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Does VTB v Nutritek foreshadow the Supreme Court’s approach to the Petrodel appeal on piercing the corporate veil?

Emily Marshall, family law professional support lawyer at Irwin Mitchell considers the possible implications of the Supreme Court’s decision in a commercial case on the forthcoming appeal in the Petrodel appeal, to be heard in March.

Emily Marshall, family law professional support lawyer at Irwin Mitchell solicitors

The Supreme Court has affirmed the Court of Appeal's decision in VTB v Nutritek, a key commercial case referred to by the Court of Appeal majority in Petrodel v Prest in support of its decision against the wife that she was not entitled to enforce her financial provision award against certain properties "owned" by the husband through a corporate structure.

The Supreme Court's decision in VTB v Nutritek is of interest because it offers some insight into how the wife's appeal in Petrodel v Prest on piercing the corporate veil is likely to be received by the Supreme Court on 5-6 March 2013.

At present, the wife is appealing the Court of Appeal's decision on the limited ground that the court was wrong to hold that in financial provision proceedings, it is not lawfully open to the court to treat the assets of a company of which the spouse is the sole controller as being assets to which that spouse is "entitled" for the purposes of section 24(1)(a) of the MCA 1973.

The wife is, however, also asking for permission to appeal on the additional ground that the circumstances in which the court can pierce the corporate veil are wider than those recognised in the Court of Appeal.

The judgment in VTB v Nutritek suggests that the wife's arguments are unlikely to be met with support in the Supreme Court.

On a separate but related note, the panel of Supreme Court judges who will be hearing the wife's appeal in Petrodel v Prest has been increased from five to seven. Only two judges on the panel, Lady Hale and Lord Wilson, have a background in family law.

Relevant facts of VTB v Nutritek (boiled down)
Party A argued that the court should pierce the corporate veil of company X, and identify a liability of that company (as opposed to an asset – as in Petrodel v Prest), with the individual alleged to be its controller and ultimate owner ("Party B").

Party A submitted that Party B had used the separate legal status of company X to disguise the ownership and control that he ultimately exercised over it, and in these circumstances, "the corporate veil of [company X] should be lifted, exposing … [Party B] … as the puppeteer".

Party B raised two counter-arguments. The first was that whatever had been said in previous cases, there are in fact no circumstances in which the court should pierce the corporate veil [an argument which, I understand, the company's legal team will also seek to make in the appeal of Petrodel v Prest). The second counter-argument was that even if the court could pierce the veil in principle, it could not do so in the case.

Can the court ever pierce the corporate veil?
The Supreme Court declined to answer this question.

Lord Neuberger, with whom the other Lords of Appeal agreed, considered that there is an "obvious attraction in the proposition that the court can pierce the veil of incorporation on appropriate facts, in order to achieve a just result".

However, he concluded that it was unnecessary and inappropriate to resolve the issue, since the court could not pierce the corporate veil in any event in the circumstances of the case.

Could the court pierce the corporate veil on the facts of the case?

Lord Neuberger considered that on the facts of the case, piercing the corporate veil would involve an extension to the circumstances in which it has traditionally been held that the corporate veil can be pierced. In view of the criticisms made of the principle of piercing the corporate veil, "strong justification would be required before the court would be prepared to extend it" [emphasis added].

Lord Neuberger also considered that declining to pierce the corporate veil in the case could not be said to result in unfairness to Party A, since the law provided redress for Party A against Party B, in the form of alternative causes of action.

The same could be said, in principle, of the wife's situation in Petrodel v Prest. She had established that she was entitled to approximately £17.5 million in financial provision from the husband. The problem she faced was in enforcing the husband's liability. That there are alternative causes of action available against Party B, or the husband in the case of Petrodel v Prest, is of little comfort to Party A/the wife, since even if liability can be established, it offers no guarantee that Party A/the wife will actually be able to enforce against Party B/the husband.

The Supreme Court's judgment in VTB v Nutritek does not bode well for the wife's application for permission to appeal in Petrodel v Prest in relation to piercing the corporate veil. Only time will tell whether the Supreme Court considers that the wife's predicament represents a strong enough justification for extending the circumstances in which the corporate veil can be pierced.