Enforcing Divorce Settlement Agreements - Petrodel Resources Ltd v Prest: a triumph for common sense

The highly anticipated Supreme Court decision was handed down on 12 June 2013 in Prest v Petrodel Resources & others [2013] UKSC 34. The outcome came as a pleasant surprise for family lawyers concerned that the case was going to place yet another barrier in the way of fair and enforceable divorce settlements.

Background

Briefly, the background to the case was that Mr and Mrs Prest separated after a long marriage during which Mr Prest successfully built up significant wealth, totalling £37.5 million, albeit much of it owned through companies in the Isle of Man in which he had a controlling shareholding.

One of those companies owned five residential properties in the UK, and another two more. The couple fought a bitter and expensive divorce in the High Court, at the end of which the High Court found that Mr Prest should pay Mrs Prest a lump sum of £17.5 million. That lump sum had not been paid.

In those proceedings Mrs Prest sought orders against those companies to transfer properties held by them to her to settle part of the lump sum due.

That succeeded in the High Court but was overturned in the Court of Appeal (the second highest family court), where it was held that a company was a separate legal entity to the husband, that only in very limited circumstances could that "corporate veil" be pierced, and assets held by the company should not be transferred, even if the company was controlled by the husband. Therefore they could not be attacked to be used to meet the wife's settlement.

It was on the face of it an odd decision – given the facts of the case - as it was seen as a "cheat's charter", and it was widely anticipated that it would lead to a proliferation of such structures to thwart their spouses' claims.

Conclusion

The Supreme Court unanimously allowed Mrs Prest's appeal. They made it clear that a corporate body has its own separate legal entity which had to be respected. However there were limited circumstances where the corporate veil could be pierced where a company sought to evade an existing liability or legal obligation. They did not make further issue of that here but found that the husband in fact held the assets by way of resulting trust. The husband was entitled to the property and hence orders could be made against that property and they were transferred to the wife.

As ever the case does raise certain questions – do the principles apply where the shareholding has come about for a perfectly legitimate reason?, what happens if the shares and assets are held abroad in jurisdictions not keen to assist the UK?, and what if there are other shareholders who resist transfer?

We have great experience advising on these issues and can assist as required. In addition there remain perfectly legitimate ways in which company and other assets may be protected on divorce and we can discuss these or any other matrimonial settlement agreement issues with you as required.

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