A Court of Appeal ruling in a big money divorce case – which effectively outlawed the long-established practice of the High Court Family Division to look behind corporate structures when assessing spouses’ true wealth – will be considered by the Supreme Court after a disappointed ex-wife was granted permission to appeal.
Despite being heavily criticised for his ‘ingenious and dishonest’ attempts to conceal his wealth from the divorce courts, oil tycoon, Michael Prest, triumphed in his fight to cut his ex-wife's £17.5 divorce settlement more than in half. The Court of Appeal’s October 2012 majority decision caused huge controversy after it rejected Yasmin Prest's plea that her former husband was hiding his riches behind the ‘corporate veil’ of a string of companies with multi-million-pound property assets.
Now, however, Mrs Prest has been granted permission to take her case to the highest court in the land after the three judges who ruled against her accepted that their decision would force fundamental changes in the practise of the High Court Family Division.
Mr Prest had emerged the winner in the Court of Appeal despite Lord Justice Thorpe saying that ‘there were almost no lengths to which he was not prepared to go’ in his fight to cut down his ex-wife's divorce pay-out. Although she insisted that he was worth ‘tens if not hundreds of millions of pounds’ and asked for an award of £30.4 million, he was adamant that he was worse than penniless, with net debts of £48 million, and argued that his ex-wife was entitled to just over £2 million.
After a dispute that ran up ‘astronomical’ legal costs of more than £3 million - and during which Mr Prest ‘repeatedly flouted’ his duty to fully and frankly disclose his assets - he was in 2011 ordered to give his ex-wife cash and assets worth £17.5 million. His successful challenge that award in the Court of Appeal resulted in his ex-wife’s award being reduced by up to £9 million.
In a majority decision - which exposed a gaping rift between family and commercial lawyers - the court ruled that the divorce judge had been wrong to pierce the corporate veil and award Mrs Prest six London properties owned by companies that her ex-husband was said to control.
Family law specialist, Lord Justice Thorpe, said of Mr Prest: ‘Once the marriage broke down, the husband resorted to an array of stratetgies, 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.’
However, his dissenting judgment was overruled by Lord Justice Rimer who said that the divorce judge had simply been ‘wrong’ to equate the companies that owned the properties with Mr Prest and to regard their assets as his. Although Mr Prest had been found to be in control of the companies, the judge had had no power to find that he was personally entitled to the properties they owned or to award them to his ex-wife.
Lord Justice Patten agreed that the appeal - which was brought by three companies that own a portfolio of flats and houses in London - should be allowed. Issuing a resounding warning to wealthy couples, he said that those tempted to transfer assets to companies for wealth protection or tax avoidance purposes ‘cannot ignore the legal consequences of their actions in less happy times’.
The same three judges re-convened on November 21 2012 and accepted that their ruling would have the effect of doing away with the Family Division's ‘hitherto accepted practise’ of looking behind corporate structures when reaching decisions on the division of marital assets.
Lord Justice Rimer told Mrs Prest's lawyers: ‘From your point of view every word that flowed from Lord Jusice Thorpe is sweetness and light, milk and honey’. However, he said divorce judges' habit of piercing the corporate veil conflicted with the established practise of other divisions of High Court and Commercial Court who treat companies as legal personalities independent of those who control them.
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