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A Victory for Family Law as Petrodel v Prest Appeal Allowed by Supreme Court

Wednesday, 12 June 2013

The Supreme Court has ruled unanimously in favour of Mrs Yasmine Prest. Property held by her husband’s companies will be transferred to her as part of their divorce settlement.

This is a landmark ruling that is expected to offer significant weight to family law principles in big money divorces, where companies owned by one partner in a marriage are used to hold assets.

There is a proviso however. Although the ruling has fallen on the side of family law principles in this particular case, the judgement has left room for corporate law principles to be generally upheld. The Supreme Court did not pierce the corporate veil to achieve a fair outcome; rather it relied on the specific facts to conclude that the assets were held on trust for Mr Michael Prest.

Background to the Supreme Court’s Ruling in Petrodel v Prest

The facts of this case have been widely publicised but can be summarised briefly. Mr and Mrs Prest were married from 1993 until 2008 when Mrs Prest petitioned for divorce. In that time they had four children. The family was very wealthy; much of that wealth was held within the Petrodel Group of companies controlled by Mr Prest.

The High Court initially ruled that Mrs Prest be awarded various properties worth several million pounds as part of the divorce settlement despite the fact that those properties were legally owned by limited companies within the Petrodel Group and not Mr Prest himself.

On appeal the High Court ruling was reversed by a two-to-one decision on the basis that the properties were not Mr Prest’s to freely dispose of but held by the companies as distinct legal entities.

The Supreme Court rejected this decision and upheld the original settlement, although its reasoning was different to that of the High Court.

Analysis of the Supreme Court’s Ruling in Petrodel v Prest

In his leading judgement, Sumption SCJ held that the properties were held on a bare legal trust for Mr Prest. He reached this conclusion on the particular facts which were that Mr Prest had used his own money to buy the properties through the companies.

Thus the properties were only bought for the companies to hold on trust with the beneficial interest falling to Mr Prest. Therefore the properties could and should be transferred to Mrs Prest.

In reaching its decision the Supreme Court explicitly rejected the idea that property held by a company necessarily ‘entitled’ its shareholders to that property within the meaning of the Matrimonial Causes Act 1973.

This is a victory for both common sense and the principles of family law. However, careful legal manoeuvring by the Supreme Court means that the fundamental principles of corporate law remain intact and, as is always the case, future decisions will still turn on the specific facts.

If you would like to discuss the implications of this case or you need advice in relation to other family law issues, Rollingsons has experienced solicitors who can advise you; please contact Jeetesh Patel via e- mail or by telephone on 0207 611 4848.

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