Landmark ruling set to change landscape in high-value divorce cases
13th June 2013
A LANDMARK Supreme Court ruling is set to change the legal landscape when it comes to company assets in divorce cases, according to a leading law firm.
The case of Prest v Petrodel Resources Ltd is set to have widespread ramifications for businesses and individuals, family law experts at Ward Hadaway say.
In the case, Yasmin Prest, the wife of a wealthy businessman, succeeded in securing a £17.5 million divorce payout after a ruling by the Supreme Court.
Mrs Prest was originally awarded this sum by the High Court in October 2011 with her settlement being comprised of properties owned by her husband’s offshore companies.
The husband, Michael Prest, is a wealthy oil trader who the court deemed to be worth £37.5 million.
Throughout the expensive and lengthy court proceedings Mr Prest refused to disclose details about his shareholdings in the offshore companies.
The High Court judge, Mr Justice Moylan, described the husband as “an extremely evasive witness” who failed to “provide proper disclosure and honest evidence”.
The High Court originally ruled that the properties owned by Mr Prest’s offshore companies should be transferred to Mrs Prest.
Her husband’s companies launched an appeal claiming that, as they owned the properties, not the husband, the court had no power to order a transfer to the wife.
The Court of Appeal agreed and upheld the long-established legal principle that a shareholder has no interest in, nor entitlement to, a company’s assets.
Mrs Prest then appealed to the highest court in the UK, the Supreme Court, as without the properties there was no other way for her to receive her £17.5 million settlement.
The Supreme Court has now ruled in favour of the wife and allowed the transfer of the properties.
It has ruled that Mr Prest’s companies were in fact holding the properties on trust for the husband. Therefore, he is entitled to the properties and he can be ordered to transfer them to the wife.
The ruling reaffirms the principle of the separate legal identity of a shareholder and a company whilst adding that the “courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different.”
Jonathan Flower, Partner and Head of the Family Law team at Ward Hadaway, says the ruling will have important implications for parties in divorce cases where company assets are potentially involved – and is likely to increase the use of pre-nuptial agreements.
Jonathan explained: “On a practical note, clients need to be aware that putting assets into a company structure does not necessarily put them beyond the reach of the family courts.
“If you wish to protect your assets the best way is to draw up a pre-nuptial agreement. These are now increasingly recognised by the English courts and, if well-drafted, can ensure both parties know exactly where they stand should the relationship break down.”
He added that the ruling by the Supreme Court had succeeded in securing assets for Mrs Prest but without upsetting established legal principles.
Jonathan said: “Lawyers have been following this case with great interest and wondering how the Supreme Court will deal with what is a difficult situation.
“The judges probably thought it unfair that Mrs Prest should be kept out of her money because Mr Prest was judged to have been not open and honest with the court, however, they needed to be very careful not to undermine core legal concepts relating to companies and shareholders.
“While there will no doubt be much debate amongst practitioners about the implications of this ruling, the ruling offers an ingenious solution to what was a legally complex situation.”