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Under S. 15(1) of the Companies Act 2006, upon registering a company would give life to a
legal entity with its own legal personalities that are distinct from its members. This means that
the company would have its own rights and responsibilities. Therefore, the company would
bear its own legal liabilities and obligations by separating its assets with its member’s assets.
Hence, it acts as a shield that safeguards its member’s assets by limiting the liabilities of its
members. This is known as the veil of incorporation. There are situations where individuals or
subsidiaries of a company will be treated as one with the parent company without separate
liabilities by the court. This act is known as ‘lifting/piercing the veil’ which is the subject
matter at present. These principles are also known as the Salomon principle which originated
from the case of Salomon v A Salomon and have been strictly applied for more than a 100
years. A critical stage where development in this area of company law is seen was in the
House of Lords in Adams v Cape where the courts suggests that they may no longer lift the
veil in the interest of justice. The current issue at stake is whether the courts may lift the veil
in the interest of justice after years of development since Adams v Cape and cases that best
resolves this issue are the recent cases of VTB v Nutritek and Prest v Petrodel Resources.
To fully understand the issue at stake, the theories clarified in Adams v Cape must first be
acknowledged and understood. The case of Adam v Cape involves the liability of a group of
companies. The claimant (Adam) sought to lift the corporate veil of a parent company (Cape)
in order to hold the parent liable for the obligations of its subsidiary companies. The court
held that it would not disregard the Salomon principles merely because the justice so requires.
However, some possible theories of lifting the veil were clarified, namely the Single
Economic Unit, Agency, and Façade theory. If there is an Agency relationship between
companies and its members, the veil may be lifted. This is because the company would be
acting as an agent instead of a distinct legal entity. Thus, the members of the company will be
responsible for liabilities incurred by the agent. This can be done through an express agency
agreement. However, there is no presumption of agency in the absence of an express
agreement that dictates so. This can be illustrated from the facts in Adam v Cape where the
U.S. Subsidiary Company rendered certain services to the defendant and also acted as an
agent in specific transactions, but the courts still held it to be insufficient to constitute a
general agency agreement as there was never any actual express agency agreement. The
concept of a single economic unit is where the court views a group of companies as a single
unit not only economically but also in law. This was applied by Lord Denning in the case of
DHN v Tower Hamlets to lift the corporate veil and allowed compensation under the Land
Compensation Act 1961. At this point of time, the veil can be said to have been lifted in the

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interest of justice. However, this concept was eventually rejected in the case of Ord v
Belhaven Pubs because it was against the Salomon principle of separate legal personality.
This was confirmed in Adam v Cape. Cases such as Woolfson v Strathclyde and Adams v
Cape doubted the reasoning in the case of DHN v Tower Hamlets as it involves interpretation
of a statutory provision for the purposes of entitlement to statutory compensation which
basically was not driven by a general principle of company law and suggested that it would be
better to lift the veil in the interest of justice only in special circumstances where there is
actual concealment of true facts, thus, the Façade theory. There are cases that applied the
theory describing the company in dispute as being a ‘façade’, ‘mask’, ‘device’, and ’sham’.
These terms were used in the case of Gilford Motor v Horne as a basis of lifting the veil in the
interest of justice and are also known as the sham doctrine. LJ Diplock in Snook v London
and West Riding investments recognized the doctrine especially in situations where
documents executed or acts done by parties are intended to create different legal rights and
obligations from actual legal rights and obligations in order to achieve a similar economic
interest between the company and its members. The doctrine also applies to situations where a
company may have been formed for a specific proper reason but later used as a device to
manifest a breach. The courts would then ignore the separate legal personality and proceed
with the reality of the situation. This is clearly illustrated in the case of Trustor v Smallbone
(No.2) where the company was used as an improper vehicle for the receipt of the money
which allowed the defendant to commit unpardonable breaches of his duty as a director for
claimant. Despite having a change in theory, the courts at this point of time clearly have the
power to lift the veil in the interest of justice. Despite agreeing on the theory, the House of
Lords did not apply it as they could not find impropriety in the defendant’s intention. Thus,
the issue regarding the courts may no longer lift the veil in the interest of justice arises.
In 2007, another critical opportunity where said issue can be solved occurred in the case of
VTB Capital v Nutritek. An English incorporated bank (VTB Capital) (Claimant) entered into
an agreement with a Russian company (RAP) and provided a loan of over $220 million which
allowed RAP to buy diary companies from Nutritek. RAP default the loan a year later.
Ultimately, it was found that Mr. Malofeev was the ultimate owner and controller of Nutritek
(Defendants) and the diary companies. In the High Court before Arnold J, VTB sought
contractual claims against the defendants by holding the defendants liable for breach of the
Facility Agreement and the Interest Rate Swap Agreement. However, the only way this claim
is possible would be for the court to lift the corporate veil as these agreements were between
VTB and RAP instead of the said defendants. The claim was rejected by the High court

