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Petrodel v Prest: Supreme Court ruling on divorce settlement looms

This Wednesday morning the Supreme Court will announce a decision in one of the most controversial and significant family law cases of recent years. It’s a case in which we have seen a stark clash between the differing perspectives of commercial and family law and the Supreme Court’s decision will have many implications for the future.

Petrodel vs Prest is a long running divorce clash between former spouses Michael and Yasmin Prest. In October 2011 Mr Justice Moylan ruled that the Mr Prest, a wealthy businessman, must give 14 properties owned by  Petrodel Resources and other companies by to his former wife as part of their divorce settlement. Mr Prest wholly owns and controls these companies.

But this decision was famously overturned a year later by Court of Appeal. By a two to one majority, judges ruled that the 14 properties were not Mr Prest’s personal property to give away . Instead they belonged to the companies, separate and distinct legal entities.

On that occasion,  Lord Justices Patten and Rimer, who have a commercial background in the Chancery Division of the High Court, failed to reach agreement with senior family judge Lord Justice Thorpe. The latter said his colleague’s ruling represented a radical departure from previously established family law principles.

Under corporate law, a company’s assets are not owned by its shareholders. By contrast, family courts consider the assets of a company controlled by one party, under Section 24 (1)(a) of the Matrimonial Causes Act 1973, as “assets to which a spouse is entitled”. The argument has become increasingly sophisticated as members at the top of the family bar try desperately to secure Mrs Prest a real rather than an illusory pay day.

This presents the Supreme Court with a conundrum: should company law or family law prevail in this case?

If the Supreme Court allows Mrs Prest’s appeal and decides that her former husband must give her the Petrodel properties, there are obvious implications for the ways in which companies are structured and run. And of course, if the Supreme Court rejects her appeal, there will be similar financial implications for future divorcing couples and lessons to be learned about the division of matrimonial assets.

I note that the Supreme Court set to rule on Petrodel v Preset comprises five commercial judges and two family judges. This is case which really puts family law to the test against a fundamental principle of corporate law. I wish I could say otherwise, but given also the formidable brain of the new boy on the block, Lord Sumption, with his fearsome reputation in commercial law, I am far from confident that family law will win out in the end. Even if that means Mrs Prest will also lose.

The blog team at Stowe is a group of writers based across our family law offices who share their advice on the wellbeing and emotional aspects of divorce or separation from personal experience. Guest contributors also regularly contribute to share their knowledge.

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  1. Paul says:

    The fact that family lawyers want Mrs Prest to win out says as much for their own venal ways, as it does anything. Family law should be primarily about children’s futures, not dispossessing one party of material possessions to hand to another. The only way you regard this case as fundamentally important is because of the large slices of wealth that can be detached and secured by third parties who are lucky enough to be tied up in these dealings.

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