Michael Prest (husband) and Yasmin Prest (wife) were married for 15 years and had four children before the wife petitioned for divorce in March 2008. During the marriage the matrimonial home was in England, though for most of the time the husband was found to be resident in Monaco and there was also a second home in Nevis. Petrodel Resources Ltd (PRL), which was incorporated in the Isle of Man, was the legal owner of the matrimonial home and five other residential properties in the United Kingdom. PRL was part of a group of companies, one of which was the legal owner of two more residential properties in the United Kingdom. Moylan J, in ancillary relief proceedings, found that PRL and the other companies within the group were fully owned and controlled, either directly or indirectly, by the husband. However, due to the contumacious refusal of the husband to comply with his disclosure obligations and successive orders of the court, the evidence did not permit the assembly of a conventional schedule of assets – on the material available, the husband’s net assets were assessed at £37.5m. The husband was required, by an order dated 16 November 2011, to procure the transfer of the matrimonial home to the wife free of encumbrances and to make a lump sum payment to her of £17.5m together with £24,000 pa and school fees for each of their children. While the judge had found that the matrimonial home was held by PRL on trust for the husband beneficially, he made no corresponding finding about the other seven properties – it was clear from his judgment that he had decided it was unnecessary for him to declare that the husband was their beneficial owner because, while he had concluded there was no general principle of law that entitled him to disregard the companies’ legal personality by piercing the corporate veil in the absence of evidence that it was being abused for an improper purpose, he considered that he had a wider jurisdiction to treat the companies’ properties as though they were legally owned by the husband for the purposes of s24 of the Matrimonial Causes Act 1973 (MCA). On this basis, he ordered the husband to procure the transfer by PRL and its associated company of those seven properties to the wife in partial satisfaction of the lump sum award. PRL and two other companies appealed on the ground that there was no jurisdiction to order their property to be transferred to the wife and the Court of Appeal, by a majority, held that the practice which had for some years been adopted by the Family Division to treat the assets of companies substantially owned by one party to the marriage as available for distribution provided that the remaining assets were sufficient to satisfy creditors – an approach that almost amounted to a separate system of legal rules unaffected by the relevant principles of property and company law – must now cease. That practice was beyond the jurisdiction of the court unless:
- (i) the corporate personality of company was being abused for a purpose which was in some relevant respect improper; or
- (ii) on the particular facts of the case it could be shown that an asset legally owned by the company was in fact held in trust for the husband. The wife appealed.
Held (allowing the appeal):
Since Salomon v A Salomon & Co Ltd it was well established that, with limited exceptions, a company was a legal entity with rights and liabilities of its own distinct from those of its shareholders. There were three possible legal bases on which the property of PRL and its associated company might be available to satisfy the lump sum award against the husband:
- (1) It might be regarded that this was a case in which, exceptionally, a court was at liberty to disregard the corporate veil in order to give effective relief;
- (2) Section 24 MCA might be regarded as conferring a distinct power to disregard the corporate veil in matrimonial cases; or
- (3) The companies might be regarded as holding their property on trust for the husband, not by virtue of his status as owner and controller, but in the particular circumstances.
Based on the fundamental assumption that the dealings between persons in a legal relationship are honest and, therefore, the legal incidents will not apply if they are not, as fraud unravels everything, the authorities had established a limited principle that the court may be justified in lifting or piercing the corporate veil if a company’s separate legal personality was being abused for the purpose of a relevant wrongdoing. There were two distinct underlying principles, namely that of concealment and that of evasion. However, if it were concealment, there would be no need to lift or piece the corporate veil but merely to look behind it to discover what the corporate structure was concealing. If it were that of evasion, a court might disregard the corporate veil when a person was under an existing legal obligation, or subject to an existing legal restriction, which he sought deliberately to evade or whose enforcement he sought deliberately to frustrate by interposing a company under his control. In those circumstances, the court could then lift or pierce a corporate veil, if there were no other remedy available, for the purpose of depriving the company or its controller of the advantage that they would otherwise have obtained by virtue of its separate legal personality. On the facts of this case, the husband had acted improperly in many ways, misapplying the assets of the 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 division of assets of a marriage upon its dissolution. Accordingly, Moylan J was right to hold that the court could not disregard the separate legal personality of the companies as there was no relevant impropriety.
However, there was no wider jurisdiction to disregard the corporate veil in matrimonial cases by virtue of s24 MCA. The language of this provision was clear, empowering the court to order one party of the marriage to transfer to the other ‘property to which the first mentioned party is entitled, either in possession or reversion’. There had to be a proprietary right, legal or equitable. These words had an established legal meaning and recognised legal incidents under the general law. Courts exercising a family jurisdiction did not occupy a desert island in which general legal concepts were suspended or meant something different. If a right of property existed, it existed in every division of the High Court and in every jurisdiction of the county courts. This analysis was not affected by s25, which required the court, when exercising its powers under s24, to have regard to ‘the property, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future’. Thus, the husband’s ownership and control of a company and practical ability to extract money or monies’ worth from it were unquestionably relevant to the court’s assessment of what his resources really were. It did not follow from the fact that his worth may be boosted by access to the companies’ assets that those assets were specifically transferrable to the wife under s24. Consequently, the judge was wrong to hold that the assets of the companies were ‘effectively’ the husband’s because he treated them as such or that he was, effectively, in respect of the companies and their assets, in the same position he would have been if he were the beneficiary of a bare trust or the companies were his nominees. It followed, therefore, that while the judge was entitled to take account of the husband’s ownership and control of the companies and his unrestricted access to their assets in assessing what his resources were for the purpose of s25, he was not entitled to order the companies’ assets to be transferred to the wife in partial satisfaction of the lump sum payment simply by virtue of s24 MCA.
The only basis on which the companies could be ordered to transfer the seven properties to the wife was if, in the particular circumstances of this case, they might be regarded as being held by the companies in trust for the husband and consequently constitute properties to which he was ‘entitled, either in possession or reversion’ within the meaning of s24 MCA. On the basis of the evidence, based principally on that of the wife and the failure of the husband and the companies to assist the court (aside from a bald assertion that the companies were the sole beneficial owners of the shareholdings and properties), it was fair to infer that the companies held legal title to the properties which were owned beneficially by the husband. Accordingly, there would be a declaration that the seven properties vested in PRL and its associated company were held on bare trust for the husband and Moylan J’s order would be restored insofar as it required those companies to transfer them to the wife.JUDGMENT LORD SUMPTION Introduction  This appeal arises out of proceedings for ancillary relief following a divorce. The principal parties before the judge, Moylan J, were Michael and Yasmin Prest. He was born in Nigeria and she in England. Both have dual Nigerian and British nationality. They were married in 1993, and during the marriage …