Prest v Petrodel Resources Ltd and Others in Landmark Case
A landmark case has recently been heard in the Supreme Court, which will have far-reaching effects on subsequent family law cases.
The case dealt with the division of assets upon divorce, and specifically the distribution of seven properties held by a number of companies called the Petrodel Group.
During the trial it was established that the Petrodel Group was wholly owned and controlled by the husband.
The corporate veil
The question was whether the properties could be used in the divorce settlement or whether, as they were technically owned by companies, they were protected by the corporate veil.
This is the concept that a company has a separate legal personality, with its own rights and liabilities and the ability to hold property on its own account.
In this case, it would mean the properties were not available for distribution under the divorce as they were not assets held by the husband but rather by his companies themselves
Three possible legal justifications
The Supreme Court determined that there were three possible legal justifications for piercing the corporate veil, and therefore for transferring the company property:
1. That this is an exceptional case where the corporate veil can be disregarded in order to give effective relief;
2. That family legislation allows the Court the power to disregard the corporate veil in matrimonial cases; or
3. That the companies hold the properties on trust for the husband, as established by the circumstances of the case.
Reaching a decision
The Supreme Court decided that the facts of the case did not automatically mean the corporate veil could be pierced.
It is established by case law that this can be done where the fact that a company has a separate legal personality is being exploited in order to evade the law or conceal the truth, but this was not the case here.
They also agreed there was not a general rule allowing the corporate veil to be pierced in matrimonial cases, as if the right to do so existed in such cases, it must also exist in every area of law.
Classified as assets
However, the Court did conclude that the properties were held beneficially for the husband.
This meant that they were classified as assets that were available for distribution, as they were owned beneficially by the husband. They were thus transferred to the wife as part of the divorce settlement.
Without disclosure of information
An important point here is that the Court did not have conclusive evidence that the properties were held on trust for the husband – as the husband had consistently refused to disclose information requested by the Court.
The Court therefore drew adverse inferences from this lack of disclosure, finally determining that the reason the husband refused to provide the evidence requested was because it would show that he was the beneficial owner of the properties.
The impact of this case
The impact of this case is hugely important in future family cases.
It establishes that spouses who fail to provide full and frank disclosure and try to mislead the Court risk having adverse inferences drawn against them.
It also means that spouses should not seek to conceal assets by holding them in the name of their company as, whilst the Courts are not willing to pierce the corporate veil, the law of trusts may enable the properties to be removed from the companies control for the purposes of settling matrimonial claims.
What do you think?
Certainly an interesting case and one which will be referred to in future family law cases.
We’d love to hear your thoughts in the comments, below: