In a ruling which reveals a sharp division of views between family and corporate lawyers, the Court of Appeal has more than halved an ex-wife’s £17.5 million divorce settlement on grounds that a family judge was wrong to pierce the corporate veil and award her property assets owned by companies controlled by her ex-husband.
In a majority decision, the court decided that the divorce judge erred in law when, for the purposes of deciding the entitlements of Michael Prest’s ex-wife, he treated the corporate assets as if they were directly owned by him.
Lord Justice Patten said that judges of the High Court Family Division had tended ‘to adopt and develop an approach to company owned assets in ancillary relief proceedings which amounts almost to a separate system of legal rules unaffected by the relevant principles of English property and company law.’ He emphasised: ‘That must now cease’.
Mr Prest’s ex-wife, Yasmin, had insisted that he was worth ‘tens if not hundreds of millions of pounds’ and asked for an award of £30.4 million. However, he was adamant that he had net debts of £48 million and argued that she was entitled to just over £2 million.
Following divorce proceedings – during which Mr Prest ‘repeatedly flouted’ his duty to fully and frankly disclose his assets - he was ordered to give his ex-wife cash and assets worth £17.5 million. However, the Court of Appeal’s decision means that that award will now be reduced by up to £9 million.
Lords Justice Rimer and Patten agreed that the divorce judge had had no power to pierce the corporate veil and award Mrs Prest a London property portfolio, worth £9 million, which was beneficially owned by companies that her ex-husband was said to control.
In a powerful dissenting judgment, family law specialist, Lord Justice Thorpe, said: ‘Once the marriage broke down, the husband resorted to an array of strategies, of varying degrees of ingenuity and dishonesty, in order to deprive his wife of her accustomed affluence.
‘Amongst them is the invocation of company law measures in an endeavour to achieve his irresponsible and selfish ends. If the law permits him so to do it defeats the Family Division judge's overriding duty to achieve fairness’.
In his ruling, Lord Justice Patten issued a resounding warning that wealthy couples who transfer assets to companies for wealth protection or tax avoidance purposes ‘cannot ignore the legal consequences of their actions in less happy times’.
Lawyers for three companies that brought the appeal had argued that their assets did not belong to Mr Prest but are ‘held in trust’ for his children and the children of his four siblings in Africa under Nigerian Itsekiri customary law.
However Mrs Prest’s legal team had submitted that the companies and the assets that they hold are ‘100% owned and controlled’ by her ex-husband and that they are effectively his ‘alter ego.’