new trends in piercing the corporate veil (conservative v liberal approaches) 3 december 2013
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New trends in piercing the corporate veil (conservative v liberal approaches) 3 December 2013 . Dr Aleka M andaraka – Sheppard Arbitrator LSLC – Maritime Business Forum . New trends in piercing the corporate veil (conservative v liberal approaches) . - PowerPoint PPT PresentationTRANSCRIPT
NEW TRENDS IN PIERCING THE CORPORATE VEIL (CONSERVATIVE V LIBERAL APPROACHES)
3 DECEMBER 2013
Dr Aleka Mandaraka – Sheppard Arbitrator LSLC – Maritime Business Forum
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NEW TRENDS IN PIERCING THE CORPORATE VEIL (CONSERVATIVE V LIBERAL APPROACHES)
Under English law
Under USA Rule B
attachment Under South
Africa associated ship arrest
Under Greek law
SC case
Under French law
AMS - LSLC
3ENGLISH LAWTHE UNYIELDING ROCK OF CORPORATE VEIL
• Salomon v A Salomon (1897): a century old principle:Corporate • Separate juristic personality• Separate rights, responsibilities, and assets from
shareholders • Provides way of limiting liability • encourages business development by non-interventionism
• NOT ALLOWED BY LAW TO PIERCE THE VEIL, EXCEPT IN SPECIAL CIRCUMSTANCES
AMS - LSLC
4HOW STRONG IS THE ROCK OF SALOMON?• Most advanced legal systems abide by the principle • But no international uniformity
• When the law permits exception to the rule, the effect of piercing is drastic:
• disregard of corporate personality
• Depriving company or its controllers of advantages they would have obtained by company’s separate personality
AMS - LSLC
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QUESTIONS EXAMINED BY ENGLISH COURTS:
Would piercing corporate veil be applicable:
• For interests of justice?
• To what impropriety of controllers?
• If there are other remedies in law?
• To hold controllers liable under corporate’s contract?AMS - LSLC
LIFTING OR PIERCING VEIL• Lifting (ordering evidence to peep behind veil for certain legal
purpose)
• is distinguished from piercing (ultimate result – sanction - remedy) • See Coral Rose (1991) per Staughton LJ • But these terms are confusingly used indiscriminately in many
cases
• Now ‘Concealment’ cases are equated to lifting – not piercing: (per Lord Sumption – in Petrodel) court is looking behind the veil to discover true facts AMS - LSLC
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7PIERCING VEIL – HISTORICAL OVERVIEW
• 1897 to 1966, HL could not overrule itself during this period
• Salomon rule applied faithfully
• Gilford Motor v Horne (1933) and Jones v Lipman (1962) had been considered (on their facts) classic cases for piercing • In former, a solicitor set up a company to avoid a covenant by
previous employers (injunction obtained to prevent him)
• In latter, Lipman set up a company to avoid a conveyance transaction and transferred land to company (specific performance granted) – equitable remedies AMS - LSLC
8PIERCING VEIL – HISTORICAL OVERVIEW• In 1969 Lord Denning MR – encouraged lifting of veil
• (Littlewoods Mail Order v IRC) and 1976 (DHN Food Distributors v Tower Hamlets)
• for interests of justice – • basis: corporate structure one economic unity • brought uncertainty to safety of corporations
• Interventionist years until early 1980s
AMS - LSLC
9PIERCING VEIL – HISTORICAL OVERVIEW In 1978 Lord Keith disapproved of the Denning decisions in Woolfson v Stratclyde • Reaffirmed Salomon
• Stated (obiter): ‘appropriate to pierce corporate veil only where special circumstances exist indicating that it is a mere façade concealing the true facts (meaning a deliberate dishonest purpose)
• Decision had strong and persuasive influence
• In Re Company (1985) CA allowed piercing for interest of justice: but corporate structure used by controller to divert assets to avoid liabilitiesAMS - LSLC
10PIERCING VEIL – OVERVIEW
• In 1988 Lord Donaldson MR in Evpo Agnic crystallised legitimacy of one-ship companies (SA jurisdiction undermines it)
• In 1989 Adam v Cape CA: • further support of non-intervention with corporate structures
• rejected piercing on basis of one economic unity and interest of justice• may be one entity for economic purposes but not one unit for
legal purposes
• Cape had used corporate form legitimately AMS - LSLC
11PIERCING VEIL – OVERVIEW
• Freezing injunctions obtained e.g Kensington International v Congo (2005) against Vitol and controllers of company
• In Linsen v Humpuss (2011) evidence of abuse of corporate structure – good arguable case that
• purported sales of vessels to 3rd def were shams to render enforcement of judgment against 1st def more difficult
• But Flaux J discharged the freezing injunction – 3rd def not liable under underlying contract for chartered hire AMS - LSLC
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PIERCING VEIL – OVERVIEW
• In family division judges followed less rigid approach: on basis of ‘what is just and necessary to protect families after divorce
• But Munby J in A v A said (2007):
• there is not one law of ‘sham’ in the Chancery division and another in the Family division – there is only one law of ‘sham’ to be applied by all courts
AMS - LSLC
13NEW TREND-LIMITATIONS? PETRODEL V PREST (2013)
• ‘sham’ or ‘façade’ considered by Lord Sumption in Petrodel as begging too many questions
•Don’t give answer to what is relevant ‘wrongdoing’ by controllers
AMS - LSLC
14NEW TREND – WHAT IMPROPRIETY?• Petrodel: If piercing the veil has any role to play,
• There must be both control by shareholder and impropriety
• The impropriety is in relation to deliberate evasion of existing and independent liabilities of the controller
• whose enforcement the controller deliberately frustrates by interposing the company’s personality
• No piercing of veil if there is another remedy in law – no justice imperative AMS - LSLC
15NEW TREND – LIMITATION - VTB CAPITAL V NUTRITEK
• Question: how far the scope of exception to Salomon be extended?• Could controllers become parties to company’s contract?
• Burton J held in Gramsci v Stepanovs (2011):arguable case to pierce veil to permit an action against controllers under jurisdiction cl of contact
• Disapproved of by CA and indirectly overruled by SC in VTB Capital (2013): • Held: no direct contractual right to jurisdictionAMS - LSLC
16NEW TREND – LIMITATIONS TO PIERCING VEIL
• VTB Capital: no extension of scope of piercing veil to hold controllers contractually liable to claimant for debt of company
• Principle could not be invoked to create new liability
• Declined to pierce veil when there are other remedies available e.g. tort of deceit or equitable remedies
• Flaux J had held same in Lindsay v O’Loughnane (2010) and Warren J in Dadourian v Simms (2006) AMS - LSLC
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NEW TREND – LIMITATIONS TO PIERCING VEIL
Lord Neuberger in VTB Capital and in Petrodel: • ‘piercing veil is a potentially valuable tool to undo wrongdoing in
some cases, where there is no other remedy available’ (narrow rule)
Lord Sumption in Petrodel: • ‘the recognition of a limited power to pierce veil in carefully defined
circumstances is necessary if the law is not to be disarmed in the face of abuse’ (perhaps broader rule?)
• WHAT DOES IT MEAN? Over to Simon and Robert • THANK YOU AMS - LSLC