Piercing the Corporate Veil Flashcards
DHN. Food Distributors Ltd v Tower Hamlets London Borough Council [1976]] 1 WLR 852
(DHN - this case was not correctly decided, and, in any case, would be wrong under the Prest test. )
(decided under old law)
- Invovled a corporate group of 3 companies
- First company was DHN, Second was Bronze Ltd (B)., and thirdly, Transports (T).
- DHN carried on a grocery business, it was the parent company of the other 2. (owned all the shares in the other 2)
- B owned the premises that business of DHN was carried on from – it did not trade. Its sole asset was the freehold of the land.
- T is a haulage and transport company that worked wholly for DHN and DHN owned all the shares in it.
- All three companies had the same directors.
- The council compulsory acquired the land that DHN traded from.
- All three companies sought compensation under the land compensation Act 1961 regarding the lands value BUT ALSO for business disruption.
- The land tribunal held that as DHN did not own the land then its claim for compensation was negligible.
- All 3 companies when into liquidation
- The decision was appealed to the Court of Appeal which upheld the claim.
- Held, allowing D’s appeal (1) that the group of companies should be regarded as a single economic entity, the reality being that all of the group’s operations were wholly controlled by D Co.; (2) that in any event D Co. were entitled to compensation as irrevocable licensees, such licence arising out of D Co. having paid the entire purchase price for the property; (3) (per Goff and Shaw L.JJ.) that D Co. were the equitable owners of the property and thus qualified for compensation for disturbance.
- **decision was controversial in relation to VTB and Prest.
Woolfson v Strathclyde Regional Council 1978 SC (HL) 90
(Woolfson used the facade principle)
(Woolfson - the result was correct, but the test was wrong, given the doubts expressed in VTB Capital, and the test in Prest. )
(decided under old law)
HOL case
C ltd. operated a retail business which was involved in selling bridal attire at a shop which comprised 5 premises.
These premises were owned separately by two owners. 1 owner was Woolfson and the other was SHL.
Woolfson owned 3 of the premises. SHL owned 2 of the premises.
Woolfson owned 999 out of 1000 shares in C Ltd. (Complete control of it) his wife owned the other 1 share in C Ltd.
Woolfson was the sole director of C ltd.
Woolfson owned 2/3rds of shares in SHL.
SHL did not own any shares in C Ltd.
C Ltd. was the occupier of the 5 shops.
C paid rent but there was no formal lease arrangement.
Some of the land was compulsorily acquired by the council.
Woolfson tried to argue that himself, C ltd. and SHL should be treated as a single entity.
This argument was rejected by the HOL.
They distinguished the case of DHN on its facts. (was not the same coroprate group set-up)
Adam v Cape Industries plc [1990] Ch 433; 536
(Adams - the result was right. It applied the wrong test, as it applied Woolfson, but it said that you cannot pierce the veil owing to “the interests of justice”, ie, you cannot ignore Saklamon’s case, as it is inconvenient. This is entirely consistent with Prest.)
(decided under old law)
j
**VTB Capital plc v Nutritek International Corp [2013] UKSC 5
(One of the two new cases)
(Showed a lot of concerns over the Woolfson test of facade)
VTB capital lent a company (RAP) money of £225,000,000, with security for around £40,000,000, so that RAP could buy Dairy and associated companies from Nutritek.
After 3 repayments RAP defaulted on the loan.
VTB alleged fraud and conspiracy arguing that they were misled into making this loan.
VTB joined RAP, Nutritek and a gentleman called Mr. Malafees who was a Russian businessman alleged to control RAP, Nutritek and one other.
They argued that because of his ownership and control of these companies the corporate veil should be pierced and he should be liable on these contracts even though he was not party to the contract (loan agreement) on the basis of piercing the corporate veil.
VTB tried to make Mr. Malafees liable on the basis of the doctrine of piercing the corporate veil.
Court pointed out that if they had a claim against Mr. Malafees they could bring it directly against him.
They held that VTB would not be allowed to pierce the corporate veil, to do so would go well beyond current caselaw.
The case arose out of an application to sue people outwith of England (mainly in Russia), to do so you must show certain causes of action.
Supreme Court reviewed piercing the corporate veil in 32 years
Supreme Court also expressed concerns over Woolfson.
**Prest v Petrodel Resources Ltd [2013] UKSC 34
Evasion Principle is current law
Involved a divorce settlement
Under a certain English divorce act you must disclose any assets you have when going through a divorce.
A sum was awarded to Mrs Prest but Mr Prest did not pay up and he had breached various court orders asking him to disclose his financial affairs.
There were various companies that formed part of the Petrodel Group, they owned various properties in London which were purchased way before the couple divorced.
Mr Prest did not own the properties but he owned the companies.
Mrs Prest sought to pierce the corporate veil to satisfy the sum to be paid to her in the divorce settlement.
The Supreme Court declined to pierce the corporate Veil.
BUT HELD that the properties were held on trust for Mr Prest by the Companies. Given his control of the companies he could require them to transfer the properties to his wife.
Evasion
The court may disregard the corporate veil if there is a legal right against the person who is control of it which exists independently from the company’s involvement. And the companies is interposed so that the separate legal personality of the company would defeat the right of the third party against the person in control.
Where there is a pre-existing legal obligation you cannot simply use a company to try and get round it.
o Makes reference to Gillford Motor company
