Nigeria: Using Trust To Thrust The Veil Of Incorporation: A Review Of Prest v Petrodel Resources Ltd & Others [2013] UKSC 34

Last Updated: 20 February 2014
Article by Ayobayo Babade

In what will easily pass as a classic case, the UK Supreme Court recently delivered a landmark decision, Prest v. Petrodel Resources Ltd And Ors. [2013] UKSC 34 ("Prest v Petrodel"), the made detailed pronouncements which will have far reaching implications on various aspects of law and certain established Common Law principles. The reach of the decision covers matrimonial causes, trusts, legal personality and company law; for our present purposes however, the focus will be on the law of trusts and the principle of piercing the veil. Right from the decision of the English House of Lords in Salomon v. A Salomon & Co [1897] AC 22, the concept of a distinct legal persona of companies has been firmly upheld as one of Common Law's gifts to global jurisprudence. The case established that a company in the eye of the law is different from its shareholders. Over the years, Courts have faced with situations requiring it to discount the separate legal personality and reveal those in actual control of a company. This is particularly so in matters of apportioning specific findings of civil liability or criminal wrong. In certain cases, company directors and or its officers may be personally responsible for the faults of the company.

A trust, in brief, is a relationship whereby property is held by one party for the benefit of another. A trust is created by a settlor, who transfers some or all of his (or her) property to a trustee. The trustee holds that property for the beneficiaries of the trust. The trustee is given legal title to the trust property, but is obligated to act for the good of the beneficiaries.

In Prest v Petrodel, the Court was faced with a situation which posed the option of disregarding the concept of separate personality. In resolving it, the UK Supreme Court stated the core legal principles behind piercing the veil of incorporation concluding that the Court has a limited power to pierce the veil of incorporation and also highlighted the significant limits to that power. Since the facts of the case did not fall within the enunciated limit, the Court relied on the law of trusts deciding that the companies were trustees of the properties in dispute. The divorced couple were citizens of both Great Britain and Nigeria. Mr. Prest owned a number of companies incorporated in the Isle of Man. The appellant, Mrs. Prest alleged that he had used the companies to hold legal title to properties which belonged to him beneficially. She argued that the corporate veil should be pierced to identify him as the true owner of those properties, so that they could be transferred to her under ancillary proceedings as part of the pool of matrimonial assets.

At the court of first instance, it was held that the veil of incorporation could not be pierced as the husband had not been guilty of any impropriety in relation to the companies. The Court nevertheless concluded that in applications for financial relief ancillary to a divorce, a wider jurisdiction to pierce the corporate veil was available under Section 24 of the English Matrimonial Causes Act. The Court of Appeal by a majority reversed the decision of the trial Judge, holding that unless the corporate personality of the company was being abused for a purpose that was improper or the assets were held in trust for the husband, the Judge should not have made the order to transfer the properties. On further appeal to the Supreme Court, Lord Sumption, delivering the lead judgment, set out the principle regarding piercing the veil of incorporation as follows: "I consider that there is a limited principle of English law which 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. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil."

The Court unanimously restated the ruling of the Court of first instance, but not for the reasons given by the Judge. The Court approved the Court of Appeal's reasons for not piercing the veil, but held that the companies were bare trustees of the properties in dispute. The assets were held by the companies but they were held on trust for the husband. Thus, the Supreme Court held that the properties be transferred to the appellant, Mrs. Prest.

In Nigeria

Here in Nigeria, the decided of cases on piercing the veil of incorporation have generally been based on fraud. Our courts have recognised that the veil of incorporation can be pierced where the justice of the case so requires, especially where there is impropriety or wrongdoing on the path of the alter ego of the company. This can be seen in the relatively recent Nigerian Supreme Court case of AKIN-WUNMI ALADE V. ALIC NIGERIA LTD [2010] 19 NWLR (Pt. 1226) 111 where Per Galadima J.S.C stated that:"The consequences of recognizing the separate personality of a company is to draw a veil of incorporation over the Company. One is therefore generally not entitled to go behind or lift this veil. However, since a statute will not be allowed to be used as an excuse to justify illegality or fraud it is a quest to avoid the normal consequences of the statute which may result in grave injustice that the Court as occasion de-mands have to look behind or pierce the corporate veil."

The "statute" referred to above is the Companies and Allied Matters Act in which Section 37 codifies the common law decision in Salomon v A Salomon. However, the point to note is that the element of fraud is a similar instance wherein the veil of incorporation can be lifted. The law of trusts has been given judicial impetus in a number of cases. In KOTOYE V. SARAKI (1994) 7 NWLR (PT357) 414 the law of trusts was applied in a commercial dispute relating to the shares of a company. The decision of the Supreme Court in UGHUTEVBE V. SHONOWO (2004) 16 NWLR (PT.899) 300 show that the Courts desire to utilize the law of trusts to disputes brought before them.

In Conclusion

Contrary to what it might seem, the doctrine of separate legal personality has not be rendered obsolete by the decision in Prest v Petrodel neither has the principle of piercing the veil been widened beyond limits. What the court simply did was to utilize the law of trusts, based on the facts of the case, to provide a remedy for the appellant.

The case is interesting particularly as it might have important consequences on the law of trusts, family law and company law which the facts touch upon. However, it should be noted that the Court stated that whether assets legally owned by a company are beneficially owned by its controller is a highly fact specific issue. It will be interesting to see the principles applied by the UK Supreme Court in this case being applied by the Nigerian courts in similar situations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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