'This isn't routine litigation. It's exceptional – and thank goodness it is'

What are the broad implications of the outcome?

The wider point is what to do when you have a matrimonial case where a husband holds some of his wealth in his companies. There’s a bit of a paradox because the Supreme Court unsurprisingly made clear that when the court considers under section 25 what are the financial resources of each of the parties, that you don’t just look at assets in the individual’s name, you look at assets to which they have access.

For example, you look at trust assets. In some cases you have what I would call a ‘pukka multi-beneficiary trust’ where a particular spouse is only one of a number of potential beneficiaries. And, on the facts of a particular case, the trust assets might not really be a resource of the spouse. But at the other end of the spectrum, you’ve got what is sometimes called a ‘dear me’ trust where, let’s say the husband is the settlor or, even if he isn’t the settlor, you’ve got a trust where the trustees more or less do the beneficiary’s bidding. (See the Court of Appeal case of Whaley v Whaley, where the court held that the trust was effectively the husband’s ‘piggy bank’.)

But the paradox is the court can’t order trustees to transfer assets to a beneficiary. What they can do, based on the Court of Appeal case of Thomas v Thomas, is give ‘judicious encouragement’ to trustees. In other words, if they think that it’s the type of trust where the trustees are likely to or should assist the particular beneficiary, they can make an order on the basis that (sticking to the conventional, usual husband-wife scenario) if the court makes an order that the husband shall pay ‘£x’ to the wife, but that would more or less clean him out of his personal assets, it gives ‘judicious encouragement’ to the trustees to come to his aid and to make a distribution or appointment out to him.

Nothing in Petrodel v Prest changes that. But the Supremes have made clear, unsurprisingly I would say, although the Court of Appeal gave our argument on this point short shrift, that if you’ve got a company holding assets on trust for the husband, so the husband is the beneficiary and the company is just holding the assets for him, the companies can be ordered to transfer them. But if you’ve got a different scenario, where the husband may own some of the value in the company, you can’t transfer that. It’s really about where the company is holding particular assets on trust. It would be the same if it was a nominee.

Also, the case shows, that, even at the highest level of the Supreme Court, judges will shine a bright light on the facts and will apply settled law to the particular facts. And, in part, it’s about court orders being enforced. It is important, and the Supreme Court recognised this, that if a Family Division judge hears a matrimonial case and says, based upon the history and the resources, that a fair award is ‘£X’, it’s important that the order is enforceable.

What’s your response to the sensationalism?

Mrs Prest is a fairly private individual and didn’t court any of the publicity there’s been. She said very wisely that the litigation shouldn’t have been necessary. Divorce is unfortunate, but sensible people even going through a difficult divorce will settle their differences. This case was incapable of settlement, for reasons not of her making, as all the judgments have made clear.

Advisers and lay clients should not take out of this that all matrimonial cases are like Petrodel v Prest. This is the tip of the iceberg. It isn’t routine litigation. It’s exceptional – and thank goodness it is. As lawyers we don’t push our clients into contested litigation to incur costs for them; far from it. The aim is to do the opposite: to settle, quickly, quietly and at as low cost as possible.

An important lesson from this case, which we always knew and Mrs Prest knew, was that it was likely to be a struggle, and that enforcement wasn’t going to be straightforward. Mr Prest, whatever the judge awarded, was pretty unlikely to take his cheque book out. Even if you think that enforcement is going to be the ultimate problem, you’ve got to get your facts established and you’ve got to prepare your case carefully from the start.

You have to prove the facts at the heart of your case. In this case, the first instance hearing unfortunately took three weeks in the Family Division, which is very, very unusual. You must get the evidence right. Those foundations are important.

?Did anything surprise you?

Mr Prest had been ordered to disclose documents, but didn’t. We issued a committal application, not because Mrs Prest wanted him sent to jail, but to get a coercive order. We proved both counts of contempt of court and were a little surprised the judge simply imposed a fine of £20,000 and ordered Mr Prest to pay the costs.

Although I don’t like to criticise the judiciary, I do think it was the wrong and a rather pointless penalty for a very clear contempt. There’s a lot of case law that the contempt jurisdiction is to be used to put pressure on people to comply with orders, and I think the judge failed to take the opportunity.

