The Uncertain Future of Veil-Piercing: Is Lord Sumption's Test in Prest v Petrodel a Solution?

In Salomon v Salomon, the House of Lords established the principle that a corporation is a separate legal entity from its owners, meaning that shareholders and directors have limited liability in relation to the corporation. However, the corporate form can be abused by its members and directors as a vehicle for wrongdoing. In such a situation, courts have the power to ignore the corporate personality and impose liability on individuals in the company; this is known as 'piercing or lifting the corporate veil'. Although the veil-piercing doctrine has been recognized for a long time, its application has been inconsistent and incoherent. Courts have said that the separate personality can be disregarded when the corporation is 'a mere cloak or sham', 'a mere device', 'a mere channel', 'a mask', or 'a facade concealing the real facts'. This unprincipled approach leaves commercial participants uncertain.

In 2013, Lord Sumption in Prest v Petrodel sought to formulate a coherent principle for the theory of veil-piercing, proposing two principles to determine when the corporate personality could be disregarded. However, this essay will argue that the formulation in Prest does not solve the long-vexed issue of veil-lifting. The test proposed by Sumption is confusing and uncertain, and it is maintained that the veil-lifting theory is unnecessary and should be abolished altogether.