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Still the divorce capital of the world – Supreme Court orders businessman to hand over assets in key ruling

The landmark divorce battle between Yasmin and Michael Prest has come to an end as the Supreme Court  today (12 June) ruled Prest should hand over properties held by companies under his control.

The ruling – the most significant divorce case to reach the UK’s highest court since the 2010 judgment in Radmacher v Granatino – has been touted as instrumental in establishing whether London remains a key forum for resolving big-money divorce cases. The case has also been watched for its impact on the court’s treatment of the corporate veil, which protects company assets.

The background to the long-running dispute – Prest v Petrodel Resources – is well-trodden. In 2011 the High Court ruled that wealthy oil trader Mr Prest was worth at least £37.5m and should pay his ex-wife a £17.5m settlement. Included in that settlement was a £4m house in west London owned by one of Mr Prest’s companies, which Mr Justice Moylan ordered to be transferred in part payment of the settlement. However, last October Lord Justices Rimer and Patten allowed an appeal by the oil trader’s companies, ruling that on principal shareholders are not entitled to treat their companies’ assets as their own.

In today’s decision in favour of the appeal by Mrs Prest, represented by Farrer & Co and 1 Hare Court’s Richard Todd QC alongside Daniel Lightman and Stephen Trowell, seven Law Lords unanimously found that the disputed properties could be counted in the divorce settlement.

Farrer partner Jeremy Posnansky QC commented in a statement: ‘This is a great result for Mrs Prest and for others who might find themselves in a similar position. The Supreme Court’s decision will ensure that dishonest husbands can’t cheat their wives and flout court orders by hiding behind a web of deceit and a corporate façade. It puts reality and fairness back into this area of family law.

‘The court has made clear that the fact that properties are held in the name of a company doesn’t always mean that they’re owned by the company. At the same time, the Court has adhered to established company law principles which will preserve the sanctity of the vast majority of corporate structures which are used for normal and legitimate purposes. I’m delighted that Mrs Prest’s calm determination to achieve a fair and realistic outcome has been rewarded.’

Giving the leading judgment, Lord Sumption ruled while the Court was entitled to disregard the corporate veil in limited circumstances, in this case that principle did not apply and the only basis on which the companies could be ordered to convey the disputed properties to Mrs Prest is that they were held by the companies on trust for Mr Prest, who was represented by Jeffrey Green Russell and QEB’s Tim Amos QC.

Mr Prest paid for the properties with his own money and delivering the ruling Sumption said: ‘The court is entitled to draw all proper inferences against a party whose conduct shows that he has something to hide.’

The corporate veil is one of the underpinning principles of company law and means that directors cannot ordinarily treat company assets as their own.

The decision will be seen as preserving London’s status as a key centre for resolving high value family disputes as well as protecting the fundamental principles of company law.

caroline.hill@legalease.co.uk

Click here for the full judgment.

 

Commenting on the case:

 

Frances Hughes, Hughes Fowler Carruthers

‘It is brilliant news for family lawyers. No one in their right minds was expecting the piercing of the corporate veil to be upheld because there’s a decision about it years ago. In fact, no one had been piercing the corporate veil for years, it’s just nonsense that the family judges had been doing much of this at all. What is also not surprising is the nuptial settlement point and the interpretation of section 24.

‘What is surprising is they have found another way to ‘nail the bastard’. The history of family law is not that its idiots that don’t understand things, it’s that they have these people who are absolutely determined not to pay and they want to nail them. It’s all about nailing the non-payer. They found this way which doesn’t bear an awful lot of scrutiny in which they say, ‘well, we can make a finding’. Its wonderful news. They’ve gone as far as they possibly can in saying ‘these doors are closed, but there’s a door over there, and we’re not just pointing to the door, we’ve opened it for you’.

‘Judges are trying really hard to be helpful to somebody litigating against someone determined not to pay.’

 

Sandra Davis, head of family law at Mishcon de Reya

‘On the facts of this case the Supreme Court’s decision is a fair one.

‘Leaving to one side the facts of this particular case, there remain many legitimate wealth planning, protection and preservation reasons why a husband and a wife may choose to transfer marital or solely owned assets to corporate structures. If this happens prior to a marriage or was an agreement reached during it, the court will hold the husband and wife to those arrangements if the marriage ends.

‘As in the case of Petrodel v Prest, the problem arises when these structures are arranged unilaterally by one of the spouses. In that case it is usually the wife who will be seriously disadvantaged unless she is able to finance a costly legal wrangle to prove either impropriety, or that assets which appear to belong to a company are in reality held on trust for her husband.’

 

Jane Craig, head of family law at Manches

‘Family lawyers will welcome the decision. If the court had held up [the Court of Appeal’s decision] it would have been a substantial injustice for the wives of manipulative husbands who don’t give proper financial disclosure.

‘The Supreme Court made it clear that family law isn’t outside the general law and that there’s a law in relation to piercing the corporate veil and going behind a company structure that applies to family law in the same way it does to any other branch of the law.

‘This judgment says that husbands who don’t give proper financial disclosure can expect the courts to look very carefully at the evidence and to draw adverse inferences.’

 

Robin Charrot, family partner at national law firm Mills & Reeve

‘The Supreme Court handed down its ruling on the Prest vs Petrodel Resources case today, and restored the original decision for the companies to transfer various properties to Mrs Prest. This ruling means that, in a divorce, people will not be able to withhold their assets from their spouses just because they have previously transferred them into companies.

‘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.’

 

Philip Carrington, commercial litigator at Herbert Smith Freehills

‘From the viewpoint of the commercial litigator, the decision is important, [particularly] in the context of fraud cases where invariably you’re faced with a complex corporate structure set up by defendants, usually off shore. To prove the case or enforce the judgment, you obviously need to look beyond the fraudster to his company. The decision is of importance to commercial litigators as well as family law practitioners.’

 

Withers family partner James Copson

‘The Supreme Court has delivered a chink of light through the corporate veil.  It should be emphasised that this is strictly limited to family law cases, which are, by their very nature, in a special category distinct from arm’s length commercial arrangements.’