When I read the “evasion principle” enunciated in Prest v Petrodel Resources Ltd [2013]  UKSC 34, I was struck by its similarities to the latest Boyband earworm. Regular visitors to the Blogosphere will be familiar with earworms: tunes which are superficially attractive and temporarily dominate their environment but rarely enhance the art of music.

As I commented in my earlier blog “the ‘evasion principle’ was formulated by Lord Sumption, but even he recognised that ‘in almost every case where [it] is satisfied, the facts will in practice… make it unnecessary to pierce the corporate veil’. Indeed, it is striking that neither he nor Lords Neuburger or Mance described a single example of a case in which it would apply and, whilst four members of the Court expressed the view that piercing the corporate veil should not necessarily be limited to the evasion principle, none gave any indication of the principles which should determine what its limits are.”

I have read a good deal of commentary about the case, most saying that it firmly establishes a doctrine of veil piercing. I am rather sceptical about this. If the principle is impossible of application can it truly be said to exist? I want to avoid disappearing like the Cheshire Cat into a mist of existential theorising, so I thought I would challenge you Blogmeisters to come up with a factual scenario where it will apply.

To make your task a little easier I will not ask you to take account of the vexed issues of governing law and jurisdiction which plague the debate and will be the subject of a later post.

As a reminder, the evasion principle can apply to a company under the control of its beneficial owner where that controller was "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".

But it will only apply if there is no other legal method of achieving an equivalent result. Lord Sumption said "if it is not necessary to pierce the corporate veil, it is not appropriate to do so" and Lord Clarke put the point more directly: "the court only has power to pierce the corporate veil when all other more conventional remedies have proved to be of no assistance.” It is notable that, although none of the Supreme Court Justices described a factual scenario where the principle would apply, the analyses in Prest and VTB of earlier authorities in which the doctrine of piercing the corporate veil was developed, describe how an equivalent result could have been achieved by other means, with the result that, even if they were examples of the evasion principle, it would not be applied.

You can also find a link to the Prest judgments here

I am not an entirely lone voice: although the ink had been dry on the judgment for less than a month, a unanimous Court of Appeal was unable to discern a principle to be derived from it on which the practice of piercing the corporate veil could be based and concluded that “absent a principle, further development of the law will be difficult for the courts because development of common law and equity is incremental and often by analogical reasoning”: Antonio Gramsci Shipping v Lembergs [2013] EWCA (Civ) 730.