Also, Lords Justice Rimer and Patten focused at great length on the corporate veil point, which was an alternate fall-back argument, and they went to town on it. They also gave a lot of attention to the statutory construction. I don’t criticise them for that because it was the basis for the judge finding that he could transfer the properties. But I was surprised that they gave so little attention to the trust argument.

As I’ve said, when the companies went to the Court of Appeal and said ?the judge had misconstrued the statute, we filed a respondent’s notice that said: ?if you, the Court of Appeal, find that he has misconstrued the statute then you should do what he didn’t need to do and decide that the companies held the properties on trust.

But the Court of Appeal barely looked at it. I’m surprised Patten LJ dismissed it as pithily as he did. I think if he had looked at it with as much care as he gave the corporate veil, he’d have come to the same conclusion as Lord Sumption and his six colleagues. I think the Court of Appeal is generally first class, but it was disappointing.

What was the main impact for family lawyers?

The narrow issue of interest to family lawyers was the interpretation of section 24 (1)a of the Matrimonial Causes Act. For about 30 years, the courts had said that if you had a ‘one-man company’ where the one man effectively owned all the shares or substantially all the shares, then they could treat the company as his alter ego. The courts weren’t terribly analytical about it. They more or less said that if you’ve got an alter ego company its assets are effectively the husband’s (or the wife’s, if the roles were reversed). There’s an argument for saying that perhaps the Family Division judges, and some judges in the Court of Appeal, were a little liberal in their thinking, looking more at the realities of the position than the strict legal technicalities.

On the appeal to the Court of Appeal in this case, Lord Justice Patten described our argument that the companies held the properties on trust as an argument which was “not only difficult but impossible”. We had filed a respondent’s notice saying that if the trial judge [Moylan J] was wrong on the interpretation of section 24(1)(a), they should uphold the order on the trust point, which he had not needed to look at. But they were fairly scathing about that argument.

Of course, the Supreme Court decided the case fully and squarely seven-nil on the basis that the trust argument was correct, which just shows that sometimes you need to plug on and have confidence in your case despite adversity.

What is the impact of the corporate veil issue?

There’s no doubt at all that the judgment of the Supreme Court is hugely important for company lawyers and entrepreneurs. The importance of the decision goes far beyond family law issues.

Lord Sumption in particular analysed in huge detail, a mass of case law, and has refined and defined the law about the separate legal identity of companies and whether the corporate veil can be pierced. He discussed ‘the concealment principle’ and ‘the evasion principle’, and said that in the case of the latter the veil can be pierced but only in exceptional circumstances and only if there is no other way of achieving the right result.

Lord Neuberger made clear in his judgment that he was tempted to, as he put it, “give the principle of piercing the corporate veil its quietus” (see paragraphs 79 and 80). You may say reading the judgment he nearly dissented, but he was ultimately of the view that the potential to pierce the corporate veil, although extremely rare, should continue.

I am most definitely not predicting a rash of cases: the Supreme Court has made it very clear that it should be exceptional. But there may be cases and the court has kept the possibility live.

One commentator suggested the outcome has weakened the court’s powers.

I don’t agree. On the contrary. I think it is an example of the court focusing on realities and applying established legal principles to the established facts of the particular case.

I think the judiciary are always going to be fair. They’re not hoodwinked by false presentations and fundamentally in any case the bedrock is going to be the factual foundation. Usually the law is able to deal with the facts in an appropriate, fair and just way.

Yes, the opportunity to pierce the corporate veil is not given any encouragement by these judgments, but it was never going to be a commonplace thing. It was rare and it’s still going to be rare. But there are always challenges.

What key lessons will you take from the experience?

Focus on the facts, keep calm and be clear about your objectives. It’s a little bit like a chess game. You don’t just think what your imminent move is.

It’s been an interesting case. I’m sorry that Mrs Prest has had to endure it, but professionally it’s been quite satisfying. We were quietly confident. Essentially, we knew we had a good case. But we were never complacent.

Jennifer Palmer-Violet is acting editor of Private Client Adviser

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