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Family Law

The leading authority on all aspects of family law

29 OCT 2012

Petrodel Resources Ltd and Others v Prest and Others

Amy Royce-Greensill

Professional Support Lawyer

@AmyRoyceG

Petrodel Resources Limited (1), Petrodel Upstream Limited (2), Vermont Petroleum Limited (3) v  Yasmin Aishatu Mohammed Prest (1), Michael Jenseabla Prest (2), Elysium Diem Limited (3)

[2012] EWCA Civ 1395

(Court of Appeal, Lord Justice Thorpe (dissenting), Lord Justice Rimer, Lord Justice Patten, 26 October 2012)

It is not open to Family Division judges, in proceedings for financial provision, to make an order against company-held property unless there exists on the facts of the case relevant impropriety justifying the piercing of the corporate veil.  Here the appellant companies had been ordered to transfer to the wife several properties on the basis that the companies' assets were property to which the husband was ‘entitled' within the meaning of s 24(1)(a) Matrimonial Causes Act 1973.  The companies' appeal was allowed, the Court of Appeal making clear that the fact that the husband was a 100% (or close to) shareholder in the companies did not mean that the companies' property belonged beneficially to him.  The separate legal personalities of the companies and the husband shareholder should be preserved and there existed no relevant impropriety to justify the piercing of the corporate veil. 

Facts

This was an appeal from the judgment of Moylan J on 4 October 2011 in the case of Prest v Prest [2011] EWHC 2956 (Fam), a financial provision case.  The parties were around 50 years old and had been married since 1993.  They had four teenage children.  The parties were of dual Nigerian and English citizenship and lived life to a very high standard, the husband being a prominent and successful person in the oil industry. The wife made a claim for financial provision on the parties' divorce.  Throughout the proceedings the husband was found to be deliberately evasive, undertaking manoeuvres and strategies to avoid full and frank disclosure.  At the final hearing the principal issues facing Moylan J had been to determine the extent of the husband's wealth, including the nature and extent of his interest in companies that had been joined as respondents, and to decide whether he could make orders directly against properties and shares held by those respondent companies.  Moylan J came to the conclusion that the husband was worth approximately £37.5 million (conservatively).  He awarded the wife £17.5 million and, deciding that he could make orders against the companies, ordered that eleven London properties held by the various of the respondent companies be transferred to the wife, together with three properties in Nevis and shares in a Nevis company.   The basis of Moylan J's decision was his finding that the London properties were ‘property' to which the husband was ‘entitled, either in possession or reversion' within the meaning of s 24(1)(a) Matrimonial Causes Act 1973.  Moylan J reasoned that the husband was ‘entitled' to the property because all the assets held within the companies were ‘effectively the husband's property'.  Moylan J found that the husband was ‘able to procure [the properties'] disposal as he may direct based...on his being the controller of the companies and the only beneficial owner' adding that ‘there [were] no third party interests of any relevance because the other shareholders [were] merely nominal with no expectation of benefiting from their shareholdings'.

Three of the respondent companies appealed (the husband had originally appealed as well but failed to comply with conditions of orders of the court and so was struck out). 

Held

Appeal allowed.  The Court of Appeal held, by a majority, that Moylan J's finding that the London properties were property to which the husband was entitled, was not justified.  Moylan J's fundamental error was to hold that the husband's sole control of the companies as their 100% owner enabled him to deal as he wished with the companies' assets (the London properties), and that it followed that the husband was therefore the beneficial owner of such assets and so ‘entitled' to them within the meaning of s 24(1)(a) MCA 1973. To make an order under s 24(1)(a) the judge had to be satisfied that the properties were the husband's beneficial property.  A finding that they were ‘effectively' his property was not good enough.  Rimer LJ, who gave the leading majority judgment,  explained that this finding was wrong, as shareholders of a company have no interest in, let alone entitlement to, the company's assets, even if the shareholder is a 100% owner of the company.  Rimer LJ preserved the distinction between the respective legal personalities, rights and liabilities of a company and those of its shareholders as enshrined in the House of Lords case Salomon v A Salomon and Company, Limited [1897] AC 22. 

In his judgment Rimer LJ considered the family proceedings authorities of Nicholas v Nicholas [1984] FLR 285, Green v Green [1993] 1 FLR 326, W v H (Family Division: without notice orders) [2001] 1 All ER 300, Kremen v Agrest (No 2) [2010] EWHC 3091 (Fam); 2011 2 FLR 490 and Hope v Krejci and Others [2012] EWHC 1780 (Fam) and found that they contained dicta that he regarded as incorrect and which should not in future be followed or applied.  Rimer LJ criticised the dicta in Nicholas that, in the absence of any relevant impropriety, equated a one-man company with the one-man and treated its assets as his, without any justification.  Rimer LJ thought that the implied justification for doing so was that ‘family justice requires it' and found that, without more, this was actually no justification, and asked ‘why should family justice be regarded as different from any other sort of justice?'.  Rimer LJ also considered the approach taken by Bodey J in Mubarak v Murbarak [2001] 1 FLR 673, which he described as proceeding ‘on the basis....that the family courts have a paternalistic jurisdiction to distribute [the company's assets] to a claimant with no title to them provided that to do so will not prejudicially affect anyone with a real interest in their being preserved within the company', to be wrong.

The Court of Appeal emphasised that in order for the corporate veil to be pierced there must exist on the facts of the case relevant impropriety.  Such facts will arise in limited circumstances, as affirmed in the cases of Ben Hashem v Al Shayif [2008] EWHC 2380 (Fam); [2009] 1 FLR 115, Woolfson v. Strathclyde Regional Council [1978] SLT 15, Adams and Others v. Cape Industries Plc and Another [1990] Ch 433; Ord and another v. Bellhaven Pubs Ltd [1998] 2 BCLC 447 and VTB Plc v Nutritek International Corporation [2012] EWCA Civ 808.  In the current case, the court at first instance had found that no relevant impropriety had occurred and the Court of Appeal upheld this finding, rejecting the wife's argument that the husband's uncooperative stance in litigation could be viewed as such impropriety.

Considering another method sometimes used in family proceedings to allow a party access to wealth held in a company, the Court of Appeal made clear that there is no jurisdiction for the court to order a party to declare an appropriate dividend and release it to the other party, as such an order would amount to an order requiring a party to take steps to achieve the holding by him of an asset he did not currently own and to which he had no present entitlement.

Note that if a property is held by a company on trust, or as a nominee on behalf of a party, the court can, in those circumstances, order a transfer to the other party.  In the current case this was the situation in respect of the former matrimonial home, which was found by Moylan J to be held on trust or as a nominee by one of the appellant companies on behalf of the husband, and for which permission to appeal against an order to transfer it to the wife was refused.

To conclude, the Court of Appeal warned against there being different approaches to lifting the corporate veil in family and corporate cases, stating that there is ‘but one law and but one High Court and all its divisions must apply the same law'.  Patten LJ held that the practice of judges of the Family Division to adopt and develop an approach to company owned assets in ancillary relief applications, which amounted almost to a separate system of legal rules unaffected by the relevant principles of English property and company law, must now cease.

Thorpe LJ gave the dissenting judgment, concluding that on the exceptional facts of the case Moylan J was entitled to order the husband to transfer or cause to be transferred the assets which he did.  He added that if the court concluded that Nicholas and those cases that followed it were wrongly decided it would ‘present an open road and a fast car to the money maker who disapproves of the principles developed by the House of Lords that now govern the exercise of the judicial discretion in big money cases'.

Amy Royce-Greensill is a Family Law PSL at Jordan Publishing and was formerly a family solicitor practising in London.

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