LAW AND COMMERCE
analysis between the judgments. There are a few points of contention between Prest and Tjong, which are: language and characterisation, the appreciation of actual legal obligations of the company, and the issues of remedies. These points of contention all lead to the main issue of comparison between the two cases; the issue of which is the concern of the courts, sophistication or certainty.
disregarding the ‘facade’, but only looking behind it to discover the facts which the corporate structure is concealing. The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company’s involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical.23 [Emphasis in italics added]
A. Language and Characterisation Prior to Prest, the classification of the firms that a piercing of the corporate veil would permit seemed to be defined by Woolfson v Strathclyde RC.19 Lord Keith in the case had described the company that was interposed in between the defendant and his legal obligation in a multitude of manners. Words such as: mere façade, sham, stratagem, mask, creature, and device were used indiscriminately to describe the company in question.20 However, even before Prest, Lord Neuberger pointed out in Nutritek that the idea of using the term “sham” was inappropriate.21 In the same case, Lord Lloyd also reasoned that the company, no matter the purpose, was an incorporated company and therefore it was a genuine company. In Prest, the Supreme Court reasoned that the language used before raised too many questions than it answered. The court then reasoned that the issue is not about the company being a sham company, as it was legitimately incorporated company, but the issue was that this genuine company was used in an inappropriate manner.22 This use of language and characterisation shows that the judges in Prest have the appreciation for the misguided line of precedence, exemplified by the now essentially overruled reasoning in Woolfson, in terms of the language and characterisation. The other point that shows the emphasis on the language used in these cases is in the distinction between piercing the corporate veil, an exception to the Salomon rule, and lifting the veil. Lord Sumption reasoned for a distinction, and what he described as a critical distinction, between concealment and evasion. The main reasoning, as presented by Lord Sumption: The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases the court is not
40
Lord Sumption then went on to use four different cases, all of which were essential to the development of the law in this area, to show the distinctions between concealment and evasion.24 This distinction is further analysed by the other judges on the panel. Lord Neuberger analysed the cases that Lord Sumption uses to distinguish the two justifications and disagreed on Lord Sumption’s distinction. He then went on to postulate that the application of agency and trusteeship law could be the answer to the issue.25 This discussion on the definition of the scope for piercing the corporate veil and the difference between piercing and lifting the corporate veil, which show that the Supreme Court was cognisant for the need to properly define and distinguish the circumstance that allows for piercing the corporate veil. In Tjong, Chong J and the subsequent Court of Appeal seemed to not have the same level of appreciation for the necessity for extensive language discourse to define the justification for the exception the Salomon principle. In multiple paragraphs in his judgment, Chong J used different words to imply the same meaning or outcome. In his reasoning highlighted above, he used the word “pierced”, yet in a few paragraphs later, he concluded that the “OAFL’s corporate veil should be lifted”.26 From the way Chong J reasoned, it did not seem that he was concerned with the difference between lifting and piercing the veil, which led to some uncertainty. This is highlighted by the subsequent appeal and the submissions that were made to the Court of Appeal. The Court of Appeal clarified the Courts position in that “alter ego” was different from defining the company as a “mere device, sham or façade”. However, the reasoning by the Court of Appeal does nothing to clarify that the difference in vocabulary that Chong J used in his judgment, such as the indiscriminate use of both “lifting” and “piercing” the corporate veil. Even in its judgment 23
Prest (op cit n 3) at [28].
19
(1979) 38 P & CR 521 (HL).
20
Hannigan (op cit n 6).
24 Gilford v Horne [1933] Ch 935; Jones v Lipman [1962] 1 WLR 832; Trustor AB v Smallbone [2001] 1 WLR 1177; Gencor ACP Ltd v Dalby [2000] 2 BCLC 734.
21
Nutritek (op cit n 10).
25
Prest (op cit n 3) at [81]-[83].
22
Prest (op cit n 3).
26
Tjong (HC) (op cit n 4) at [73] (emphasis in italics added).