Prest v Petrodel Resources Limited and others

A company’s property belongs to the company, not to its shareholder, even where one person owns and controls it. Matrimonial Causes Act 1973, section 24(1)(a), authorises the transfer only of property in which a spouse has a legal or equitable proprietary right. Control of a company may count as a financial resource under section 25(2)(a), but does not make its assets transferable.

Company-owned property may nevertheless be transferred where ordinary equitable principles establish that the company holds it on trust for the spouse. In financial-remedy proceedings, non-disclosure may justify reasonable adverse inferences founded on evidence, inherent probabilities and judicial experience. Any residual power to pierce the corporate veil is exceptionally narrow and cannot be invoked merely because justice appears to require it or because the shareholder controls the company.

Prest v Petrodel Resources Limited and others arose from financial-relief proceedings following a divorce. The husband wholly owned and controlled the Petrodel group. Two group companies held legal title to seven residential properties in England.

Moylan J ordered the companies to transfer the properties to the wife in partial satisfaction of a £17.5 million lump-sum order. Although he made no beneficial-ownership finding concerning those seven properties, he considered that section 24(1)(a) of the Matrimonial Causes Act 1973 conferred a special matrimonial jurisdiction over company assets controlled by a spouse.

By a majority, the Court of Appeal allowed the companies’ appeal: [2012] EWCA Civ 1395. The issues before the Supreme Court were whether the properties could be reached by piercing the corporate veil, through section 24 itself, or because the companies held them on trust for the husband.

1. Disposition. The Supreme Court unanimously allowed the wife’s appeal. Lord Sumption gave the principal judgment. The seven disputed properties were held on trust for the husband and were therefore property to which he was beneficially entitled. The relevant transfer and costs provisions of Moylan J’s order were restored against PRL and Vermont.

2. Corporate personality. The rule in Salomon v A Salomon and Co Ltd [1897] AC 22 remained the starting point. A company has rights, liabilities and property distinct from those of its shareholders. Sole ownership, control and unrestricted practical access to corporate assets do not confer a proprietary entitlement to any particular company asset.

3. Statutory construction. Section 24(1)(a) of the Matrimonial Causes Act 1973 permits an order concerning property to which a spouse has a recognised legal or equitable proprietary right. It creates no special family-law power to disregard corporate ownership. Section 25(2)(a) allows ownership, control and the practical ability to extract value from a company to be considered when assessing resources, but it does not make the company’s assets themselves transferable. The courts exercising family jurisdiction apply the same property and company law as other courts.

4. Beneficial ownership. The companies’ deliberate non-disclosure, the husband’s obstruction, the sources and timing of the purchase funds, the nominal consideration for several transfers and the pattern of using companies to hold residential property supported the inference that the husband was the beneficial owner. Financial-relief proceedings have an inquisitorial element. The court may draw robust adverse inferences from non-disclosure, provided that they rest on evidence or inherent probabilities rather than speculation.

5. Corporate veil. The veil could not be pierced on the facts. The properties had been vested in the companies long before the marriage broke down, and the companies were not interposed to evade an existing obligation to the wife. Lord Sumption formulated an “evasion principle” for deliberate frustration of a pre-existing right by interposing a controlled company. Lord Neuberger and Lord Mance endorsed that formulation. Lord Clarke regarded veil piercing as a very rare last resort but declined definitively to foreclose other possibilities; Lady Hale and Lord Wilson preferred a broader fraud-based analysis, while Lord Walker doubted that veil piercing was a coherent doctrine. The point was unnecessary to the result because ordinary trust principles supplied the remedy.

1. United Kingdom Supreme Court: The wife’s appeal was allowed unanimously. The court declared that the seven properties were held on trust for the husband and restored the relevant transfer and costs provisions of Moylan J’s order.

2. Court of Appeal: By a majority, the companies’ appeal was allowed: [2012] EWCA Civ 1395. The majority held that neither control of the companies nor section 24 of the Matrimonial Causes Act 1973 authorised transfer of their property without relevant abuse of corporate personality or beneficial ownership by the husband.

3. High Court, Family Division: Moylan J ordered PRL and Vermont to transfer the properties to the wife. He relied on a wider matrimonial jurisdiction under section 24, while declining to determine beneficial ownership of the seven disputed properties.