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Jeremy Posnansky QC: The Supreme Court deploys its Stinger, but does not pierce the corporate veil

Date:12 JUN 2013

Jeremy Posnansky QCToday's decision by the Supreme Court in Petrodel v Prest puts reality back into an important area of family law. In October 2012 the Court of Appeal - well, two judges of the Court - rejected 30 years of established law and practice and threw some family practitioners into a state of near panic. "Cheats Charter", they cried. Yasmin Prest, for whom Farrer & Co. have acted since 2010, was not daunted and took the case to the Supreme Court. She has been rewarded by a unanimous, 7-0, decision in her favour. The Supreme Court allowed the appeal on the second of Mrs Prest's two main grounds of appeal, that the companies held on trust for the husband the properties which the trial judge, Moylan J, had ordered to be transferred to her. The decision is of importance not only to her but to others in a similar position.

As is well known, the majority of the Court of Appeal (Rimer and Patten LJJ, Thorpe LJ dissenting) held that Moylan J had been wrong to decide that the husband's ownership and control of the Petrodel companies brought the properties held in the companies' names within the scope of s.24(1)(a) of the Matrimonial Causes Act 1973. The Court of Appeal said that they were not properties to which he was "entitled, either in possession or reversion".  In his pithy dissenting judgment, Thorpe LJ famously observed that if the long line of cases based on Nicholas v Nicholas, [1984] FLR 285 was wrong, it would 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 judicial discretion in big money cases".

What may not be so well known is that in the Court of Appeal Mrs Prest had filed a Respondent's Notice in which she contended that, if s.24(1)(a) was not a permissible route, the court should uphold Moylan J's order on the basis that the companies held the properties on trust for the husband. Rimer and Patten LJJ gave this submission very short shrift, Patten LJ saying that it was "not only difficult but impossible". Fortunately, the Supreme Court paid more heed to it and upheld the argument, deploying its Stinger to halt the husband's fast car on its intended route down the open road.

Lord Sumption, with whom the six other Justices agreed, gave careful consideration to the argument and evidence supporting the proposition that the properties were held on trust. They decided that Mr Prest was indeed the beneficial owner of the properties held by the Petrodel companies. Sumption SCJ said that the husband's "persistent obstruction and mendacity" meant that the evidence was not as comprehensive as it should have been, but there was more than sufficient to make the relevant findings. They therefore allowed the wife's appeal and upheld Moylan J's order for the properties to be transferred to the wife.

The Supreme Court did agree with the Court of Appeal that s.24(1)(a) of the MCA 1973 cannot be construed so that "entitled" to property includes property owned by a company, and thus the 1983 Court of Appeal 1983 decision of Nicholas, and other cases in the meanwhile, including the recent decision of Mostyn J in Kremen v Agrest (No 2) [2011] 2 FLR 490, have not survived the decision of the Supreme Court. But the decision on the alternative basis of beneficial interest confirms that there remains scope in an appropriate case to achieve the transfer of a property held in the name of a company.

As it is often said, "it all depends".  If it is a "one man" company and if the evidence shows that it was holding the properties on trust for the husband, it should be relatively easy (at least, easier than it has been for Mrs Prest!). But if it is a company owned by several shareholders and/or one which trades in properties, it will be far less easy. As is usually the case in litigation, the facts and the findings of the trial judge will be crucial. Thus, the careful preparation of the evidence is essential. Pleadings, such as Points of Claim and Points of Defence, might well be prudent. A failure by one party to provide proper disclosure, as in Petrodel v Prest, may be highly damaging to that party. As Sumption SCJ said in paragraph 45 of his judgment, "The concept of the burden of proof, which has always been one of the main factors inhibiting the drawing of adverse inferences from the absence of evidence or disclosure, cannot be applied in the same way to proceedings of this kind as it is in ordinary civil litigation. These considerations are not a licence to engage in pure speculation. But judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing."

So there is something for (almost) everyone in this decision. It will please family lawyers, by putting reality back into this important corner of family law and ensuring that a judge's fair award is satisfied, not flouted. It will please company lawyers and corporators, whose fortresses will remain impregnable if their companies are properly run and really do own the assets held in their names. It will not please dishonest husbands who seek to deceive and who manipulate the truth.

Jeremy Posnansky QC is a Partner at Farrer & Co. LLP, the solicitors that acted for Yasmin Prest.

The views expressed by contributing authors are not necessarily those of Family Law or Jordan Publishing and should not be considered as legal advice.