Prest: transfer of assets to corporate structures will be harder to challenge
Family lawyers' hopeful anticipation of the judgment of the Supreme Court in Petrodel v Prest has been misplaced. Those voices shouting about a new dawn in the treatment of assets held in limited companies in financial remedy proceedings can fall silent. Prest does not herald this. While the Supreme Court judgment does afford Yasmin Prest a claim over assets held by a limited company, to get to this result the court confirmed that the corporate veil doctrine survives intact (despite Lord Walker expressing doubt as to whether any such doctrine properly exists) and upheld the view of the Court of Appeal that section 24 of the Matrimonial Causes Act 1973 did not assist. Instead, on the facts of the case and based on an inference derived therefrom, Mrs Prest obtains her remedy. The reasoning behind this is so fact-specific that the judgment can easily be distinguished. Working backwards The reasoning used by the court is also open to criticism as being the result of having started at the conclusion to be reached, and then working backwards. It can be in no doubt that Mr Prest's approach to the proceedings was open to criticism: "characterised by persistent obstruction, obfuscation and deceit, and a contumelious refusal to comply with rules of court and specific orders" (Lord Sumption at [4]). Moylan J at first instance found that Mr Prest was the sole beneficial owner of the companies and made a lump sum order, applying section 24. The Court of Appeal found that Moylan J had on the facts rejected both the improper abuse of corporate personality argument and the trust argument and as such should not have made the order that he did. Lord Sumption in considering the beneficial ownership of the properties noted at [45] that the special features of ancillary relief proceedings such as: a quasi-inquisitorial nature; the burden of proof, a main factor inhibiting the drawing of adverse inferences, cannot be applied in the same way as in civil proceedings; and judges can draw on their experience and "take notice of the inherent probabilities" when faced with an uncommunicative spouse. For all of these reasons, the court concluded that on the facts it was entitled to draw an adverse inference. The inference drawn from the companies' non-disclosure was that this was to conceal Mr Prest's ownership; the inference from Mr Prest having purchased the properties was that on transfer to the companies they held the properties on a resulting trust for him. Thus, having upheld the "doctrine" of the corporate veil; having concluded that section 24 does not apply, the court fell back on inferences drawn from non-disclosure and initial funding sources to disregard the legal ownership of the properties and declare that they are held on resulting trusts. It sits uncomfortably that separate legal personality and ownership can be disregarded based on such inferences, which have the feel in the circumstances of this case to be a device to achieve the result required. The fact that such inferences will, absent such blatant disregard of disclosure orders, be extremely difficult to draw and will be easily rebuttable with clever planning likely leaves the result in Prest as an academic anomaly. In the absence of such extreme non-compliance, it now appears settled that a party can avoid assets falling within the matrimonial pot by transferring them into corporate structures.
Family lawyers' hopeful anticipation of the judgment of the Supreme Court in Petrodel v Prest has been misplaced. Those voices shouting about a new dawn in the treatment of assets held in limited companies in financial remedy proceedings can fall silent. Prest does not herald this.
While the Supreme Court judgment does afford Yasmin Prest a claim over assets held by a limited company, to get to this result the court confirmed that the corporate veil doctrine survives intact (despite Lord Walker expressing doubt as to whether any such doctrine properly exists) and upheld the view of the Court of Appeal that section 24 of the Matrimonial Causes Act 1973 did not assist. Instead, on the facts of the case and based on an inference derived therefrom, Mrs Prest obtains her remedy. The reasoning behind this is so fact-specific that the judgment can easily be distinguished.
Working backwards
The reasoning used by the court is also open to criticism as being the result of having started at the conclusion to be reached, and then working backwards. It can be in no doubt that Mr Prest's approach to the proceedings was open to criticism: "characterised by persistent obstruction, obfuscation and deceit, and a contumelious refusal to comply with rules of court and specific orders" (Lord Sumption at [4]).
Moylan J at first instance found that Mr Prest was the sole beneficial owner of the companies and made a lump sum order, applying section 24. The Court of Appeal found that Moylan J had on the facts rejected both the improper abuse of corporate personality argument and the trust argument and as such should not have made the order that he did.
Lord Sumption in considering the beneficial ownership of the properties noted at [45] that the special features of ancillary relief proceedings such as: a quasi-inquisitorial nature; the burden of proof, a main factor inhibiting the drawing of adverse inferences, cannot be applied in the same way as in civil proceedings; and judges can draw on their experience and "take notice of the inherent probabilities" when faced with an uncommunicative spouse. For all of these reasons, the court concluded that on the facts it was entitled to draw an adverse inference. The inference drawn from the companies' non-disclosure was that this was to conceal Mr Prest's ownership; the inference from Mr Prest having purchased the properties was that on transfer to the companies they held the properties on a resulting trust for him.
Thus, having upheld the "doctrine" of the corporate veil; having concluded that section 24 does not apply, the court fell back on inferences drawn from non-disclosure and initial funding sources to disregard the legal ownership of the properties and declare that they are held on resulting trusts. It sits uncomfortably that separate legal personality and ownership can be disregarded based on such inferences, which have the feel in the circumstances of this case to be a device to achieve the result required.
The fact that such inferences will, absent such blatant disregard of disclosure orders, be extremely difficult to draw and will be easily rebuttable with clever planning likely leaves the result in Prest as an academic anomaly. In the absence of such extreme non-compliance, it now appears settled that a party can avoid assets falling within the matrimonial pot by transferring them into corporate structures.