Supreme Court hands down unanimous decision in the case of Prest v Petrodel

Posted 19/06/2013

The decision of the Supreme Court in the case of Prest v Petrodel, has led to Yasmin Prest being given a share in the fortune of her husband, Michael Prest’s successful business ventures.Seven residential properties were owned by two companies. Both companies were wholly owned and controlled by Michael Prest. The court held that the properties were held on a resulting trust for Michael Prest and ordered a transfer of the properties to Mrs Prest as part of her divorce settlement.The court found that proper disclosure of the evidence had been obstructed by Michael Prest through the concealment of facts and the failure to comply with court orders. After considering the evidence on how the companies purchased the properties, the court decided that proper disclosure would have shown that the properties were beneficially owned by Michael Prest.The court recognised that there is a principle in English law which enables courts, in limited circumstances, to pierce the corporate veil when someone attempts to frustrate the law through the use of a company’s separate legal personality. However, this principle did not apply to this case because the court did not consider that Michael Prest was evading or frustrating a legal obligation to his wife or that he was concealing or evading laws relating to the distribution of assets in a divorce.At an earlier hearing, the High Court held that there was a broad principle in section 24 of the Matrimonial Causes Act 1973 which permitted courts to disregard the corporate veil in matrimonial cases. The Supreme Court did not agree and held that the statutory wording could not be taken to mean something in a matrimonial case which was inconsistent with the legal concepts behind it.The particular circumstances of this case led the Supreme Court to reach its decision. This case is not a precedent but it provides useful guidance as to when courts will consider it necessary to pierce the corporate veil.If Michael Prest had been able to show, through proper disclosure of the evidence, that he was not beneficially entitled to the properties, then a different decision is likely to have been reached. A company which holds matrimonial and other residential property will want to be assured that those assets are legally owned by the company through its separate legal personality. This case demonstrates that such companies will need to be able to show clear documentation justifying why those assets are owned by the company. This is especially the case when an individual who wholly owns and controls the company resides in a property which is an asset of the company.