Prest v Petrodel: The legal reaction
12 June 2013 | By Lucy Burton
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Family lawyers have welcomed the Supreme Court ruling in today’s landmark divorce case, Prest v Petrodel, as a victory for common sense.
Lawyers said the ruling would narrow the gap between the family courts and the chancery division in establishing under what circumstances the corporate veil could be pierced.
Stewarts Law partner Sam Longworth said the ruling came as a surprise to many because the court had gone out of its way to establish a fair decision. Longworth said while the Mrs Prest had lost many points of appeal, the court had taken a step back to make a ruling against a husband who had deliberately evaded court orders.
Serle Court barrister Daniel Lightman, who appeared as a junior for Mrs Prest, added: “The Supreme Court has made clear that assets which are held in the name of a company but which in truth are owned beneficially by a spouse can be accessed by the family court - and has encouraged family judges to draw adverse inferences against spouses who fail to disclose relevant documents or provide pertinent information.
“Family judges, says Lord Sumption, are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative economically dominant spouse is likely to be concealing. Where the matrimonial home is held in the name of a company, it can frequently be inferred that the property is held on trust for the spouse who owns and controls the company.”
Withers family law partner James Copson said the decision has delivered a “chink of light” through the corporate veil. He added: “Putting assets into corporate structures for wealth protection reasons might not now protect that wealth against divorce claimants. Wealth planning professionals are going to have to devise new ways to prevent the potential erosion of family wealth following a divorce.
“One-man companies are once again open to attack on divorce. Judges will still look elsewhere first to satisfy a divorce settlement, but the mist that has shrouded them following the Court of Appeal ruling has now been cleared.”
William Healing, a family law partner at Kingsley Napley, said the decision was a blow for cheating spouses who evaded their responsibilities by using company structures. He added: “The judgment is a victory for the family courts and fair sharing of assets.”
“On the facts of this case the court found the husband had, during the marriage, pillaged company assets as if they were his own. He had claimed at the time of divorce that offshore companies, owning valuable London properties, were in fact independent from him. The companies were, in reality, engaged in the oil business and it was the husband who had funded the property purchases. The court could not tolerate the husband’s fiction and the properties were found ultimately to be for the husband’s benefit. The court could transfer the properties to the wife.
“This decision sends the message that London remains a fair place to determine divorce proceedings.”
Charles Russell partner William Longrigg said the ruling was a surprise but a good result. “Fairness has been achieved in that the ‘dishonest’ party has not got away with keeping the assets out of the reach of his wife. The supreme court decided that, by virtue of the particular circumstances in which the properties came to be vested in the companies, the companies held those properties on trust for the husband. The law has not been compromised (ie company law has not been ignored) and the facts of this case have been interpreted robustly.
“The main arguments of the wife were that the husband was ‘entitled’ to the properties on the basis of the way in which he ran the companies and that he had treated the companies as his own piggy-bank. It was established that there was no ‘impropriety’ on the part of the husband sufficient to ‘pierce the corporate veil’ and that this was unnecessary if the properties were held in trust for him. Because the properties are held in trust, the supreme court approved an order transferring them to the wife as they are entitled to do.”
Mills & Reeve’s Robin Charrot explained: “This ruling will severely limit the availability of this so-called ‘cheat’s charter’. However, it is important to note that the reason used for the ruling was not the same as that used by the original trial judge. The Supreme Court specifically stated that they were not piercing the corporate veil, and that family courts cannot simply give company assets to wives just because the sole owner and controller of the company is the husband.
“The justification for the Supreme Court’s decision was that the husband, and not the companies, had originally provided the funds for the properties to be bought. So, applying trusts law principles, the companies held the properties in trust for him, he was ‘entitled’ to them, and therefore the court could transfer them to the wife.
“In this respect, the husband and the companies have got their comeuppance, because although there was no conclusive evidence of him providing the funds, the court said it could draw that conclusion where the husband and the companies had been deliberately obstructive.”
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