UK: Divorce: Which Side Are You On?

Last Updated: 9 August 2013
Article by John Darnton

Warring couples frequently make the newspapers but very few disputes actually reach the Supreme Court. Their Lordships' decision in Prest and Petrodel (Prest v Petrodel Resources Ltd and others [2013] UK SC34) was especially eagerly awaited because it highlighted the tension between those on the one hand who felt that family judges should have all the tools necessary to achieve a 'fair' result between parties on divorce and, on the other hand, those who considered that limits needed to be imposed to ensure that family judges did not overstep the mark.

The financial dispute following the breakdown of the marriage between Michael and Yasmin Prest has a long and well publicised history.  The detailed circumstances are complicated but for present purposes the background to the appeal to the Supreme Court can be stated simply.

The husband, Michael Prest, wholly owned and controlled various companies belonging to the Petrodel Group.  One of those companies was the legal owner of five residential properties in the UK and another was the legal owner of two more.

Mrs Prest brought financial claims and these were initially dealt with by a High Court judge, Moylan J.  He had available to him a number of powers contained in the Matrimonial Causes Act 1973 ('the 1973 Act'). His main difficulty was that the properties that he wished to transfer to Mrs Prest were owned by the two companies.  He concluded that there was no general principle that entitled to him to reach the companies' assets by 'piercing the corporate veil' but he went on to conclude that there was a wider jurisdiction available to him under Section 24(1)(a) of the 1973 Act.  By that section, 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'.  He therefore made an order that the various properties be transferred to the wife.  In the Court of Appeal, three of the companies challenged that 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 criticised the practice of the Family Division of treating assets of companies substantially owned by one party to the marriage as available for distribution under Section 24 of the 1973 Act.

Mrs Prest then appealed to the Supreme Court.  Somewhat unexpectedly, the Supreme Court unanimously upheld her appeal.

The main points to come out of this important decision would seem to be as follows:

  1. The court confirmed that the decision in Salomon v A Salomon & Co Ltd [1897] AC 22 ("Salomon") remained good law.  Essentially, subject to very limited exceptions, a company is a legal entity distinct from its shareholders.  It has rights and liabilities of its own which are distinct from those of shareholders.  Its property is its own, and not that of its shareholders.  In Salomon the House of Lords held that these principles applied as much to a company that was wholly owned and controlled by one person as to any other company.
  2. The Supreme Court (the leading judgment was given by Lord Sumption) examined the extent to which the 'corporate veil had truly been pierced' in earlier reported cases where the concept had made an appearance.
  3. The Supreme Court confirmed that it was possible, in very exceptional circumstances, to 'pierce the corporate veil' but questioned whether this was a principle or doctrine as such.  In his judgment Lord Walker stated "I am reluctant to add to the discussion but for my part I consider that 'piercing the corporate veil' is not a doctrine at all, in the sense of a coherent principle or rule of law. It is simply a label – often, as Lord Sumption observes, used indiscriminately – to describe the disparate occasions on which some rule of law produces apparent exceptions to the principle of the separate juristic personality of a body corporate affirmed by the House of Lords in Salomon". (Para 106).
  4. The Supreme Court determined that the ability of the court to 'pierce the corporate veil' should only be utilised in very limited circumstances.  Lord Sumption stated "I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.  The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality." (Para 35).  Lord Clarke indicated that he agreed with Munby J in Ben Hashem v Al Shayif [2009] 1 FLR 115 where Munby J had suggested that the court only has the power to pierce the corporate veil when all other more conventional remedies have proved to be of no assistance.  Lord Clarke concurred that the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare.
  5. It may still prove difficult to apply the formulation of Lord Sumption but, as Lord Neuberger explained, to an extent it is based on the principle that "fraud unravels everything" and this highlights how hard it may be to invoke the doctrine in practice.
  6. The Supreme Court therefore decided not to pierce the corporate veil in this case.  Lord Sumption found that "Whatever the husband's reasons for organising things in that way, there is no evidence that he was seeking to avoid any obligation which is relevant in these proceedings.  The judge found that his purpose was 'wealth protection and avoidance of tax'.  It follows that the piercing of the corporate veil cannot be justified in this case by reference to any general principle of law."
  7. Their Lordships were critical of any suggestion that different principles could be applied in family cases.  Lord Sumption had this to say: "Courts exercising family jurisdiction do not occupy a desert island in which general legal principles are suspended or mean something different.  If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts.  If it does not exist, it does not exist anywhere."
  8. The court stressed the limits of Section 24(1)(a) of the Matrimonial Causes Act.  This is the provision that the original judge, Moylan J, had sought to rely on and it provides that 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".  The Supreme Court confirmed that that section does not give the court power to order a spouse to transfer property to which he is not in law entitled.  The words 'entitled, either in possession or reversion' referred to a right recognised by the law of property.  Lady Hale confirmed at paragraph 88 that there was nothing to suggest that the words of Section 24 (1)(a) should be read to include "property over which the first-mentioned party has such control that he could cause himself to become entitled, either in possession or reversion".  It was not just a matter of control.
  9. The Supreme Court allowed Mrs Prest's appeal declaring that the seven disputed properties vested in the companies PRL and Vermont were held on trust for the husband.  The court was satisfied that the circumstances by which the companies came to own the properties were such as to give rise to a resulting trust the effect of which finding was that the companies held the properties on trust for Mr Prest. As the court concluded that the properties were beneficially owned by Mr Prest the court had the ability to direct that they be transferred to Mrs Prest.
  10. The court stressed that the role of the court in family cases was an inquisitorial one and that if a party failed in their duty to give full and frank disclosure of all material facts relevant to the exercise of the court's powers the judge was entitled to draw 'adverse inferences'.  Lady Hale emphasised that the court was entitled to "draw such inferences as can properly be drawn from all the available material, including what has been disclosed, judicial experience of what is likely to be concealed and the inherent probabilities, in deciding what the facts are."  The Supreme Court therefore determined that there was sufficient evidence to enable it to reach the conclusion it did as to the beneficial ownership of the properties.  To a significant extent, the court was influenced by the fact that the companies had received the properties gratuitously and that valuable consideration had not been given for them.


