What does the decision in Petrodel v Prest mean?

Yesterday’s decision by the Supreme Court (12 June 2013) reaffirms what family lawyers have long believed: A party who has placed his assets within a company which he wholly owns and controls, cannot protect those assets behind the ‘shield’ of the company, and thereby prevent a financial claim from his spouse in divorce proceedings.

In this case Mr & Mrs Prest, a dual nationality, British-Nigerian couple, litigated for five years about whether the court had the power to transfer properties held by Mr Prest’s oil companies (namely Petrodel amongst others) to the wife within financial proceedings on divorce. A central question for the court was whether the husband was the sole beneficial owner and controller of the companies. If the court could establish that, then the court could transfer assets within the companies to the wife.

The husband was roundly and severely criticised for his non-disclosure and evasive tactics by the judges in all three levels; High Court, Appeal & Supreme Court. As a result, the financial information before the court was very out of date. They had to estimate what the extent of the husband’s wealth. He had also failed to comply with orders for his wife’s and children’s maintenance. Amongst others, there were orders imposed on him by the High Court.

The judges decided that the managerial control of the companies had always been with the husband, and that there had never been any independent directors. However the court was not entitled to grab assets from the companies. That and other matters did not of themselves mean that the husband had acted with impropriety in his dealings with the companies. He had misapplied to company assets for his own benefit, but in doing so he was neither concealing nor evading any legal obligation to his wife or to the law. These assets were vested in the companies long before the marriage broke down for tax and ‘wealth protection’ reasons. Therefore the transfers could not be undone.

The seven court of appeal judges unanimously found that the husband has purchased all seven properties in question in this case, with funds provided by companies under his control. As such, these properties were beneficially owned by the husband. Therefore they were capable of transfer to the wife as part of the matrimonial settlement. The court has the power to order the companies to transfer the properties because the companies are ‘bare trustees’ for the husband. They are also completely under his ownership and control.

In view of the husband’s lack of observance of court orders, it is difficult to see a happy ending to this litigation. The wife will be able to secure the property transfers, but all of them have mortgages, which the husband will doubtless refuse to redeem as he has been ordered to do. That will leave the wife in an invidious financial position.

© Punam Denley, June 2013