The background

In 2011 Michael Prest, a wealthy oil trader, was ordered by the High Court to pay his former wife £17.5m upon marriage breakdown. The court decided that the husband was worth £37.5m at the time, but Mrs Prest actually argued that her husband was worth even more.

We are now in a position that the order for £17.5m stands, but the problem is enforcing it. Mr Prest claims his money is tied up in offshore companies which own properties in London. Fourteen of those properties were ordered to be paid to Yasmin Prest in part-payment of the £17.5m. However, these properties are not owned by Michael Prest; they are owned by the company Petrodel of which Michael Preston is shareholder and co-founder.

The Court of Appeal in 2012 ruled by a two to one majority that the 14 properties were not Mr Prest’s personal property but instead belonged to the company being a separate and distinct legal entity. According to Lord Justices Rimer and Patten in the Court of Appeal, shareholders like Michael Prest have no entitlement to a company’s assets as per the case of Saloman. However, Lord Justice Thorpe defended the High Court decision, which was in line with past rulings by the Family Courts, because the reality of the situation was that the husband’s companies funded the families’ extravagant lifestyle, and were wholly owned and controlled by the husband with no third party interests. Incidentally, Rimer and Patten have a commercial background in the Chancery Division of the High Court, whereas Lord Justice Thorpe is a senior Family Judge. This case has underlying tension between the two strands of Company and Family law. The judges in the Supreme Court have revisited this case on appeal and issue judgment tomorrow mostly have a commercial law background, and therefore family practitioners are concerned that the decision will ignore the reality and fairness of the situation and deprive Mrs Prest of her £17.5m because of strict company law doctrine.

The arguments in the case

So far in the case, Mrs Prest’s legal team, who are made up of Richard Todd QC, Stephen Trowell (both 1 Hare Court) and Daniel Lightman, Chancery counsel from Serle Court, have made the following four points:

  1. the Court is permitted under s24(1)(a) MCA to deal with property to which one party is entitled in possession or reversion;
  2. the Court is also able to vary nuptial settlements, and the properties in this case fall into that category;
  3. the assets held by the company are owned beneficially by the husband;
  4. in any event, in an appropriate case, it is possible for the Court to pierce the corporate veil.

What could be decided tomorrow?

The Court could decide to give a more generous interpretation to the word “entitled” in the Matrimonial Causes Act, ie that you are entitled to something if you require it to be transferred to you. So far in Court Lord Neuberger has criticised the focus on the word ‘entitlement’. Lady Hale has explored whether the wife was seeking to argue whether entitlement meant a strict property right or a right to control. It seems a difficult case for the legal team to argue entitled means not strictly owning as per property law but having control over an asset for the purposes of the Matrimonial Causes Act.

This is the argument that the company structure itself could be a nuptial settlement, because

  1. there was a close proximity in time between the marriage taking place and the setting up of the company;
  2. the fact that the Petrodel group made provision for the family; and
  3. because the corporate structure was a way of storing the family wealth.

The court will need to consider whether the nuptiality can be decided from how the corporate money was used in the marriage, ie whether money from the company was used for the family. However, the judges seemed unconvinced and Lord Wilson challenged whether nuptiality could be inferred like this.

The court could decide that the company held the assets in trust for Mr Prest and these could then be transferred to his wife. In the High Court Moylan J did determine that the husband was beneficially entitled to the assets but then he dropped this argument. Lord Mance decided to begin from the position that a husband in this position would not want to set up a trust, and thought it fine for any husband to put money into a company legitimately. Counsel Daniel Lightman directed the Supreme Court Justices to ss.994 and 996 Companies Act 2006 and argued that the courts had historically taken a wide interpretation when dealing with inappropriate corporate conduct, and have made orders of a wide nature regardless of creditors or third parties when regulating the conduct of a company’s affairs. He argued that the court should therefore take a similarly wide view within the Matrimonial Causes Act.

The fourth possibility would be to ‘pierce the corporate veil’ ie acknowledge Mr Prest to be found hiding behind his companies and made an order against them. This has historically only been done where a company is a mere facade concealing the true facts. In the Nutritek decision it was held that without statute providing the opportunity, the court cannot pierce the veil. Richard Todd QC has argued that section 24(1)(a) MCA implies that the veil can be pierced, and argued that as per Ben Hashem case, the conduct of the husband in litigation was sufficiently bad to allow the veil to be pierced. This is a big change for commercial lawyers who have only understood impropriety to be in strict legal terms and Lord Sumption said he wasn’t convinced by this kind of impropriety of fraudulent presentation of material, and that the company would have had to have been set up specifically to defeat the wife’s claims, which clearly it hasn’t been. Lord Clarke said that the company had been set up for normal trading but then inappropriately used.

Conclusion

The challenge in this case is for the Supreme Court to maintain company law whilst coming to a fair decision. Lord Mance has said that he is happy in concluding that the company’s assets were the resources of the husband but that the properties could only be used to raise cash if legal principles were established. It does seem therefore that without sound legal principles, the financial order may not be successfully enforced.

It would be a great shame if the judges could not find a way to enforce the million pound award. To echo the words of Lord Justice Thorpe in the Court of Appeal, “If the law permits [Mr Prest to deprive his wife], it defeats the family division judge’s overriding duty to achieve a fair result.”