Having unanimously allowed the appeal by an oil tycoon’s former wife and ordered him to hand over assets held by his companies, the Supreme Court has not ‘pierced the corporate veil’ as some reported but has clarified the treatment of company assets in divorce cases.
The case first came before Mr Justice Moylan in 2011, who awarded Yasmin Prest a lump sum of £17.5m. Finding that the husband’s companies were “effectively … the husband’s money box which he uses at will” and consequently he was ‘entitled’ to their assets for the purposes of divorce proceedings, the judge ordered Mr Prest to procure the transfer of several UK properties held by his companies to his wife in partial satisfaction of the lump sum order. He did so because although the properties were in the UK, the companies which held them were offshore. Consequently, while he could not effectively police an order for the transfer of shares, he could enforce an order for the transfer of the properties.
That ruling was overturned on appeal in October 2012 on the basis that as the companies are separate legal entities, their assets were sacrosanct. As Mr Prest was not ‘entitled’ to them, the court had no power to order their transfer in satisfaction of his obligations to his wife. The ruling divided the Court of Appeal bench two to one, with commercial judges Lord Justice Patten and Lord Justice Rimer finding in favour of the companies. Lord Justice Rimer stated that “the properties were part of the assets of, and belonged beneficially to, the companies that respectively controlled them” and consequently in the absence of dishonesty or fraud, the ‘corporate veil’ could not be pierced by the court in order to satisfy Mrs Prest’s award. Lord Justice Thorpe, the only Family Division judge sitting, warned in his dissenting judgment that if the law permitted Mr Prest to retain assets in this way “it defeats the Family Division judge’s overriding duty to achieve a fair result” and the decision presented “an open road and a fast car” to the economically powerful who seek to avoid their spouse’s claims on divorce.
The ruling represented a radical departure from previous principles in Family Law, described by Lord Justice Patten as “an approach to company owned assets … which amounts almost to a separate system of legal rules unaffected by the relevant principles of English property and company law”. A further appeal to the Supreme Court was essential to address this conflict between the Commercial and Family Courts.
In the Supreme Court, Lord Sumption reaffirmed that the separate legal personality of a company cannot be disregarded unless it was being abused for a purpose that was in some relevant respect improper.