Michael Todd QC of Erskine Chambers considers the recent Court of Appeal decision in Rossendale Borough Council v Hurstwood Properties
In Rossendale Borough Council v Hurstwood Properties (A) Ltd [2019] EWCA Civ 364, the Court of Appeal was concerned with claims brought by a local authority in relation to two schemes designed to avoid the payment of National Non-Domestic Rates (NDR) on properties. The schemes involved the granting of leases of the properties to special purpose vehicle companies (SPVs) without assets or liabilities. The SPVs were then placed into voluntary liquidation or allowed to be struck off the register as dormant companies. Among the issues before the Court of Appeal was whether the corporate veil could be pierced in respect of the SPVs so as to allow recovery of NDR from the defendant freehold or leasehold proprietors.
In an application to strike out the claims, the High Court considered (i) whether the leases were sham transactions; (ii) if the scheme leases were genuine, whether the Ramsay principle of statutory construction applied (that the relevant statutory provisions, construed purposively, were intended to apply to the transaction viewed realistically); and (iii) if the Ramsay principle did not apply, whether the separate corporate existence of the relevant SPVs could be disregarded, effectively by piercing the corporate veil.
The judge struck out the parts of the application relating to the Ramsay principle and the allegations that the leases were shams, but dismissed the application to strike out the claim so far as it related to piercing the corporate veil. He considered that it was at least arguable that the ‘evasion principle’, where a court may be justified in piercing the corporate veil where there is an abuse of a company’s separate legal personality for the purpose of some wrongdoing (as referred to by Lord Sumption in his Supreme Court decision in Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34), could be applied, or extended to apply,to disregard the separate corporate existence of the relevant SPV.
The defendants appealed on the issue of whether the corporate veil could be pierced, and the local authority appealed on the application of the Ramsay principle. The Court of Appeal allowed the defendants’ appeal on piercing the corporate veil, dismissing the High Court’s suggestion that the evasion principle applied in this case, or that it could be extended to apply. The court will only pierce the corporate veil when the evasion principle applies, and any extension beyond that will only be in very rare and novel cases. However, the Court of Appeal rejected the appeal of the local authority, holding that the Ramsay principle could not be used to disregard the lease because the relevant legislation was not amenable to a wider, purposive construction which would allow scope for the Ramsay principle to operate.
FromCounsel has published an FC Case Feature in which Michael Todd QC of Erskine Chambers considers the Court of Appeal’s decision.