In a bad day for the wives of wealthy men the judgment of the Supreme Court in Petrodel Resources Ltd and others v. Prest [2013] UKSC 34 was handed down on 12 June 2013. The Supreme Court allowed the wife’s appeal against the order of the Court of Appeal. So why is it a bad day when essentially Supreme Court decided that Mrs Prest’s appeal should be allowed? Read on.

In this case, the husband, a successful oil trader, had been criticised for his dishonest presentation of his finances and disobedience to orders for disclosure. The judge at the first hearing  Moylan J made an order that Mr Prest pay his wife a lump sum of £17.5m, which he failed to pay.  Having found Mr Prest to be the “effective owner” of the Petrodel Group of companies, which owned seven London properties, Moylan J ordered the companies to transfer those properties to Mrs Prest in part-satisfaction of the order.  This was in reliance on a doctrine which had grown out of judicial comment in an earlier case of Nicholas v Nicholas [1984] FLR 285.  The companies appealed to the Court of Appeal, the husband was not able to play any part in the appeal as he failed to meet certain court imposed conditions for permission to appeal. 

The majority of the Court of Appeal, Rimer and Patten LJJ, allowed the companies’ appeal, holding that there was no jurisdiction to make orders under s.24(1)(a) of the Matrimonial Causes Act 1973 against the husband, because, although he controlled the companies, it was the companies and not the husband who owned the properties. However the only family law judge in the Court of Appeal Thorpe LJ disagreed and sought to uphold the Nicholas line of cases, and said:

 “If this court now concludes that all these cases were wrongly decided, they present an open road and a fast car to the money maker who disapproves of the principles developed by the House of Lords that now govern the exercise of the jurisdiction in big money cases.”   

In the Supreme Court Mrs Prest argued against the judgment of the Court of Appeal and in favour of the Nicholas approach.  In particular she argued that property controlled by the husband should be taken as property to which he was “entitled” and therefore would be subject to a property adjustment order.  

For the companies the main arguments were based on the wording of the statute, the long-established decision in a case called Salomon and the effect on the structure of corporate law if wives could take property out of companies despite the rights of shareholders and the law on insolvency.    It was argued that the court had no power to order the transfer ofLondon properties vested in Mr Prest’s companies to Mrs Prest, despite his conduct of the litigation and his control of the companies.  

Mrs Prest won her appeal, though she lost on all but one of the points argued on her behalf. The leading judgment in the Supreme Court was given by Lord Sumption. Separate judgments, very largely concurring with Lord Sumption, were given by all the other six Justices with the exception of Lord Wilson, who agreed with Lady Hale. 

The view of the Supreme Court is that piercing the corporate veil is now a possibility only “in a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company”. This is the reason that the decision is a poor one for wives.

The Supreme Court rejected the wife’s submission that the Petrodel companies, which contained inter alia the matrimonial home and other properties, might be nuptial settlements.  Lord Sumption said that: “The point was not argued below and does not appear to be seriously arguable here.” 

Mrs Prest won only because the Supreme Court found on the facts, by application of presumptions, that the companies held the various Londonproperties on trust for Mr Prest.  This was “by virtue of the particular circumstances in which the properties came to be vested in” the companies. 

The Supreme Court took a very robust approach on this issue. Moylan J had not made this finding, although he had found the family home was held on trust for Mr Prest, this was not challenged on appeal.  Lord Sumption embarked on an examination of the husband’s evidence “which is incomplete and in critical respects obscure” in order to decide “what presumptions may properly be made against the husband given that the defective character of the material is almost entirely due to his persistent obstruction and mendacity” . Essentially, it was only the extreme conduct of the husband which caused the Supreme Court to infer that he was covering up evidence that would otherwise have emerged to establish that he did indeed own the properties beneficially.

Prest is indeed “a cheat’s charter” as generally, a person putting a property into a company will be able to show that s/he was making a capital subscription to the company, and the allegation that the property is held on trust for the transferor will fail.  If there is doubt as to what was intended at the time the property was placed in the company, it will be even more crucial for the transferor to give full disclosure, given the Supreme Court’s perhaps surprising readiness to apply presumptions/inferences in this case.