Monday, 29 October 2012

UK: England and Wales: upholding the Salomon principle in Family Division proceedings

The Court of Appeal gave judgment last Friday in Petrodel Resources Ltd & Ors v Prest [2012] EWCA Civ 1395. The majority (Patten and Rimer LJJ) allowed the appeal and provided an exceptionally strong endorsement of the consequences flowing from the company's separate legal personality. Rimer LJ observed (paras. [154] and [155]:
Salomon is House of Lords authority affirming the distinction between the separate legal personalities of a company and its corporators. It makes no difference to such distinction that the company has a single corporator with total control over its affairs. It is a feature of the principle that a company's assets belong beneficially to the company and that its corporators have no interest in, or entitlement to, them. It is a further feature of it that such assets cannot be looked to in order to satisfy the personal obligations of the corporators, any more than the latters' personal assets can be looked to in order to satisfy the obligations of the company. In special circumstances, in particular in the winding up of an insolvent company, there may be a statutory basis for requiring the corporators to contribute personally to the company's assets, for example if they have misapplied its assets or engaged in wrongful or fraudulent trading (see sections 212 to 214 of the Insolvency Act 1986). Exceptions of that nature are, however, irrelevant for present purposes.

Subject to exceptions such as those, and to cases in which it is legitimate to pierce the corporate veil, the separate corporate identity of a company is a fact of legal life that all courts are required to recognise and respect, whatever jurisdiction they are exercising. It is not open to a court, simply because it regards it as just and convenient, to disregard such separate identity and to appropriate the assets of a company in satisfaction either of the monetary claims of its corporator's creditors or of the monetary ancillary relief claims of its corporator's spouse. Salomon precludes any such approach; and the same was made clear by the House of Lords in Woolfson and by the Court of Appeal in Adams, Ord and VTB. The obiter dicta in Nicholas to different effect are inconsistent with Salomon, Woolfson, Adams, Ord and VTB and advance no reasoning why a different principle should apply in the family jurisdiction as compared with other jurisdictions. The Salomon principle must apply equally to all jurisdictions. A one-man company does not metamorphose into the one-man simply because the person with a wish to abstract its assets is his wife."

Update (29 October 2012) - a summary of the decision has been produced by the ICLR: see here.

Update (24 January 2013) - a copy of the High Court decision has today been added to the BAILII database: see here.

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