Is it two nil to the non discloser?

8 November 2012

The recent Court of Appeal decision of Petrodel Resources Limited v Prest [2012] has (once again) caused a ripple of shock amongst family lawyers, and it highlights the conflict between the differing approach of Judges in the Family Division and those in the Chancery Division.  The Court of Appeal, by a majority of 2 to 1, overturned an Order for the transfer to the wife of various properties owned by corporate entities which were owned and controlled by the husband.

Mrs Prest made a financial application on divorce against Mr Prest and seven companies in which he had an interest (the Petrodel structure). The marriage was a long one and there were four grown up children. The principal issues for the (first instance) Judge to decide were (i) the extent of the husband’s wealth and (ii) whether the Judge could make orders against shares and properties held in the name of the respondent companies. 

Mr Justice Moylan wrestled with the “incomplete, inadequate, confused and conflicting evidence as to the husband's activities through the corporate vehicles” and he made adverse inferences about the extent of the husband’s wealth and his interest in the companies.  He assessed the husband’s wealth conservatively at £37.5 million and made an award in the wife's favour for £17.5 million.  He held that the husband was entitled to the shares and properties held in the names of the companies, and he therefore ordered the husband to transfer to the wife assets belonging to the companies.

The central issue of the corporate respondents’ appeal was whether the husband’s control of the companies meant that he was in fact the beneficial owner of their assets. Lord Justice Rimer and Lord Justice Paten (previously Judges in the Chancery division) allowed the appeal saying “the shareholders of a company have no interest in, let alone entitlement to, the company's assets and the same applies to a shareholder who is a 100% owner of the company”.  The Judge at first instance rejected any suggestion that the Petrodel structure involved impropriety on the husband’s part.  This was crucial to the Court of Appeal majority decision which held that only if impropriety can be shown will the corporate veil be pierced.

Lord Justice Thorpe (the only Family Judge) gave a powerful dissenting judgment, dismissing the appeal and stating “in this case the reality was plain. So long as the marriage lasted the husband’s companies were milked to provide him and his family with an extravagant lifestyle.”

The Prest decision follows the Court of Appeal decision in Tchenguiz & Ors v Imerman in 2010, which effectively dismantled the 'Hildebrand Rules' that enabled one party (wives in the main), to gather evidence of the other's lack of full and frank disclosure. Family law practitioners await Mrs Prest’s decision whether to appeal the Court of Appeal judgment but in the meantime we have to ask; are the courts arriving at the right decisions? Or, is the devious non-discloser who resents making fair provision for their spouse safe in the knowledge that justice will not be done. Consequently, is it two nil to the non-discloser?

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On December 4th 2012 Claire Wood commented:

Further to my earlier blog posted on 8 November, family lawyers around the country are giving a huge sigh of relief because the Court of Appeal in the case of Petrodel Resources Limited v Prest [2012] has granted permission to appeal the decision to the Supreme Court. The case will be heard on the 5th and 6th March 2013 and the Supreme Court will comprise five Judges. We are all hoping that the Supreme Court will bring an end to the use of corporate shams to hide assets from spouses on divorce.

Claire Wood

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