Practice – Family proceedings – Ancillary relief
Prest v Petrodel Resources Ltd and others: Supreme Court: 12 June 2013
The appeal arose out of proceedings for ancillary relief following a divorce between the husband and the appellant wife. It concerned the position of a number of companies belonging to a group which the judge found to be wholly owned and controlled by the husband and which were joined as additional respondents to the wife's application for ancillary relief (the companies).
One of the companies, PRL, was the legal owner of five residential properties in the UK and another of the companies, V, was the legal owner of two more (the properties). The judge concluded that there was no general principle of law which entitled him to reach the companies' assets by piercing the corporate veil as the separate legal personality of the company could not be disregarded unless it was being abused for a purpose that was in some relevant respect improper and there was no relevant impropriety.
That notwithstanding, the judge concluded that, in applications for financial relief ancillary to a divorce, a wider jurisdiction to pierce the corporate veil was available under section 24 of the Matrimonial Causes Act 1973 (the 1973 act). He ordered the husband to procure the transfer of the properties to the wife in partial satisfaction of a lump sum order and directed PRL and V to execute such documents as might be necessary to give effect, amongst other things, to the transfer of those properties (the order). In the Court of Appeal, PRL, V and another of the companies (the respondent companies) challenged the orders made against them on the ground that there was no jurisdiction to order their property to be conveyed to the wife in satisfaction of the husband's judgment debt.
The majority in the Court of Appeal criticised the practice of the Family Division to treat the assets of companies substantially owned by one party to the marriage as available for distribution under section 24 of the 1973 act, provided that the remaining assets of the company were sufficient to satisfy its creditors and held that that practice was beyond the jurisdiction of the court unless (i) the corporate personality of the 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 held in trust for the husband. The Court of Appeal considered that the judge had rejected both possibilities on the facts and that he ought not therefore to have made the order (see  All ER (D) 293 (Oct)). The wife appealed to the Supreme Court.
The issue for determination was whether the court had power to order the transfer of the properties to the wife, given that they legally belonged not to the husband, but to his companies. In determining the issue, consideration was given to three possible bases on which the assets of the companies might be available to satisfy the lump sum order against the husband: (i) whether it might be said that it was a case in which, exceptionally, a court was at liberty to disregard the corporate veil in order to give effective relief; (ii) whether section 24 of the act might be regarded as conferring a distinct power to disregard the corporate veil in matrimonial cases; and (iii) whether the companies might be regarded as holding their properties on trust for the husband, not by virtue of his status as their sole shareholder and controller, but in the particular circumstances of the case. In relation to (iii), consideration was given, amongst other things, to the fact that neither the husband nor the companies had complied with orders for the production of the completion statements on the purchase of the properties and evidence of the source of the money used to pay the purchase price. The companies also failed to file a defence or to comply with orders for disclosure. The appeal would be allowed.
(1) It was settled law that the court might be justified in piercing the corporate veil if a company's separate legal personality was being abused for the purpose of some relevant wrongdoing. The recognition of a limited power to pierce the corporate veil in carefully defined circumstances was necessary if the law was not to be disarmed in the face of abuse. There was a limited principle of English law which applied when a person was under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evaded or whose enforcement he deliberately frustrated by interposing a company under his control.
The court might then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle was properly described as a limited one, because in almost every case where the test was satisfied, the facts would in practice disclose a legal relationship between the company and its controller which would make it unnecessary to pierce the corporate veil. If it was not necessary to pierce the corporate veil, it was not appropriate to do so, because on that footing there was no public policy imperative which justified that course.
The principle had been recognised far more often than it had been applied. However, the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law could be addressed only be disregarding the legal personality of the company was consistent with authority and the long-standing principles of legal policy (see ,  of the judgment).
On the facts, the judge had been correct to decline to find that there had been relevant impropriety which would enable him to pierce the corporate veil under the general law. The husband had acted improperly in many ways. However, the problem in the instant case was that the legal interest in the properties was vested in the companies and not in the husband. They had been vested in the companies long before the marriage had broken up. Whatever the husband's reasons for organising things in that way, there was no evidence that he had been seeking to avoid any obligation which was relevant in the instant proceedings. Accordingly, the piercing of the corporate veil could not be justified in the instant case by reference to any general principle of law (see  of the judgment).
Gilford Motor Co Ltd v Horne  All ER Rep 109 applied; Ben Hashem v Al Shayif  EWHC 2380 (Fam) applied; VTB Capital plc v Nutritek International Corp  All ER (D) 147 (Jun) criticised; Salomon v A Salomon & Co Ltd [1895-9] All ER Rep 33 considered; Jones v Lipman  1 All ER 442 considered; Woolfson v Strathclyde Regional Council 1978 SC (HL) 90 considered; Nicholas v Nicholas  FLR 285 considered; Adams v Cape Industries plc  1 All ER 929 considered; Mubarak v Mubarak  All ER (D) 1797 considered; Gencor ACP Ltd v Dalby  All ER (D) 1067 considered; Trustor AB v Smallbone  All ER (D) 206 (Mar) considered; A v A  EWHC 99 (Fam) considered.
(2) If there was no justification as a matter of general legal principle for piercing the corporate veil, it was impossible to say that a special and wider principle applied in matrimonial proceedings by virtue of section 24(1)(a) of the act. The language of that provision was clear and it was invoking concepts with an established legal meaning and recognised legal incidents under the general law. Courts exercising family jurisdiction did not occupy a desert island in which general legal concepts were suspended or meant something different (see  of the judgment).
The judge had been entitled to take account of the husband's ownership and control of the companies and his unrestricted access to the companies' assets in assessing what his resources were for the purpose of the act. However, he had not been entitled to order the companies' assets to be transferred to the wife in satisfaction of the lump sum order simply by virtue of s 24(1)(a) of the Act. It was not in doubt that the object of section 24(1)(a) was to achieve a proper division of the assets of the marriage. However, it did not follow that the courts would stop at nothing in their pursuit of that end. It was axiomatic that general words in a statute were not to be read in a way which would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness.
There was nothing in the act and nothing in its purpose or broader social context to indicate that the legislature had intended to authorise the transfer by one party to the marriage to the other of property which was not his to transfer. The recognition of a jurisdiction such as the judge had sought to exercise would cut across the statutory schemes of company and insolvency law (see [40, ] of the judgment). Nokes v Doncaster Amalgamated Collieries Ltd  3 All ER 549 applied.
(3) It followed that the only basis on which the companies could be ordered to convey the properties to the wife was that they belonged beneficially to the husband by virtue of the particular circumstances in which the properties came to be vested in them. Only then would they constitute property to which the husband was 'entitled, either in possession or reversion'. On all the facts, taken cumulatively, it was a fair inference that the main, if not the only, reason for the companies' failure to co-operate was to protect the properties. That suggested that proper disclosure of the facts would reveal them to have been held beneficially by the husband. On the evidence, the husband had, at all relevant times, been the beneficial owner of the properties (see , , - of the judgment).
A declaration would be made that the properties vested in PRL and V were held on trust for the husband and the relevant part of the order would be restored so far as it required those companies to transfer them to the wife (see  of the judgment). R v IRC, ex p TC Coombs & Co  2 AC 283 applied; British Railways Board v Herrington  1 All ER 749 considered.Decision ofcourt of appeal  All ER (D) 293 (Oct) Reversed.
Richard Todd QC, Daniel Lightman and Stephen Trowell (instructed by Farrer & Co) for the wifeTim Amos QC, Oliver Wise, Ben Shaw and Amy Kisser (instructed by Jeffrey Green Russell Ltd) for the companies.