Supreme Court forces oil tycoon to hand over property held in the name of a company to ex-wife

Out-Law News | 17 Jun 2013 | 12:36 pm | 3 min. read

The UK's highest court has ordered an oil tycoon to hand over assets held by his companies to his ex-wife.

Although the Supreme Court did not go against the long-standing legal principle that a company is a legal entity independent of its shareholders, it unanimously ruled that the "most plausible inference" was that the seven disputed properties were held in trust for Michael Prest. This being the case, it could order those properties to be transferred to his ex-wife, Yasmin, it ruled.

In his leading judgment, Lord Sumption said that the courts could not "pierce the corporate veil" in this case because there was no evidence of "relevant impropriety" by Mr Prest.

"The husband has acted improperly in many ways," he said. "[H]e has misapplied the assets of his companies for his own benefit, but in doing that he was neither concealing nor evading any legal obligation owed to his wife. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage upon its dissolution. It cannot follow that the court should disregard the legal personality of the companies with the same insouciance as he did."

"It follows ... that the only basis on which the companies can be ordered to convey the seven disputed properties to the wife is that they belong beneficially to the husband, by virtue of the particular circumstances in which the properties came to be vested in them. Only then will they constitute property to which the husband is 'entitled, either in possession or reversion' [under matrimonial law]," he said.

Mr Prest wholly owned and controlled a number of companies, of which the Petrodel Group was the holding company. One of these companies was the legal owner of five residential properties in the UK and another was the legal owner of two more.

The Matrimonial Causes Act allows a court to order the transfer of property "to which [a spouse] is entitled, either in possession or reversion". In its judgment, the Supreme Court found that this power was not so wide as to allow the court to disregard the companies' legal ownership of the property. However, it was able to use the law of trusts to find that Mr Prest had "beneficial" ownership of the properties, "by virtue of the particular circumstances in which the companies came to be vested in them".

"The trial judge found that the husband had deliberately sought to conceal the fact in his evidence and failed to comply with court orders with particular regard to disclosing evidence," Lord Sumption said. "Adverse influences could therefore be drawn against him."

Private wealth expert Michael Pulford of Pinsent Masons, the law firm behind Out-Law.com, said that the decision "carefully balances the competing principles of family and corporate law".

"Ultimately the Supreme Court has confirmed that the principle of 'fairness' remains as the central principle of family law," he said. "Its judgment will serve to make the English courts an even more attractive jurisdiction, if that is possible, for a less wealthy spouse in 'big money' international cases."

"Although the court did not 'pierce the corporate veil', its finding that the properties were held in trust for the husband has created a further bold line of argument to circumvent such corporate structures and attack the underlying assets and wealth. As such, the decision will come as a disappointment to wealthy spouses who seek to use corporate structures or facades to avoid or mitigate the effect of a financial award," he said.

He added that the court's reference to "robust adverse inferences and findings" if a spouse failed to properly engage with legal proceedings would also serve as a "stark warning to those who seek to cheat or cynically avoid the system".

The Supreme Court did find that courts were able to disregard corporate ownership in "very limited circumstances", albeit not ones that applied to the facts of this case.

"[The principle] applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control," Lord Sumption said. "The court may then pierce the corporate veil but only for the purpose of depriving the company or its controller of the advantage which they would otherwise have obtained by the company's separate legal personality."

"Whilst the case may have implications for high net worth individuals who are going through, or may go through, marital disputes, and matrimonial assets are within corporate entities, the case is likely to have little impact for the corporate world outside of those circumstances," said corporate law expert Alan Chan of Pinsent Masons.

"The judges of the Supreme Court make it clear that the corporate veil will only be pierced in exceptional circumstances. They did not decide the case on the corporate veil argument and instead found that the companies involved held the various properties on trust for Mr Prest, who owned the beneficial interest in them. It was upon that legal base that Mrs Prest won the right for the assets legally held by various companies, but beneficially owned by Mr Prest, to be made available to satisfy the lump sum order against him," he said.