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Hurstwood Properties (A) Ltd and Ors v Rossendale Borough Council and Ors [2021] UKSC 16: the final nail in the coffin of piercing the corporate veil?

Hurstwood Properties (A) Ltd and Ors v Rossendale Borough Council and Ors [2021] UKSC 16: the final nail in the coffin of piercing the corporate veil?


In May of this year, the UK Supreme Court handed down its judgment in Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16 ('Hurstwood'), a test case for around 55 other similar claims relating to business rates avoidance schemes, used by companies attempting to avoid the payment of non-domestic rates on empty properties.

The claimants in the case were various local authorities which were, in essence, seeking to make the ultimate beneficiaries of the schemes liable for the relevant rates, in place of certain Special Purpose Vehicles ("SPVs") which had been incorporated purely for the purposes of the schemes and which were, on the face of it, the entities with which the relevant liabilities resided.  One of the ways in which the claimants sought to achieve this was by arguing that the Court should "pierce the corporate veil", essentially ignoring the separate legal personality of the SPVs, and instead attributing their liability for the rates to those ultimate beneficiaries.  The Supreme Court not only refused to do so on the particular facts at issue in the case, but also expressed much wider ranging concerns as to whether it was ever appropriate to "pierce the veil" and ignore the separate legal personality of a company.  In doing so, it distanced itself somewhat for its prior judgment on this topic, in Prest v Petrodel Resources [2013] UKSC 34 ('Prest'), which had left the door ajar for arguments of this type to be made.

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Facts of the Case

Under the Local Government Finance Act (1988), the owner of a relevant property – defined as the person entitled to possession of the same – is obliged to pay business rates thereon, unless one of a number of exceptions apply.  The mechanics of the two avoidance schemes were such that they attempted to abuse these exceptions.

In Scheme A, an SPV was created to whom a short lease was granted by the defendant company, upon which the SPV was dissolved without entering into a formal liquidation process beforehand, such that the lease vested in the Crown as bona vacantia (ownerless goods) and carried with it the liability for business rates, which accumulated on a day-by-day basis, until such a time as the Crown extinguished the liability.

In Scheme B, the SPV was created and a lease was granted in the same manner, except, under this scheme, "the SPV was placed in members' voluntary liquidation within a few days of the grant of the lease so as to trigger the winding-up exemption in regulation 4(k) for as long as the liquidation could be made to last without the lease being disclaimed".

It is notable that in neither case did the defendants own the relevant SPV; it was instead owned by the promoter of the scheme who charged a fee for its being made available.  In all cases, the terms of the leases gave the lessor the near-unfettered power to terminate the leases as and when they so desired, i.e., when they found a suitable bona fide tenant for the relevant property.

The claimant local authorities put forth two arguments to the Court.  The first was that the lease to the SPV failed to transfer ownership of the property for the purposes of the relevant legislation, meaning that such ownership (and therefore liability for the rates) remained with the relevant defendant company.  The second was that the separate corporate personality of the SPV should be set aside (and the veil pierced) for the same purpose.


The Supreme Court found both types of avoidance scheme to be an abuse of the relevant process, and expressed concern that Scheme B could also entail the commission of an aggravated criminal offence.

On the facts, it then found a remedy in the first ground put forward by the claimants. Although it held that the leases themselves were not shams (i.e., they did create genuine legal rights and obligations), it found that they failed to convey ownership of the relevant properties to the SPVs for the purposes of the legislation.  This was primarily because "[t]he SPVs were constituted in such a way that they could do nothing with their rights under the lease…" and "the practical ability to decide whether to continue to leave the property unoccupied remained with the defendant landlord… it could simply terminate the lease".  By extension, the person entitled to possession, and therefore the owner, of the relevant property for the duration of those leases was the relevant defendant company instead.

In reaching this conclusion, the Court took a purposive approach to the relevant statutory provisions, holding that Parliament could not sensibly have intended for the owner of an unoccupied property for the purposes of imposing liability for rates to encompass an SPV with no real or practical ability to exercise its legal rights to the property in question.  Less still could it have intended for an entitlement to possession to fall within the statutory description of ownership where it was created with the aim of acting unlawfully and abusively.

On Piercing the Veil

In light of the Court's decision to uphold the claimants' first argument, it was not required to reach a conclusion on their arguments regarding piercing the veil.  However, it nonetheless took the opportunity to consider them.  

Most historic incidences of veil piercing have been based on what is now called the "evasion principle".  The principle is said to hold that, where a corporate structure had been interposed by a person in order to evade, or frustrate the enforcement of, an existing legal obligation they were under, the corporate veil could be pierced.  The evasion principle was considered more granularly by Baroness Hale in her judgment in Prest, where she made a distinction between what the Supreme Court now refers to as "forward and reverse piercing". Forward piercing is where the separate corporate personality of the company is sought to be set aside to obtain a remedy from its owner in respect of a liability which would otherwise be the company's. Reverse piercing is, conversely, where the separate corporate personality is sought to be set aside for the purposes of transposing a liability of the owner into a liability of the company itself.  Most classic instances of veil piercing are examples of the latter.

In this instance, the claimants sought to apply forward piercing so as effectively to transfer a liability of the SPVs (had the leases been effective in making the SPVs the owners of the relevant properties for the purposes of the relevant statute) to the ultimate beneficiaries of the scheme.  The Supreme Court was unconvinced of "any real scope for applying such a principle… so as to hold a person who owns or controls a company liable for a breach of an obligation which has only ever been undertaken by the company itself"Furthermore, it cast doubt on whether the historic examples of reverse piercing, to which the claimants had pointed in the case law, actually represented examples of piercing the corporate veil, suggesting that there were alternative legal bases on which they could be explained.


It seems increasingly clear that the courts wish to distance themselves from the long-standing use of veil piercing. Instead, they appear to be showing an increased willingness to explore other means of circumventing the strict, inflexible principles of company law.  Here, they did so via a purposive approach to statutory interpretation.  Other recent cases such as Okpabi v Royal Dutch Shell [2021] UKSC 3, and Vedanta Resources plc v Lungowe [2019] UKSC 20, also show a potential willingness by the Supreme Court to adopt nuanced approaches to assessing parent company liability and so-called "value chain" liability, albeit expressly without venturing into the realm of piercing the corporate veil.


This case summary was authored by Jacob Miller, Dispute Resolution Paralegal, and Hannah Hartley, Dispute Resolution Knowledge Counsel.


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