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followed by the Court of Appeal. Both courts agreed that there are such powers to lift the veil
in the current circumstances; however, the claim against the defendants was unsustainable as
a matter of law. The Court of Appeal concluded that it is not ready to develop and stretch the
law in favour of the claimant to achieve peripheral purposes with the justification that there
are already remedies available for situations encountered by the claimant under tort.
Shortly after, a few cases were also heard by the Court of Appeal in which the issue of lifting
the veil in the interest of justice was considered. These cases are important to be considered
for the sake of having a complete picture on the views of the courts on this particular issue
and its development before the present case was heard in the Supreme Court. A case to be
considered here is the case of Hope v Krejci where the case concerned telescoping orders
which is relevant to the issue of lifting the corporate veil in the interest of justice whereby
assets are to be transferred to an applicant to satisfy a successful claim under financial remedy
proceedings. Mostyn J. in Hope v Kejci concluded that in order to lift the corporate veil, the 6
principles identified in Ben Hashem must be identified; however, impropriety was not
critically necessary in cases dealing with financial remedy proceedings. 1. Mere control of a
company does not justify lifting the veil. (Salomon v Salomon & Co) 2. The justifications of
lifting the corporate veil cannot be one that is purely in the interest of justice 3. There has to
be impropriety. (Ord v Belhaven Pubs) 4. The impropriety must have something to do with
the use of the structure of the company as effort of masking the liability. (Trustor AB v
Smallbone) 5. To successfully lift the corporate veil, one must show both the wrongdoer’s
control towards the company and also that there are improprieties involved. 6) A company
can still be a façade even though it was not originally formed with intention of deceit. Mostyn
J. portraits a way where the corporate veil can be lifted, even without determining the
impropriety of the use of a company’s structure to avoid or conceal liability and legal
obligations. This was based on the dicta in the case of Nicholas v Nicholas where it is implied
that the veil should be penetrable even with the absent of a wrongdoing. The rational for this
approach was that it is in actual fact the nature of financial remedy proceedings. Mostyn J.
concluded that the approach regarding lifting the corporate veil in the VTB case would not
alter such an approach. Ultimately, this approach by Mostyn J. was considered in the case of
Petrodel Resources v Prest in the Court of Appeal which involves financial remedy
proceedings as well. Rimer L.J. pointed out that shareholders and their companies have
separate legal personalities and therefore shareholders have no direct rights to the properties
of their companies. It is also mentioned that the Salomon principle is not to be disregarded
and should apply equally in financial remedy proceedings. Rimer L.J. concluded that the

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approach by Mostyn J. would violate the sanctity of the corporate veil and the dicta in
Nicholas v Nicholas is an irrelevant authority with contradicting justifications, and the
impropriety criterion should and must be equally applicable to not only family cases but also
all jurisdictions in light of the Salomon principle.
Once again, the courts has redirected the development in this area of law to a position where it
is not too keen to allow claims that requires lifting the corporate veil in the interest of justice
to succeed unless they have solid arguments and that it is absolutely necessary and justifiable
for the veil to be lifted. The decisions of the Court of Appeal regarding the issue of lifting the
veil continues to spread and the case that best describes this event would be the Gramsci case
at that instance, although it was ultimately overturned by the Court of Appeal in the VTB case.
In the case of Gramsci, the claimant sought additional liability against two individuals
claiming that they have used the corporate defendants as a vehicle to divert profit and that the
veil should be lifted. The case was decided by Burton J. who decided against one of the
individuals Mr. Stepanovs which he did not appeal against the decision made upon him and
that had become the main source of action for the claimant’s case towards the other individual
Mr. Lembergs who, in responds, challenged the court’s jurisdiction where the veil is lifted.
Upon hearing the case against Mr. Lembergs, Teare J. delayed his judgement until the Court
of Appeal has made its decision in the VTB case. After the decisions for the VTB case were
made in the Court of Appeal, Teare J. then referred to the VTB case and gave a different
judgment which overturned the decision by Burton J. justifying his decision by stating that the
decision made by Burton J. was not binding as the defendants are not a party to the case
against Mr. Spenavos and that no further considerations needed to be given. Another case that
in essence has almost similar circumstance as the Gramsci case is the case of Alliance Bank v
Aquanta. Burton J. followed his earlier decision in Gramsci and allowed the corporate veil to
be lifted. However, when the case reached the Court of Appeal, the judges overturned the
earlier decision and held that it was not possible for a contractual claim to be made against
person controlling the company. Hence, the corporate veil will not be lifted. At this point of
time, despite having the power and principles to lift the corporate veil in the interest of justice,
it is very obvious that the courts are indeed very reluctant and would only in very special and
rare circumstances lift the corporate veil in the interest of justice.
The issue of lifting the corporate veil in the interest of justice has finally returned to the
Supreme Court years after the decision in Adams v Cape. The judges in the Supreme Court
case of VTB v Nutritek first made it clear that in principle, the corporate veil is possible to be
lifted in the interest of justice. But the court also cited Lord Keith in the case of Woolfson

