The Court of Appeal decision in Petrodel Resources Ltd and others v Prest and Others [2012] EWCA Civ 1395, [2012] All ER (D) 293 (Oct) (as Prest v Prest) marks a collision between chancery and family. Family lost. The decisions of the heroes of the Family Division of the High Court – Moylan, Bodey, Munby and Mostyn – who in classic mythology, though moral exemplars, are also mere demigods, were simply crushed underfoot. The judgments are summarised below.

Mr Justice Moylan heard the financial remedy proceedings of Mr and Mrs Prest in the High Court. It was a very difficult matter. Mr Prest failed to provide any proper disclosure and his evidence ‘consisted significantly of obfuscation and dissembling’ (Lord Justice Thorpe, paragraph 12). Mr Prest also failed to comply with interim orders.

The conclusion was, after drawing appropriate adverse inferences from Mr Prest’s conduct, that he was worth about £37.5m, and that Mrs Prest should be awarded £17.5m. But almost all of Mr Prest’s wealth was in a series of companies. He was the sole shareholder and director. Save for one property worth about £3m, all the properties subject to the judge’s final order were owned by those companies. The judge was aware of the significant problems of ordering large-scale share transfers, because of the mist surrounding the true position, and also the issues of enforcement against overseas property.

Lord Justice Thorpe at paragraph 43 summarises the decision: ‘Accordingly, in the order giving effect to the judgment, the husband was ordered to transfer or cause to be transferred to the wife the London properties together with three properties in Nevis and the shares in a Nevis company. Following transfer the properties were to be sold and the net proceeds of sale applied in satisfaction of the lump sum.’

This ‘enforcement’ of the award caused the three appellant companies to intervene to appeal the decision to transfer the company-owned properties to Mrs Prest. Mr Justice Moylan decided that, because of Mr Prest’s unconstrained dealings with company income and assets during the marriage, Mr Prest was entitled to these properties ‘in either possession or reversion’ (section 24(1)(a) of the Matrimonial Causes Act 1973). Therefore this property was directly susceptible to an order for transfer/sale in the Family Division.

The evidence showed that Mr Prest was the same as the companies. Any other directors were mere ciphers. There were no minority shareholders to be disadvantaged. Mr Prest drew monies from the company for considerable personal and family expenditure during the marriage without asking or reporting to anyone, and the accounting of such drawings was certainly vague. It was as if the assets, including the properties, were held under a bare trust, or the companies were his nominees.

Accordingly, Salomon v A Salomon and Company Ltd [1897] AC 22 did not prevent the court from making an order against a person ‘entitled’ in the section 24(1)(a) sense, as Mr Prest was found to be, requiring that person to exercise their control, so that property was transferred to the wife. And if not – was the truly obstructive husband to ‘get away’ with all that wealth, and the wife to get very little, because a rule of company law impeded the Family Division from making an order into more than a bit of scrap paper?

The appellant companies said that the Family Division simply did not have this power. At paragraph 219, Mr Justice Moylan had rejected any finding of impropriety, that is, using the company structure to avoid or conceal liability (Ben Hashem v Al Shayif [2008] EWHC 2380 (Fam); [2009] 1 FLR 115). Absent that finding, and other exceptions not relevant in this matter, the judge had no power to make the structuring/enforcement orders he did.

In a forceful judgment, Lord Justice Rimer wholly agreed with the appellants. Lord Justice Rimer was in no doubt that the companies, and the other directors, danced to Mr Prest’s tune. However, despite this, the properties were assets of the companies. Mr Prest was not ‘entitled’ in any sense which fitted with the words of section 24(1)(a). To decide otherwise was contrary to the proper meaning of those words, and to long-established principles of company law. There was no impropriety, so the veil could not be pierced. Therefore the Family Division did not have the power to make the orders appealed. Fairness did not enter into it. It was contrary to law and that was the end of the matter.

The majority view of the Court of Appeal is summarised at paragraph 97: ‘The judge’s different conclusion that such properties were, or were "effectively", the husband’s property was based on reasoning that was internally inconsistent, contrary to principle and wrong.’

The triumph of the long-established and fundamental principle of Salomon, over any principles of fairness which the Family Division might wish to pursue, was crystallised by Lord Justice Rimer at paragraph 155: ‘A one-man company does not metamorphose into the one man simply because the person with a wish to abstract its assets is his wife.’

Lord Justice Rimer set out how and why Mr Justice Moylan and others have been so wrong for so long. Lord Justice Thorpe, while disagreeing, described the judgment as ‘powerful’ and ‘cogent’. This mere mortal has to accept that the Family Division has strained the meaning of section 24(1)(a), and its powers over the separate entity, which in law a company plainly is, perhaps beyond breaking point, in the interests of fairness. Lord Justice Rimer dismisses longstanding authorities from the Family Division starting with dicta of Lord Denning and Lord Justice Cumming-Bruce’s reasoning in Nicholas v Nicholas [1984] FLR 285 (Petrodel at paragraphs 129 and 130).

Mrs Prest currently intends to pursue an appeal to the Supreme Court. Victorious titans should perhaps remember that in myth, they, in their turn, became old gods, and were then cast down by new, even more powerful gods. There was as little kindness shown to the titans by victorious Zeus as was shown to the heroes by the Court of Appeal.

District Judge Spencer sits at Teesside Combined Court