What Prest v Petrodel Resources Lt Tells About the Separate Legal Entity Doctrine

QUESTION: In the recent decision of Prest v Petrodel Resources Ltd the Supreme Court of the United Kingdom discussed circumstances when a court can pierce the corporate veil. What does the case tell us about the nature of the separate legal entity doctrine? How useful do you think this case will be in Australia?
The doctrine of separate legal personality is central to corporate law and the functioning of companies in the modern world. This doctrine allows for a company, separate from its shareholders and members, to own its own property, have its own rights and responsibilities, and sue and be sued as its own entity. This means that the rights enjoyed by the company are not necessarily enjoyed by its members, and that members of a company are not necessarily liable for the actions of the company. In the recent case Prest v Petrodel, the doctrine of separate legal personality and the instances in which a court may pierce the corporate veil were discussed. Piercing the corporate veil refers to putting aside the separate personality of the company to hold a person who owns and controls a company as responsible for the actions of the company as if it were their own. In the case of Prest this concept is discussed in detail, to reflect the instances in which courts have pierced the corporate veil, and the extent of applicability of this doctrine. As reflected in Prest, the separate legal personality doctrine is a strong doctrine in corporate law that is only pierced in exceptional circumstances. However, it is also clear that the principle of piercing the corporate veil is an important one, as it allows for the court to hold responsible those in control of a company in instances where it is necessary to achieve an equitable and logi...

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...the corporate veil, which is reflected in the current Australian approach. While it is clear Prest is not binding on Australian courts, this case will be useful in Australia to provide further insight into the many cases in which the piercing principle has been relevant, and may provide a clearer doctrine as to when the corporate veil may be pierced. It has been suggested that if legislation was enacted to pierce the corporate veil this would overcome the current vagueness of the veil piercing doctrine in Australia. However, as cautioned in Prest, the clarity gained may only serve to narrow the courts ability to use the piercing principle to combat abuse of the separate legal entity doctrine, in ways that the law cannot otherwise remedy. As such it appears to be as necessary a part of corporate law, as it goes hand in hand with the separate legal entity doctrine.