Petrodel v Prest: achieving fairness in matrimonial disputes through inferences and resulting trusts

The Supreme Court found unanimously in favour of Mrs Prest on 12 June 2013 in her long running divorce proceedings, which involved her husband and his Petrodel Group oil trading companies. This was a decision based on the very particular facts of the case, and made available to the wife various English properties held by the husband's companies in order to enable her to seek satisfaction of her £17.5m award. Enforcement of that sum is not covered in this article.

The matters before the Supreme Court did not concern quantum, rather technical issues concerning the interplay of corporate and family law rules, and once again, whether family lawyers had been finding a way around the "rules", to arrive at the right, and just, outcome in their view. There could not be a separate approach to the application of legal principles in different divisions of the High Court.

Company lawyers are likely to be pleased that corporate veil piercing has been aired in some detail and restricted to very specific circumstances. The much used approach (in the Family Division) of regarding the company as the husband or wife's alter ego following dicta in Nicholas v Nicholas [1984] has also come to an end, and the separate legal personality of the company (following Salomon v A Salomon and Co Ltd [1897]) reasserted as the starting point. This was not a case for veil piercing, there being no relevant impropriety involving the misuse of the company structure to evade a legal obligation owed to the wife in the proceedings. The way in which the properties were held had been found by Moylan, J, at first instance, to be one of wealth protection and the avoidance of tax rather than avoiding relevant matrimonial obligations.

Many family lawyers are likely to feel that the right outcome has been achieved in this case (subject to the old chestnut of enforcement), whereas that has not always been the case when family-specific approaches come under scrutiny.

Such scrutiny in the Court of Appeal case of Tchenguiz v Imerman [2010] EWCA Civ 908 led to a radical change for family lawyers. This case considered confidentiality between spouses, and brought to an end the "self-help" approach to financial disclosure derived from the case of Hildebrand decided in 1992. This had effectively allowed spouses on relationship breakdown to obtain important financial information by looking at the other's documents. A spouse's right to privacy of his/her documents and information was upheld. Given the extreme lengths to which spouses will go when they have fallen out of love in order to prevent the other spouse from obtaining a large proportion of what they commonly regard as their own assets, many family lawyers have regarded this change in the law as a step backwards. By contrast, in the current case of Petrodel, the Supreme Court appears to have succeeded in the difficult task of balancing fairness to the economically weaker spouse while operating within the "rules."

Of especial note to both lawyers and spouses involved in divorce proceedings, is the extent to which the Supreme Court was able to make inferences from the known facts, where evidence from the husband and his companies was not sufficiently complete. For example, neither the husband nor the companies complied with orders for the production of completion statements on the purchase of the properties and evidence of the source of the monies used.

It is crucial, therefore, to appreciate the extent to which the husband's litigation conduct affected the outcome. These inferences led to the conclusion that the beneficial title had not passed to the companies, and that they were holding the properties (including the matrimonial home) on resulting trust for the husband.

Lord Sumption (who gave the leading judgment) summarised the position as follows [43] having noted that the evidence in the case was incomplete and in critical respects obscure: " A good deal therefore depends upon what presumptions may properly be made against the husband given that the defective character of the material is almost entirely due to his persistent obstruction and mendacity." He referred to public policy considerations in divorce cases, especially where minor children are concerned, and the distinguishing features of family proceedings compared to ordinary civil litigation. Hence family judges are "entitled to draw on their experience to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing." (He explained "husband" stood for the economically dominant spouse, and equally could be the wife.)

Corporate lawyers and wealth advisers, along with the economically dominant spouse, need to bear in mind very carefully these further words of Lord Sumption [52]:

"But I venture to suggest, however tentatively, 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."

The Supreme Court declined to hear argument on the wife's contention that the companies constituted nuptial settlements within the meaning of s.24(1)(c) of the Matrimonial Causes Act 1973, and were therefore capable of being varied by the divorce court. For consideration of the nuptial settlement route, the decision of Mostyn, J, in the recent case of DR v GR and others [2013] EWHC 1196 is very interesting, and may remain another device for achieving that elusive concept of fairness between spouses upon divorce.

In Petrodel v Prest, the husband's litigation conduct, and the manner in which he dealt with his companies over the purchase of the London properties, weighed heavily in the final outcome, and is an important reminder of the dangers of non-compliance with court orders and of making poor financial disclosure.