Judgment from the Supreme Court in the case of Prest v. Petrodel Resources Limited and others  UKSC 34 had been eagerly awaited, and a picture of a victorious Mrs Prest duly made the front pages of the newspapers when it came out last week. Many commentators were quick to declare the decision a triumph for fairness and common sense.
At its core, the case was about whether a court could attribute the considerable assets of a network of companies to a divorcing husband in order to do justice to the claims of his ex-wife for ancillary relief. The Supreme Court ruled that the companies were holding properties on trust for the husband and that therefore those assets should be taken into account in assessing the wife’s claim. Mrs Prest’s lawyer stated afterwards that the case was a victory against manipulative spouses and that it showed that dishonest husbands couldn’t cheat their wives by hiding behind a web of deceit and a corporate facade.
On closer scrutiny however, I am not so sure that there is so much cause for general celebration.
It is a cardinal principle of English law that a company has a separate legal personality from its shareholders. This means that even where a company is 100 per cent. owned by one individual, the assets of the company are not to be treated as the assets of the shareholder. The exception to this principle – where the so-called, ‘corporate veil’ may be pierced – is where a company structure is being used for a deliberately dishonest purpose.
The Supreme Court comprehensively reviewed the law on piercing the corporate veil in Petrodel and concluded that the doctrine had not been applied entirely consistently over the years. In particular, it was noted that the Family law courts had become accustomed on occasions to construing company structures as the alter ego of a divorcing spouse and deciding to pierce the corporate veil for practical reasons, even where there was no suggestion of any wrongdoing on the part of the spouse shareholder. In layman’s terms, as Munby J put it in the case of A v. A  2 FLR 467, the practice (which he decried) appeared to have developed that there was, “…one law of ‘sham’ in the Chancery Division and another law of ‘sham’ in the Family Division…”
The Supreme Court in Petrodel put an end to this anomaly, stating that the corporate veil should only be lifted in limited circumstances, where a person is under a 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. Even then, the Court thought that the remedy should only be used where there was no alternative remedy available.
Mrs Prest won because on the particular facts of this case, the Court felt able to conclude that the substantial assets of the Petrodel companies were effectively being held on trust for her husband. The Court’s ability to do this was heavily dependent on the fact pattern in the case and because the husband was adjudged to have been so evasive and dishonest in relation to the court disclosure process, that it was possible to draw adverse inferences against him in relation to the true nature of the ownership of his companies and the relevant assets. In a less extreme case, where the spouse is less evasive, or where a corporate structure is less obviously an artificial construct than in Petrodel, an applicant for ancillary relief is less likely to be so fortunate. For as it stands, if the Petrodel case, is authority for anything, it is that the Family Courts should consider themselves less free in future to look behind corporate structures for practical reasons in ancillary relief proceedings.