Petrodel Resources Ltd v Prest [2013] UKSC 34

A wife sought ancillary relief following divorce, claiming properties legally owned by companies controlled by her husband. The Supreme Court held that while the corporate veil could not be pierced under general law or the Matrimonial Causes Act 1973, the properties were held on resulting trust for the husband and could be transferred to the wife.

Facts

Michael and Yasmin Prest divorced after a marriage during which the husband controlled the Petrodel Group of companies. The wife sought ancillary financial relief, including transfer of seven UK residential properties legally owned by companies PRL and Vermont, which the husband wholly owned and controlled. The husband persistently obstructed disclosure, gave false evidence, and refused to comply with court orders. The trial judge, Moylan J, found the husband was the sole beneficial owner and controller of the companies, treating their assets as his personal ‘money box’.

The Companies’ Role

PRL was incorporated in the Isle of Man and held six London properties. Vermont held two further properties. The companies were acquired before the husband began trading operations, and properties were purchased using funds traceable to the husband personally.

Issues

The central issues were: (1) whether the court had jurisdiction under section 24(1)(a) of the Matrimonial Causes Act 1973 to order transfer of property owned by companies rather than by the husband personally; (2) whether the corporate veil could be pierced to treat company assets as the husband’s; and (3) whether the properties were held on trust for the husband.

Judgment

Piercing the Corporate Veil

Lord Sumption delivered the leading judgment, providing an extensive analysis of the doctrine of piercing the corporate veil. He distinguished between the ‘concealment principle’ (identifying true facts behind corporate structures) and the ‘evasion principle’ (disregarding corporate personality where used to evade existing legal obligations).

“I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.”

Lord Sumption held that piercing the veil was not justified here because the husband had not used the companies to evade any pre-existing obligation to his wife. His improper conduct did not constitute relevant impropriety for veil-piercing purposes.

Section 24(1)(a) of the Matrimonial Causes Act 1973

The Court unanimously rejected the argument that section 24(1)(a) conferred a special power to pierce the corporate veil in matrimonial proceedings. Lord Sumption stated:

“Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different. If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts.”

Beneficial Ownership

The Court found that the properties were held on resulting trust for the husband. Given the husband’s persistent obstruction and failure to disclose, the Court drew adverse inferences. Lord Sumption concluded that properties transferred for nominal consideration, or purchased with funds traceable to the husband before the companies commenced trading, were beneficially owned by the husband.

“In the absence of any explanation of these transactions by the husband or his companies, I conclude that both of the properties acquired in the name of Vermont were beneficially owned by the husband.”

Implications

This case is a landmark authority on piercing the corporate veil, establishing that it is a doctrine of last resort, available only where a person deliberately evades existing legal obligations by interposing a company. The case affirms the fundamental principle in Salomon v A Salomon and Co Ltd that companies have separate legal personality. For family law practitioners, it confirms that assets of companies cannot be transferred under section 24 simply because a spouse controls the company, but that beneficial ownership must be established through conventional property law principles. The decision also emphasises the court’s power to draw adverse inferences from deliberate non-disclosure in matrimonial proceedings.

Verdict: Appeal allowed. The seven disputed properties were declared to be held on trust for the husband and were ordered to be transferred to the wife. The appeal was dismissed insofar as it relied on piercing the corporate veil or on special powers under section 24(1)(a) or (c) of the Matrimonial Causes Act 1973.

Source: Petrodel Resources Ltd v Prest [2013] UKSC 34