The UK is often referred to as the divorce capital of the world. Many spouses choose to bring their cases here because of the reputation of the UK courts for making generous awards. Large pay-outs are frequently reported in the press. In 2011 Russian obligarch Boris Berezovsky was reported to have paid out £220 million in the biggest ever settlement seen in the UK. In Petrodel Resources Ltd v Prest, this era of generosity was tested.
The Prest case has often been in the news, not least because it concerns the considerable wealth of the international ‘oil baron’, Michael Prest. Mr Prest set up Petrodel which is now one of the leading African energy companies.
Mr and Mrs Prest lived a luxurious lifestyle during their 15 year marriage. They lived in a multi-million pound home in London with numerous other properties at their fingertips in London and Nevis.
Unfortunately for Mrs Prest, the properties are owned by companies within the Petrodel corporate structure. Here lies the problem in this case. The principal assets in the marriage are not owned by Mr or Mrs Prest. They are owned by companies within the Petrodel group. Mr Prest is a shareholder of these companies.
It is a long established principle that companies are legal entities which are separate from their shareholders. This principle was established in Salomon v Salomon in 1896. The rights and liabilities of a company are separate from the rights and liabilities of its shareholders. There is in effect a corporate veil between them. Only in special circumstances can the corporate veil be pierced so that the rights or liabilities of the company are treated as the rights or liabilities of the shareholders or vice versa.
The question in Prest was whether the corporate veil could be pierced and whether the court could therefore make an order to transfer the properties owned by the companies to Mrs Prest.
In the High Court, the judge found that the companies were beneficially owned by Mr Prest. They were in his control and he was able to distribute assets of the companies as he wished.
There was significant difficulty in determining the value of the assets in the case. This was attributed largely to the fact that Mr Prest failed to provide full and frank disclosure. Indeed the judge commented that “a great deal of energy has been expended by the husband on seeking to establish what he is not worth rather than the more conventional focus being on seeking to demonstrate what he is worth”. Even more scathing, the judge formed the view that Mr Prest “regards the proceedings as a game in which he has sought to manipulate the process to his advantage”. The judge considered Mr Prest to be worth approximately £37.5 million.
Having assessed Mr Prest’s wealth, the judge awarded Mrs Prest £17.5 million. Mr Prest was ordered to transfer various properties owned by the Petrodel group companies to Mrs Prest.
The companies appealed against the order and the case progressed to the Court of Appeal. By a majority decision, the court allowed the appeal. It reasoned that the assets belonged to the companies. As such Mr Prest had no interest in the assets. There must be legitimate grounds to pierce the corporate veil and there were no such grounds in this case. The court could not therefore make an order against the assets of the companies.
Perhaps unsurprisingly, Mrs Prest subsequently appealed. The appeal was heard in the Supreme Court in March 2013 and the judgment was issued on 12 June 2013. Mrs Prest’s appeal was allowed but in doing so the Court made it clear that the circumstances of this case were not such that the corporate veil could be pierced. The Court instead reached its conclusion on the basis that the way in which the properties had been vested in the companies meant that they were held by the companies on trust for Mr Prest. The properties therefore belonged to Mr Prest beneficially, enabling the Court to make an Order for the transfer of the properties to Mrs Prest.
Mrs Prest was the applicant in the Prest case. In cases of an international nature such as this, a spouse will often bring the case in the jurisdiction which is likely to produce the most favourable outcome. This is known as ‘forum shopping’. The UK has been favoured by many spouses, particularly in recent years. While the Court of Appeal in the Prest case appeared to restrain the liberality of family judges in the context of divorces involving company assets, ultimately the approach of the Supreme Court was more generous. The decision is likely to be viewed with interest around the world and especially by spouses considering the UK as the forum for their divorce in cases of this nature.
For any further information regarding this article or for any Family Law related issues, please contact Zoe Porter at zoe.porter@michelmores.com