(i) The court reaffirmed the correctness of the Salomon decision and the sanctity of a corporate entity.  Whilst acknowledging that circumstances could exist that would justify 'piercing the corporate veil' the message given loud and clear was that this would only happen in truly exceptional cases.  As Lord Sumption stated, the recognition of a much wider jurisdiction would cut across the statutory schemes of company and insolvency law.

(ii) In future we may well see more claims seeking to rely upon a resulting trust argument.  Lord Sumption stressed that, whether assets legally vested in a company were beneficially owned by its controller, was a 'highly fact-specific issue'.  In his view, it was not possible to give general guidance going beyond the ordinary principles and presumptions of equity.  He did, nonetheless, venture to suggest that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company.  In many cases, the occupation of the company's property as the matrimonial home of its controller would not be easily justified as being in the company's interest, especially if it was gratuitous.  The intention would normally be that the spouse in control of the company intended to retain a degree of control over the matrimonial home which was not consistent with the company's beneficial ownership.  Although entirely genuine structures could be established, judges exercising family jurisdiction were 'entitled to be sceptical about whether the terms of occupation are really what they are said to be, or are simply a sham to conceal the reality of the husband's beneficial ownership'.

(iii) Careful thought will therefore need to be given to the use of the type of structure whereby an offshore trust holds shares in a company which in turn owns a property, especially if that property is to be used as the matrimonial home.  Of course, in a situation where the husband is the shareholder, an order could always be made for the transfer of those shares to the wife but query whether or not such an order would be recognised and enforced in the offshore company jurisdiction.

(iv) The judgment emphasises the importance of properly created, documented and run structures.  Mr Prest's failure to properly document loans or capital subscriptions and the manner in which he withdrew funds from the companies without proper authority assisted the court to conclude that he had funded the purchase of the properties.

(v) In an earlier case of Hope v Krejci, Mostyn J had referred to the concept of 'telescoping' where a nuptial settlement was varied and the judge ordered the underlying property owned by the offshore trust via an offshore company to be transferred to the other spouse.  In that case, Mostyn J referred to telescoping as the 'piercing of the corporate veil'.  In future, this type of order is probably outlawed.

(vi) An interesting issue that remains is the possibility that the purchase of a property by a company for use by a married couple could constitute a nuptial settlement capable of variation by the court within divorce proceedings.  Mrs Prest sought leave to argue the point in the Supreme Court but this was refused.  In paragraph 53 of his judgment, Lord Sumption suggested that the point did not appear to be 'seriously arguable' but potentially it could remain a live issue in the right case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

John Darnton
Similar Articles
Relevancy Powered by MondaqAI
Charles Russell Speechlys LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Charles Russell Speechlys LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions