Hashem -v- Shayif  EWHC 2380 (Fam)
This case stemmed from divorce proceedings before the English High Court in which the wife (the "Wife") was seeking to obtain financial provision for herself.
The only relevant assets within the jurisdiction were two properties which were owned by a Jersey company (the "Company"). The shares in the Company were held as to 30% by the husband (the "Husband") and as to 70% by a number of the Husband's children from a previous marriage (the "Children"). The shares belonging to the Children, however, had been paid for by the Husband and effectively gifted to them by him.
At the time of this judgement the Wife had apparently broken into one of the two properties and was now being allowed to live there by the Company on condition that the Husband paid all outgoings until the divorce proceedings had been finalised.
The Wife argued that the two English properties should be regarded as being owned by the Husband's and therefore available to form part of the financial settlement she was seeking on divorce. She put this claim on a number of different footings, the most important of which were:
- that the Company was simply the Husband's alter ego and the Children held shares simply as the Husband's nominees, so the "corporate veil" should be pierced and the Company simply looked through; and
- that the English properties should be treated as having been settled into a "nuptial settlement" within the meaning of section 24(1)(c) of the United Kingdom's Matrimonial Causes Act 1973 and that the Court should use its power to vary the terms of that settlement so as to make the properties available to the Wife as part of the divorce settlement.
Dealing first with the submission that it should simply look through the Company, the Court found that the following principles applied to any attempt to pierce a corporate veil:
- ownership and control of a company by an individual were not of themselves sufficient to allow the Court simply to treat the Company as if it didn't exist;
- even if no third party rights would be adversely affected, a corporate veil cannot be pierced solely because to do so would be "in the interests of justice";
- before a Court will pierce the corporate veil it must be established that some kind of impropriety had been committed which would justify doing so;
- that impropriety must be linked to the use of the company concerned to conceal or avoid liability;
- it therefore follows that the corporate veil can only be pierced where a wrongdoer has control of the company and is using it to conceal his wrongdoing; and
- it is not, however, necessary that the company in question was established for the purpose of facilitating the wrongdoing - it is possible that a company which had been incorporated for perfectly proper purposes might subsequently be used for an improper one by its controller and, if this were the case, the veil of that company could be pierced, although only in so far as it related to that particular impropriety.
Applying these principles to this case the Court found that the Wife had failed to establish that the Husband had full ownership and control of the Company. Even had she done so, however, the Court made it clear that there was no impropriety involved - the Company had been established and had acquired ownership of the English properties before the Husband had even met the Wife. The Court made it clear that the simple fact of the breakdown of a marriage could not of itself turn what had been a lawfully operated corporate vehicle into a sham.
On the second argument, the Court first examined what constitutes a "nuptial settlement" in order to determine whether one existed on the facts of the current case. It held that a nuptial settlement has two essential ingredients: firstly an intention to make continuing provision for one or both of the spouses concerned and secondly that such provision had to be made for that person or persons in their capacity as a spouse.
Here, the Court found that a nuptial settlement did exist in relation to the property in which the Wife was currently living since the Company had agreed that she should continue to reside there on condition that the Husband fund all related costs.
The Court went on to confirm that it had power to vary the terms of this settlement, but that such power was itself subject to the following considerations:
- the Court's discretion to vary nuptial settlements is unfettered and, in theory, unlimited;
- the objective in any such variation must be to be as fair to both parties as possible;
- the settlement should be varied only to the extent necessary to do justice between the parties; and
- the Court should be very slow to make any order depriving innocent third parties of any rights they may have in the property which is the subject of the settlement.
Applying the above, the Court declined to vary the settlement by varying the economic interests in the properties. It held that all that was actually in the settlement was a licence for the Wife to reside in one of the properties, although it did order that the terms of that licence be varied (requiring the Company to give the Wife six months' notice to quit) to provide greater certainty.
This judgement is interesting both for what it has to say about the principles behind piercing the corporate veil and the identification and variation of nuptial settlements, and also as an indication that the English courts are not willing to cavalierly interfere with legitimate structures in a way that might adversely affect third-party interests in assets. It can be seen as a validation of the careful structuring of the way in which assets are held within a marriage, and should accordingly provide a measure of confidence in the integrity of their arrangements to many of the local trust industry's clients.
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