Family Law : Has Prest really given Family courts the jurisdiction to pierce the Corporate Veil and enable company assets in divorce to be transferred to a spouse.
Prest had been reported to have enabled the courts to legitimately order transfer of assets belonging to a company to a spouse on divorce. However this is not technically correct.
What can a court do when all the matrimonial assets are held within a company set up for legitimate corporate wealth management?
When can a family court go behind the corporate veil and what interpretation shall be given to s24 (1 ) (a) Matrimonial Causes Act 1973 when transferring assets between spouses assets being Property to which a spouse is entitled whether in possession or reversion.
These were the questions addressed by the court in Prest when looking at assets owned by the company and not the spouse
HHJ Moylan in the lower court held that since the husband effectively exercised control over the company assets he could therefore rule effectively the company assets were the husbands assets. He was prepared to make a robust interpretation of s24 MCA 73 “to property to which the husband is entitled ” and therefore the spouse was entitled to make a claim against the same.
In essence the lower court ruled effective control equals property entitlement.
Interestingly in the same case the Former Matrimonial Home was actually in the name of a corporation on resulting trust for the husband and therefore he had the beneficial interest to which could be transferred. This was to be differentiated from the other company assets given these assets has we’re for legitimate corporate wealth management.
On appeal it was held that this was a completely erroneous interpretation of s24 and confirmed Solomon v Solomon namely a company is quite separate from the owners.
Appeal to Court of Appeal
Court of Appeal reaffirmed that only in limited circumstances can you pierce the copy veil. this can only be when there is impropriety in that the legal arrangement is actually different to what it is in practice. If there is no evidence of impropriety then there is no way of piercing the corporate veil.
The Majority took a company law approach distinguishing from controlling shareholders and company assets and you cannot interfere with this by a robust interpretation of s24 MCA to suit. It cannot be right to have two different interpretations to company Law depending upon which court you are sitting in.
Appeal to Supreme Court
Question for consideration on appeal. Whether a court has power to transfer seven properties to the wife where they legally belong to the company and not the husband.
Supreme Court unanimously allowed the appeal. This Case was hailed a great victory for wives. However is this so? Or is it so fact specific is this judgement limited to Mrs Prest alone.
There are 3 ways the Supreme Court said a court could possibly argue that the corporate assets could be got at. This is defined by Lord Sumption at paragraph 9 of his judgement
1. Is this an exceptional case for piercing the corporate veil .
2. Can s24 MCA be interpreted so as to give distinct power to disregard corporate ownership. As to entitlement property being more generous in its interpretation within matrimonial proceedings other than any other court.
3. Did the company holds the property on trust for the husband in the particular circumstance s of this case.
In this case from the original judgement only the Matrimonial home was found to be on a resulting trust and this wasnt appealed against.
The majority had held company assets had not been held on trust in lower court. However this was the basis Mrs Prest succeeded in her appeal.
Of three avenues to allow possibility piercing corporate veil Mrs Prest only succeeded on the last.
The first one the court declined to pierce the veil on the circumstance of this case and strongly supported the company law approach of lower court as Per case of salaman and salaman and robustly supported CA majoirty ie when there is no evidence of impropriety the husband is entitled to set up a legitimate company and therefore no justification in law to look behind this.
This in essence Shut the door on piercing the corporate veil.
Supreme Court thereafter considered whether you can give s24 a more liberal interpretation under MCA than under general property law.ie transfer property to which the Husband is entitled….no!
A legal right is a legal right. It must have the same meaning in any court. Only way you could do this is by way of legislative reform. Amendment to MCA.
How therefore in law could the appeal be successful.
Only argument could be is that the husband is found in fact to be the beneficial owner of the assets not withstanding the legal title and therefore bring the asset within the orthodox interpretation of s24. Ie not taking a robust interpretation of the Section of MCA but finding away in which the Husband is entitled in law to the asset and thus bring the asset into the interpretation of S24. Answer in this case was Yes. Trusts law to the rescue Ie company was held to be on trust for the husband so he was the beneficial owner and this property entitled to be transferred pursuant to s24 MCA.
a resulting trust is where property is placed in the name of A with money contributed by B. A is the legal owner but holding on trust back to B giving interest proportionate to his contribution.
