Petrodel Resources Ltd & Ors v Prest & Ors

The Court of Appeal (majority) allowed the appeals by the companies against the High Court orders that had required transfer of several London properties and Nevis shares under section 24(1)(a) of the Matrimonial Causes Act 1973. The majority held that a company9s assets belong beneficially to the company and are not the spouse9s property merely because the spouse controls or effectively owns the company. The court emphasised that before the corporate veil may be pierced in ancillary relief proceedings there must be evidence of impropriety linked to the use of the corporate structure to avoid or conceal liability (the approach explained in Ben Hashem and affirmed in VTB). The earlier judge9s conclusion that the husband was "entitled" to the companies9assets by virtue of control was therefore wrong in law except where veil-piercing requirements are satisfied.

This appeal arose from ancillary relief proceedings in which the wife sought financial provision and orders under section 24(1)(a) of the Matrimonial Causes Act 1973 that property held in the names of Isle of Man companies be transferred or sold to satisfy a lump-sum award.

Background and parties

• The substantive judge (Moylan J) found the husband exercised complete control over a group of companies (the Petrodel group), used them to meet family expenditure and had repeatedly failed to give full and frank disclosure.
• The wife sought an award of approximately £30.4 million and orders that company-held properties and shares be used in part satisfaction.
• The judge valued the husband conservatively at about $60 million and assessed a fair award of £17.5 million, ordering transfer or cause of transfer of specified properties and shares. Some property orders (eg Warwick Avenue) were not the subject of this appeal.

Issues for the Court of Appeal

1. Whether the properties and shares held by the companies were "property to which the husband is entitled, either in possession or reversion" within section 24(1)(a), such as to permit direct orders against corporate assets; and
2. The legal test for treating company assets as the husband9s in family proceedings, including whether control or sole ownership alone is sufficient to equate company assets with a spouse9s assets, or whether veil-piercing requires impropriety linked to misuse of the corporate structure.

Reasoning and outcome

• The majority (Rimer and Patten LJJ) concluded that the judge was wrong to treat mere control by the husband as meaning he was beneficially entitled to company assets. The Salomon principle of separate corporate personality remains applicable. Veil-piercing is an exceptional remedy and, following the reasoning in Ben Hashem and the Court of Appeal9s decision in VTB, requires proof of impropriety in the sense of using the corporate form to avoid or conceal liability. Absent such impropriety, section 24(1)(a) does not authorise direct orders against corporate assets merely because the husband controls the company.
• Thorpe LJ dissented, preferring the High Court judge9s approach that in exceptional marital finance cases the court may reach the reality of ownership and make orders under section 24(1)(a) where the corporate structure is effectively the spouse9s "money box." He would have dismissed the appeals.

Subsidiary findings

• The appellate majority accepted the trial judge9s factual findings about the husband9s control of the companies and his obstructive disclosure. They nonetheless held that those findings did not suffice to make the companies9assets the husband9s property in law.
• The court noted the rarity and exceptional nature of veil-piercing remedies and stressed that family justice cannot override fundamental company law principles absent the recognised grounds for veil-piercing.

Appeal allowed. The majority concluded that the trial judge erred in treating assets held by companies as property to which the husband was "entitled" merely by reason of his control; the separate legal personality of companies governs beneficial ownership and the corporate veil may be pierced in ancillary relief only where the established conditions (impropriety linked to use of the company to avoid or conceal liability) are satisfied.

Appeal from the High Court of Justice, Family Division (Moylan J), FD08D01163. Court of Appeal (Civil Division) final hearing 2-3 July 2012; neutral citation [2012] EWCA Civ 1395. (Case Nos B6/2011/3168 and B6/2011/3170.)