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Supreme Court unanimously allows the appeal of Yasmin Prest

Detailed consideration of landmark judgment and its implications for practitioners published

In Prest v Petrodel Resources Limited [2013] UKSC 34, the Supreme Court has unanimously allowed the appeal of Mrs Yasmin Prest, ending 5 years of proceedings in which she has sought financial provision from her former husband.

Mr and Mrs Prest were married in 1993 and had four children. Mrs Prest petitioned for divorce in March 2008. Mr Prest resisted her claims for ancillary relief (as they were then called) on numerous bases but the most significant for the Supreme Court hearing was that certain properties could not be transferred to the wife as they did not belong to him; they belonged to a number of companies which had their own separate legal personality and which were not owned by him. His evidence as to his connection with the various corporations was decisively rejected by Moylan J at first instance.

Lord Sumption, giving the lead judgment of the Supreme Court, held that the properties were held on bare legal title on trust for the husband. The beneficial interest was capable of transfer and the Supreme Court directed that this should happen. The decision was supported by all seven Justices of the Supreme Court.

At first instance Moylan J had held that the word "entitled" in this section was sufficiently wide to include assets which a Husband could reasonably obtain. This was rejected by the Supreme Court. It upheld the Court of Appeal's view of the law that the Matrimonial Causes Act s.24(1)(a) is confined to property to which a party has a proprietary beneficial right at least and overruled the alter ego doctrine in Nicholas which had purported to permit the transfer of company-held assets.

Lord Sumption noted that "Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different."

Lord Sumption held in his paragraph 40:

"There is nothing in the Matrimonial Causes Act and nothing in its purpose or broader social context to indicate that the legislature intended to authorise the transfer by one party to the marriage to the other of property which was not his to transfer. Secondly, a transfer of this kind will ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets of the marriage. Where assets belong to a company owned by one party to the marriage, the proper claims of the other can ordinarily be satisfied by directing the transfer of the shares."

Although it was held that it was not appropriate for the corporate veil to be pierced in this case, there remains a very limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality.

Richard Todd QC of 1 Hare Court, who represented Mrs Prest, said:

"Ultimately the decision represents a triumph for the recognition of reality."

Jeremy Posnansky QC, partner in Farrer & Co, who with Caroline Holley of that firm, represented Yasmin Prest, said:

"I'm delighted for Mrs Prest, whose calm determination to obtain a fair and just outcome has been vindicated by this decision.

"The importance of the Supreme Court decision is twofold.

"First, it shows that the courts will look at the reality of a particular situation and won't be easily misled, so the fact that an asset may be held in the name of a company doesn't necessarily mean that it's owned by the company.

Secondly, and of importance to entrepreneurs and company lawyers, the Supreme Court has largely reinforced the separate identity of companies and made clear that it will be very rare that the corporate veil can be pierced."

Tim Amos QC of Queen Elizabeth Building, who represented the companies, commented:

"The Supreme Court has taken a restrictive view of both corporate identity and the interpretation of the MCA.  But this in itself is new in family law, in line with the watershed decision of the Court of Appeal.  The "alter ego" doctrine/practice has indeed ceased, as Patten LJ said it must (at paragraph 161 of the Court of Appeal judgment).  It is unlikely that a wife will ever be able to obtain a property adjustment order piercing the corporate veil against a husband's company, however much he abuses the company's resources and treats it as his personal piggy-bank."

Michael Drake, partner at Collyer Bristow, considered that this will come to be regarded as a landmark case, in striking  a fine balance between family and corporate law, and producing what most will see as a fair and just result. He said:

"'Piercing the corporate veil' is still likely to be very difficult but the view appears to be that there is 'a small residual category of cases' where this may prove possible.  This was not one of them.

"However, drawing the inference that properties held within companies can nevertheless be held on resulting trust for the husband who controls those companies, certainly gives encouragement to wives, although the cases will be fact specific, and are more likely to be relevant and effective where the property in question is the matrimonial home.

"Practitioner antennae will have to be even more finely tuned when advising on pre-nuptial agreements, to ensure that property owning structures are not likely to frustrate entitlement of the spouse in the event of breakdown; and in the event of separation and divorce, then very great care will be needed, probably alongside other specialist advice, to establish whether financial claims and their enforcement, are viable, depending on the circumstances.  Having said that, the number of cases where this will arise is likely to remain a relatively small proportion.

"The case does however raise issues in other fields, which could cause concern. Shareholders, lenders, insolvency practitioners, auditors, may well need to look far more rigorously at corporate property portfolios to establish whether there are competing claims from a spouse, whether it is safe to lend on the security of property held within the company but possibly subject to a resulting trust in favour of the proprietor, and may also feel the need to assess the matrimonial situation generally."

Richard Todd QC and Stephen Trowell of 1 Hare Court and Daniel Lightman of Serle Court (instructed by Farrer & Co) represented Mrs Prest. Tim Amos QC, Oliver Wise and Amy Kisser of Queen Elizabeth Building and Ben Shaw of Erskine Chambers (instructed by Jeffrey Green Russell Ltd) acted for the companies.

The judgment and Supreme Court press summary can be read here. An article, analysing the judgment and its implications for practitioners - Stripping Away the Veil of Deceit - written by John Wilson QC of 1 Hare Court can be read here.