Friday, October 26, 2012

Prest: A "cheat's charter"?

Lord Justice Rimer
The much-anticipated judgment in Petrodel Resources Ltd & Ors v Prest & Ors [2012] EWCA Civ 1395 has been handed down today by the Court of Appeal. I don't propose to write a full summary of the judgment (give me a break, it's 161 paragraphs long and it is Friday afternoon!), but can report that the judgment is likely to come as a disappointment to family lawyers.

Briefly, the background is that in October last year Mr Justice Moylan awarded the wife £17.5 million in settlement of her financial remedy claim. In view of the husband's appalling litigation misconduct, he ordered that companies owned and controlled by him (which Moylan J found the husband had used to try to defeat the wife's claims) transfer certain assets to the wife, in part payment. The companies appealed.

In the Court of Appeal Lord Justice Thorpe, as one might expect, wanted to dismiss the appeal. His judgment concluded:
"64. In this case the reality is plain. So long as the marriage lasted, the husband's companies were milked to provide him and his family with an extravagant lifestyle. That was only possible because the companies were wholly owned and controlled by the husband and there were no third party interests. Of course in so operating them husband ignored all company law requirements and checks.

65. Once the marriage broke down, the husband resorted to an array of strategies, of varying degrees of ingenuity and dishonesty, in order to deprive his wife of her accustomed affluence. Amongst them is his 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 a fair result."
However, he was 'out-voted' by the two commercial judges sitting in the court, Lord Justice Rimer and Lord Justice Patten, and the appeal was therefore allowed. Lord Justice Rimer held that unless there was some impropriety whereby "the controllers of the company have so used the fact of its separate identity for improper purposes that it may be appropriate for the court [to] disregard its separate identity in order that its controllers may not derive the advantage from such abuse that they intended to achieve", the judge had no choice but to reject the claim that the companies' assets were or could be regarded as properties to which the husband had any entitlement. He continued that the judge:
"...had no jurisdiction under section 24(1)(a) to make the orders he did in relation to them. Insofar as he was suggesting that section 24(1)(a) enabled the court to treat a company's property as belonging to its 100% owner, he was wrong. Section 24(1)(a) confers no such jurisdiction. It does no more than confer a jurisdiction to make a transfer order in respect of property to which the respondent spouse is beneficially entitled."
The ruling has already been called a "cheat's charter" by divorce lawyers, who fear that it will be used by wealthy husbands to avoid their liabilities to their families.

Mrs Prest is reported to be intending to appeal to the Supreme Court.

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