In this case the Supreme Court applied this doctrine of resulting trust to conclude the company held the assets on resulting trust for the benefit of thenHusband and so the company veil could be pierced.
The Supreme Court could draw adverse inferences against both the company and the Husband as a result of the purchase of the properties being quite cloudy by way of fund transfers and therefore able to say the husband had put money into the properties. There was no evidence to rebut this and so the courts could find an interest resulting back to him and so the trust could bite.
In this case the court was ready to draw advers inferences.to enable there to be a beneficial interest. Ie husband put money into the acquisition of the properties. In this case there had been some impropriety. There had been issues in relation to disclosure from both the Husband and the company and consequently the court used this to enable them to look behind the acquisition of the properties to thereafter find the resulting trust.
This is unusual for a higher court. They do not usually look behind facts as they did in this case. They will normally rule on law and if something needs to be decided on in relation to fact they will send this back to then lower court. This shows the extent to which the Supreme Court wanted to do justice to Mrs Prest.
This is an extremely robust and unusual approach of the Supreme Court perhaps most remarkable to show how far the court was prepared to travel beyond normal legal decisions to try and do justice ie not remit back to lower judge.
Million dollar question
Can you draw general conclusion ie trust to the rescue
Or wholly fact specific
Lord Sumption in his judgement indicated this was Fact specific . he said he didn’t like general principles but did say may be easier to find resulting trust in FMH than in commercial property. However think within the factual context of a situation where husband and company had not complied with courts for disclosure as in case courts are able to draw adverse inferences.. This case is not therefore about piercing the corporate veil or taking a robust interpretation of s24 but more set against an uncooperative husband and company allowing the court draw adverse inferences to enable resulting trusts to be found.
Here If theHusband had so properly cooperated and disclosed it would have been far more difficult for the court to have reached a conclusion where no adverse inferences could be drawn.
M v M first case post Prest.
Whilst resulting trusts did come to the rescue here other equitable doctrines were used as well To achieve the result wanted. This Again shows a robust judge who wants to do justice to a wife where there is an uncooperative husband and company will go wider to try and give justice.
This case was part 3 Matrimonial and Family Proceedings Act 1984 where there was a Russian divorce where no provision to wife at all. Big asset case were the majority of assets where in Russia. However some properties where in England. The Husband asserted the property belonged to the company. Mrs M counsel argued Prest and that the Husband was the true beneficial owner arising out of a Resulting and constructive trust. There was a Common intent despite legal owner being the company assets were held on trust for others.
The wife sought all property in England and a lump sum to be secured against foreign property. The Husbands conduct was similar to the Husband inPrest.
It was found he had provided all the funds to acquire the properties and consequently the court was able to draw inferences from failing to cooperate but consideration was given at length to the presumption of resulting trust and if so should it be applied and if so can it be rebutted with evidence.
However in this case the judge said there was actual intent for husband to be the beneficial owner of the assets by providing the money for the acquisitions and could show the money from the husband to the company and then to the property. this was not intended for legitimate tax minimisation. Consequently a robust approach can be taken to rule the Husband intended to be beneficial owner of the property. The judge cited a little known case of Lavelle and lavelle 2004 which stated you don’t need a presumption of resulting trust where you can find actual evidence. the presumption will only be needed if you cant find such evidence.
By way of back up constructive trust can be looked at. Yes things are fact specific but first need to look for actual intention. in the absence of this the courts can draw inferences based upon the conduct within the litigation. It is only in the absence of intention do laws of presumption apply which can then be rebutted.
Here the courts stuck with the true interpretation of s24. However the courts pulled inequitable doctrines to apply to this case.
There is no comfort that there is a wider ability to pierce the veil of corporation in family cases than in any other case or a more robust approach to interpretation of s24. However can use equitable doctrines to achieve the desired outcome. Question being however can you do this outside the ability to draw adverse inferences ie arising out of misconduct within the litigation as for both cases of Prest and MvM.
Suspect yes but watch this space..