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SC’s judgment treads the fine line between burden of proof and the corporate veil in divorce disputes
After the Court of Appeal (CoA) gave its judgment in Petrodel v Prest, some family lawyers howled that the decision was “a cheat’s charter”. Some company lawyers, meanwhile, said that family lawyers weren’t lawyers at all. Could the corporate veil ever be pierced?
Later, a seven-justice Supreme Court unanimously allowed Yasmin Prest’s appeal. In a highly analytical leading judgment, Lord Sumption SCJ considered the three main arguments advanced by Mrs Prest.
He held that the trial judge had been wrong in the way he construed section 24(1)(a) of the Matrimonial Causes Act 1973. Although the subsection permits the court to order the transfer of properties to which a party is “entitled, either in possession or reversion”, and although he had held that Mr Prest was “both the effective owner and controller of the whole of the Petrodel corporate structure”, he said it did not have such a wide meaning.
Mrs Prest’s alternative argument was that Mr Prest was the beneficial owner of the properties, the companies holding them on trust for him. The trial judge had not decided that point. When the companies appealed against that decision, my firm filed a respondent’s notice relying on the trust argument.
The CoA gave it short shrift; Lord Justice Patten described it as “not only difficult but impossible”. They also held that the corporate veil could not be pierced. The Supreme Court, on the other hand, gave the argument that the companies held the properties on trust for the husband far greater care and unanimously upheld it.
The judgment of Sumption SCJ contains useful dicta about when adverse inferences can – and can’t – be drawn in such cases. Gaps in evidence, such as in this case, were, said Sumption SCJ, “almost entirely due to [Mr Prest’s] persistent obstruction and mendacity.”
Of wider relevance, he added: “The concept of the burden of proof, which has always been one of the main factors inhibiting the drawing of adverse inferences from the absence of evidence or disclosure, cannot be applied in the same way to proceedings of this kind as it is in ordinary civil litigation. These considerations are not a licence to engage in pure speculation. But judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing.”
Success on that argument was enough for Mrs Prest, but unsurprisingly the justices also considered the case law and principles about piercing the corporate veil. They were unanimous in deciding that, although not applicable in this case, there are circumstances in which the veil may be pierced.
The judgments of the Supreme Court will please family lawyers, by putting reality back into this important corner of family law and ensuring that a judge’s fair award is satisfied, not flouted. It will please company lawyers and corporates, whose fortresses will remain impregnable if their companies are properly run and they really do own the assets held in their names. It will not please dishonest husbands seeking to deceive and manipulate the truth.