Court, unanimously rejected both strands of Mrs Prest's veil-piercing argument. Significantly, their Lordships all accepted (although Lord Neuberger hesitated) the existence of a general common law veil-piercing jurisdiction albeit one limited to rare and exceptional circumstances. Such a resounding endorsement is welcome, given that VTB left this issue open. In identifying the scope of that jurisdiction, Lord Sumption distinguished between two (potentially overlapping) principles, namely the “concealment” and “evasion” principles (Lord Neuberger applied the alternative labels of “lifting” and “piercing” the corporate veil to those two principles: The Coral Rose (No. 1) [1991] 4 All E.R. 769, 779). Whilst their remaining Lordships approved this distinction, Lady Hale and Lords Wilson, Mance and Clarke expressed doubts as to its comprehensiveness. For Lord Sumption, the “concealment principle” only involves “looking behind [the corporate form] to discover the facts which [it] is concealing”. An example would be where a third party must identify the company with its controlling shareholder in order to establish some element of its cause of action against that shareholder: Gencor ACP Ltd. v Dalby [2000] 2 B.C.L.C. 734; Trustor AB v Smallbone (No. 2) [2001] 1 W.L.R. 1177. In contrast, the “evasion principle” (the only true exception to Salomon v A. Salomon & Co. Ltd. [1897] A.C. 22) involves disregarding the company's separate personality so as to deprive its controller(s) of any benefit deriving therefrom. It applies “when 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”, but not when a controller simply causes his company (or a particular member of a corporate group) to incur a liability in the first place. This echoes the distinction in Adams v Cape Industries plc [1990] Ch. 433 between evading pre-existing and future obligations. As Mr Prest's actions involved wealth protection and tax avoidance measures, but not the evasion of any pre-existing legal obligation to his ex-wife, the “evasion principle” did not apply. In contrast, Lord Sumption identified Gilford Motor Co. Ltd. v Horne [1933] Ch. 935 and Jones v Lipman [1962] 1 W.L.R. 832 as classic examples of that principle's operation. It is difficult, however, to square his Lordship's treatment of those cases with his recognition that Gilford might well be explicable on other more conventional grounds and his acceptance that the “evasion principle” will only apply when strictly necessary. Lord Neuberger spotted this tension and (reiterating his views in VTB) refused to treat either Gilford or Jones as examples of the “evasion principle”. Lord Walker agreed. Accordingly, those decisions' precise standing remains obscure.

The alternative argument, that (consistently with Family Division practice) the MCA conferred a “special and wider power” to pierce the corporate veil, fared no better. Although Adams accepted that a particular statutory scheme might carve a niche out of the Salomon principle, Lord Sumption was concerned that, once recognized, the veil-piercing power under the MCA would inevitably be deployed against honest and dishonest spouses alike. Indeed, his Lordship considered such a power to be inconsistent with the plain wording (and, according to Lady Hale, the statutory history) of MCA, s. 24(1)(a), which only empowered the courts to order the transfer of property to which a spouse was “entitled, either in possession or reversion”. These words require a spouse to have a legal or equitable proprietary interest in the relevant assets and not simply control over their disposal. According to Macaura v Northern Assurance Co. Ltd. [1925] A.C. 619, however, even a sole shareholder does not acquire any proprietary interest in his company's assets, but merely a right to share in the company's profits and residual assets. It follows that, whilst the assets of a company in which a spouse has a controlling interest may be relevant to the assessment of that spouse's financial resources under MCA, ss. 25(2)(a), those assets are not specifically transferable pursuant to MCA, s. 24(1)(a). This conclusion also has the advantage of ensuring that property concepts, and corporate and insolvency provisions are applied consistently across all three High Court Divisions. Otherwise, property transfer orders risk undermining the capital maintenance doctrine or conflicting with the provisions in the Companies Act 2006 regulating capital reductions or in the Insolvency Act 1986 prohibiting transactions at an undervalue. The Family Division is not a “desert island”.

It may be objected, however, that the strict application of commercial principles to ancillary relief proceedings might encourage spouses to shelter assets in corporate shells or hamper the Family Division in dividing the matrimonial assets fairly in such cases. There are two possible rejoinders. First, where a spouse clearly acts with the intention of defeating an ancillary relief claim, a court may invoke the (admittedly limited) anti-avoidance provision in MCA, s. 37. Secondly, where a spouse's financial resources include corporate interests, financial provision for the other spouse could include an order directing the transfer of shares in the company, rather than corporate assets. Such an order both respects the separate corporate personality and avoids unduly prejudicing the company's creditors by judicially removing corporate assets. Whilst, as Lord Sumption accepted, a share transfer order might prove worthless where the relevant spouse and their company are not amenable to the English jurisdiction, an order for the transfer of corporate property may prove no more successful in such circumstances.