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where his lordship held that the veil can only be lifted if it was found that the creation of
company was a mere façade concealing the true facts. It seems to suggest that the court first
acknowledged the existence of the principle but subsequently retained the assumption of
power and authority in lifting the veil in the interest of justice and will only do it when it is
absolutely necessary. Lord Neuberger also added cautiously that generally, lifting the veil
may sometimes be the right thing to do in order to defeat injustice, but clearly he would not
do so by emphasizing that the court would need strong justifications where the proposition
claimed must not be in contrary with the Salomon principle and that there must be no other
remedies provided by law in any jurisdiction. Hence, the Supreme Court dismissed the
claimant’s proposition regarding lifting the veil on the basis that the proposition that Mr.
Malofeev was jointly liable with RAP is in fact contrary to the Salomon principle of separate
legal personality and that there are alternative remedies provided under tortious claims.
Furthermore, Lord Neuberger applied the Façade theory suggested in Woolson and clarified
that the concealment of true facts cannot be solely assumed upon the controller of the
company but rather the relevant actor who in actual fact committed the concealment. The
allegations put forward by the claimant were rejected by the court as the claimant emphasized
on the underlying arrangements on circumstances and event relating to the financing instead
of the proposition where Mr Malofeev was purely using RAP to conceal these arrangements
which only then the façade theory would apply.
As confusing as the decisions of the courts may seem regarding the issue at stake, it is now
clarified in the leading Supreme Court case of Prest v Petrodel Resources that the courts do
have a general jurisdiction to lift the corporate veil but will only apply it in circumstances
involving a party controlling a company and using its structure to avoid personal liabilities for
their wrongdoing and that the impropriety involved must be relevant. The case involves a
former wife claiming assets held under companies controlled by the former husband, Mr Prest.
In the Family Division Court, the judges granted an order for the assets held under the
companies to be transferred to the wife by invoking S. 24(1) of the Matrimonial Causes Act
(MCA) 1973 which results in those properties being categorised as properties he was entitled
for by way of either possession or reversion, and therefore, enabling the court to lift the veil.
However, when the case reached the Court of Appeal, the judges quickly corrected the point
of law by instating the approach that should be followed being that unless there are legitimate
grounds for lifting the veil, the order under MCA Act 1973 could not be made. In the end, the
Supreme Court ruled in favour of the wife but also held the transfer of property was not

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because the veil was lifted but rather because the property held under the companies was
entitled to the husband under trust law.
Lord Sumption, the leading judge of the case explained the reason for not lifting the veil
because the fact that the husband is treating his company as a ‘personal money box’ and that
he failed to make full disclosure on his assets does not mean that he is avoiding liability to his
wife and hence, it was not a relevant impropriety. His lordship mentioned the façade theory in
Woolfson by stating that the word façade is not the most appropriate term to use for
companies in addressing the question regarding the nature of a conduct that would suffice as
an exception to the Salomon principle. More importantly, the judge distinguished two
principles, evasion and concealment, which was commonly found in many cases. His lordship
emphasized that the concealment principle is where the court will search behind the company
to find out what was concealed behind the corporate structure and if the facts concealed were
that the interposition of a company was merely to conceal the identity of the actual actor, it
then would not deter the courts from identifying them if they are legally relevant. Thus, would
not involve lifting the corporate veil. The façade here was never disregarded but rather used
by the courts to search and discover facts concealed behind the corporate structure. However,
the evasion principle is where an individual of the company is trying to avoid or frustrate the
enforcement of legal obligation by interposing the company in a way that would achieve such
objectives which would then allow the corporate veil to be lifted.
Judging from all the cases mentioned since Adams v Cape, it can be concluded that the courts
has set a relatively high standard for the corporate veil to be lifted in the interest of justice and
should be used as a last resort with no other available avenue supported with relevant and
justifiable reason. The reasons may very well be the possible economic consequences and the
opening of litigation floodgates that would occur if the corporate veil is to be lifted too
leniently. Following that, there should be a noticeably slower development on the case law of
this doctrine. However, Lord Sumption’s formulation of lifting the veil was criticised by Lord
Mance and Baroness Hale, where the possible danger in causing the law to be too rigid by
foreclosing every possible situations where the lifting of veil should not be allowed. In
conclusion, justice can still be served though this doctrine as the court did not close the option.
However, doubts will definitely arise regarding the usefulness of this doctrine since the courts
would always prefer an alternative remedy instead.