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(Supreme Court, Lords Neuberger, Walker, Mance, Clarke, Wilson, Sumption, Lady Hale, 12 June 2013)
In heavily contested financial remedy proceedings the English wife sought an award of £30.4m on the basis that the husband had assets of tens if not hundreds of millions of pounds held within a corporate structure, including the matrimonial home plus six other properties. The husband had repeatedly failed to provide full and frank disclosure in breach of court orders.
In the High Court the husband was assessed to own assets worth £37.5m and Moylan J concluded that a fair award to the wife was, therefore, £17.5m. In order to discharge the award the husband was ordered to transfer to the wife four London properties and an interest in a fifth all held in the name of Petrodel Resources Ltd and two London properties held in the name of V Petrodel Ltd. Three of the companies appealed the judgment, arguing that the husband was not entitled to the properties in question within the meaning of s 24(1)(a) of the Matrimonial Causes Act 1973. The husband's appeal was struck out for lack of compliance with court orders.
The Court of Appeal, with the exception of Thorpe LJ, dissenting allowed the appeal, finding that the judge had fallen into fundamental error in making no primary findings to justify any conclusion other than that the properties were beneficially owned by the companies. The Court of Appeal held that the principles in Salomon v A Salomon and Co Ltd, Limited  AC 22 applied as much in the disposition of financial remedy proceedings as in other proceedings and that the separate corporate identity of a company was a fact of legal life that all courts were required to recognise and respect whatever jurisdiction they were exercising. While there could be circumstances where it would be legitimate to pierce a company's corporate veil, the court had to be satisfied that the conditions in VTB Capital v Nutritek International Corp  EWCA Civ 808 were fulfilled. The wife appealed to the Supreme Court.
The Supreme Court allowed the appeal, restored the High Court order, declared that the seven disputed properties were held on trust for the husband and that they should be transferred to the wife in satisfaction of the financial settlement.
Lord Sumption, giving the unanimous judgment of the court, found that a limited principle of English law could apply when a person was under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evaded or whose enforcement he deliberately frustrated by interposing a company under his control. The court could then pierce the corporate veil but only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. Very few cases would fall into that category but the recognition of a limited jurisdiction where the abuse of the corporate veil to evade or frustrate the law could be addressed only by disregarding the legal personality of the company was consistent with authority and with long-standing principles of legal policy.
While the husband had acted improperly in many ways he had neither concealed nor evaded any legal obligation owed to his wife. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage upon its dissolution. It could not follow that the court should disregard the legal personality of the companies. The piercing of the corporate veil could not be justified in this case by reference to any general principle of law.
The judge was not entitled to order the companies' assets to be transferred to the wife in satisfaction of the lump sum order simply by virtue of s 24(1). There was nothing in the Matrimonial Causes Act and nothing in its purpose or broader social context to indicate that the legislature intended to authorise the transfer by one party to the marriage to the other of property which was not his to transfer. Furthermore, a transfer of this kind would ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets of the marriage. Where assets belonged to a company owned by one party to the marriage, the proper claims of the other could ordinarily be satisfied by directing the transfer of the shares. So far as a party to matrimonial proceedings deliberately attempted to frustrate the exercise of the court's ancillary powers by disposing of assets, s 37 provided for the setting aside of those dispositions in certain circumstances.
Judges exercising family jurisdiction were entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband was likely to be concealing. The judge's findings about the ownership and control of the companies meant that the companies' refusal to co-operate with these proceedings was a course ultimately adopted on the direction of the husband. It was a fair inference from all of the facts, taken cumulatively, that the main, if not the only, reason for the companies' failure to co-operate was to protect the properties. That in turn suggested that proper disclosure of the facts would reveal them to have been held beneficially by the husband, as the wife had alleged.
Whether assets legally vested in a company were beneficially owned by its controller was a highly fact-specific issue. It was not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. But it could tentatively be suggested that in the case of the matrimonial home, the facts were quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company. The intention would normally be that the spouse in control of the company intended to retain a degree of control over the matrimonial home which was not consistent with the company's beneficial ownership. Judges exercising family jurisdiction were entitled to be sceptical about whether the terms of occupation were really what they were said to be, or were simply a sham to conceal the reality of the husband's beneficial ownership.
On a procedural note, Lord Sumption expressed his surprise that the companies were given permission to appeal on such undemanding terms. They were required to make a payment on account of costs, but they were not required to purge their contempt in failing to disclose documents or information, nor were they put on terms as to dealings with the properties. There may have been good reasons for not imposing such terms, but on the face of it the possibility was not even considered.
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