Supreme Court 2

On 12th June 2013 Mrs Prest was successful in an appeal to the Supreme Court who unanimously held that she should receive a transfer of 14 properties in part-payment of a total award of 17.5 million payable to her by her husband. The core issue was whether such an order (as originally made by the High Court) could be properly made given that the majority of the properties concerned were owned by companies, and not by Mr Prest himself. The Supreme Court justified the decision primarily on the basis that, in their view, the companies were holding the properties on trust for Mr Prest.

In Scotland, we are not unfamiliar with the concept that assets held by a third party can be a resource from which claims for financial provision on divorce can be met. In the case of DM v JM and the W Estates Limited in 2011 a trust was disturbed to meet the wife's claim. However, that case, like Petrodel, seemed to turn very much on its own facts and generally the position in Scotland is that assets within a trust wrapper will be protected from a claim on divorce. This contrasts with the position in England, where cases such as Charman highlighted the willingness of the English Court to look through a trust structure, where the trust was, in effect, the husband's own personal piggy bank in order to produce a result the Court considers fair.

The point of contention in Petrodel v Prest is that a transfer of company assets has been ordered to Mrs Prest. The outcome of the case has been met with considerable surprise – many had expected that the Supreme Court would uphold the fundamental principle of corporate law, that a company is a separate legal entity. One individual's claim for financial provision on divorce looks likely to have far reaching consequences for those outwith the field of family law, and in particular in the corporate and company law arena.

Should Scottish company owners facing divorce be concerned that such an order might be imposed on their businesses? In short, no. Firstly, it should be borne in mind that in England, the legislation regarding financial provision on divorce directs the Court to have regard to a number of factors to find an outcome that is"fair". None of the parties' assets (or potential assets) will be ignored. In Scotland, we are dividing the assets which form the matrimonial property – if a company interest falls within the definition of matrimonial property, then its value is taken into account in determining what each party should retain or receive. If it is not part of the matrimonial property then its value is ignored. Had Mr Prest incorporated each of his companies prior to the marriage, or received his interests by way of inheritance or gift from a third party, and his company interests were in the same form, Mrs Prest would not have been entitled to share in the value of the companies.

Even if Mr Prest's interest in the company did form part of the assets to be divided in Scotland, the legislation setting out the orders a Scottish Court can make regarding property transfers is more narrowly worded than it's English counterpart, and could not in my view be interpreted to allow one party to seek a transfer of a third party's asset. That does not however mean that business owners in Scotland are entirely safe hidden under the corporate veil. Whether company interests are part of the matrimonial property or not, a spouse's interest in a company is a resource. In Scotland, it is much more likely that Mrs Prest would have been awarded a capital sum, and not transfers of company properties. However, once that order was made, Mr Prest would still have required to come up with the cash, and a Scottish Court might well have made a sizeable award knowing that he would have had to sell company interests to meet it.

One final point that must be made is that Petrodel v Prest is the most recent in long line of cautionary tales that applies both sides of the border for the would be uncooperative or dishonest litigant. One has to wonder whether the outcome of the case would have been different if Mr Prest had openly disclosed the true nature, extent and value of his assets, and had there been no misconduct by Mr Prest in the proceedings, Mrs Prest's award may have been structured very differently.

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