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Kenya Law / Blog / Case Summary: Properties Vested in Companies Are Held on Trust for a Husband and are Subject to Distribution as Matrimonial Property

Properties Vested in Companies Are Held on Trust for a Husband and are Subject to Distribution as Matrimonial Property

Prest v Petrodel Resources Limited & Others [2013] UKSC 34

Supreme Court of the United Kingdom

Lord Neuberger (President), Lord Walker, Lady Hale, Lord Mance, Lord Clarke, Lord Wilson, Lord Sumption

June 12, 2013

Reported by Monica Achode

Issues:

- Whether the court has power to order the transfer of these seven properties to the wife given that they legally belong not to the husband but to his companies

Family Law – marriage – dissolution of marriage – distribution of matrimonial property – where several of the assets were vested in a company owned by the husband – legal bases on which the assets of the companies might be available to satisfy the sum order against the husband – whether the court has power to order the transfer of these seven properties to the wife

Section 24(1)(a) of the Matrimonial Causes Act 1973 (“the 1973 Act”), the court may order that “a party to the marriage shall transfer to the other party…such property as may be so specified, being property to which the first-mentioned party is entitled, either in possession or reversion.”

Brief History

This appeal arose out of proceedings for financial remedies following a divorce between MP and YP. The appeal concerned the position of a number of companies belonging to the Petrodel Group, which were wholly owned and controlled by MP, the husband. One of the companies was the legal owner of five residential properties in the UK and another was the legal owner of two more. The question on this appeal was whether the court had power to order the transfer of these seven properties to the wife given that they legally belong not to the husband but to his companies.

In the High Court, Moylan J concluded that there was no general principle that entitled him to reach the companies’ assets by piercing the corporate veil. He nevertheless concluded that a wider jurisdiction to pierce the corporate veil was available under section 24 of the 1973 Act. In the Court of Appeal, three of the companies challenged the decision on the ground that there was no jurisdiction to order their property to be conveyed to the wife. The majority in the Court of Appeal agreed and criticized the practice of the Family Division of treating assets of companies substantially owed by one party to a marriage as available for distribution under section 24 of the 1973 Act.

Held:

  1. There were three possible legal bases on which the assets of the companies might be available to satisfy the lump sum order against the husband:
  2. that this was a case where, exceptionally, the Court could disregard the corporate veil in order to give effective relief;
  3. that section 24 of the 1973 Act conferred a distinct power to disregard the corporate veil in matrimonial cases; or
  4. that the companies held the properties on trust for the husband, not by virtue of his status as sole shareholder and controller of the company, but in the particular circumstances of the case
  5. There was a principle of English law, which enabled a court in very limited circumstances to pierce the corporate veil. It applied 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 which they would otherwise have obtained by the company’s separate legal personality. The principle had no application in the case because the husband’s actions did not evade or frustrate any legal obligation to his wife, nor was he concealing or evading the law in relation to the distribution of assets of the marriage upon its dissolution.
  6. The Court rejected the argument that a broader principle applied in matrimonial proceedings by virtue of section 24(1)(a) of the 1973 Act. The section invoked concepts of the law of property with an established legal meaning, which could not be suspended or taken to mean something different in matrimonial proceedings. Nothing in the statutory history or wording of the 1973 Act suggested otherwise. General words in a statute were not to be read in a manner inconsistent with fundamental principles of law unless this result was required by express words or necessary implication. The trial judge’s reasoning cut across the statutory scheme of company and insolvency law which were essential for protecting those dealing with companies.
  7. The only basis on which the companies could be ordered to convey properties to the wife was that they belonged beneficially to the husband, by virtue of the particular circumstances in which the properties came to be vested in them. After examining the relevant findings about the acquisition of the seven disputed properties, the most plausible inference from the known facts was that each of the properties was held on resulting trust by the companies for the husband. The trial judge found that the husband had deliberately sought to conceal the fact in his evidence and failed to comply with court orders with particular regard to disclosing evidence. Adverse inferences could therefore be drawn against him. The Court inferred that the reason for the companies’ failure to co-operate was to protect the properties, which suggested that proper disclosure would reveal them to beneficially owned by the husband. It followed that there was no reliable evidence to rebut the most plausible inference from the facts

The Supreme Court unanimously allowed the appeal by YP and declared that the seven disputed properties vested in the companies were held on trust for the husband on the ground (which was not considered by the courts below) that, in the particular circumstances of the case, the properties were held by the husband’s companies on a resulting trust for the husband, and were accordingly “property to which the [husband] was entitled, either in possession or reversion

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