“Marriage is a wonderful institution, but who wants to live in an institution?” Groucho Marx

Anyone who has studied corporate law will be aware of Saloman v A Saloman & Co (1897) which established that a company is a legal entity with a distinct identity separate from its shareholders. Interesting then a century and sum later the old stager gets a nod in the judgement of the Prest case. Although handed down last June, it’s worth revisiting.

In June last year, the Supreme Court found that Mr Prest was the beneficial owner of a number of UK properties, including the matrimonial home, legally owned by offshore companies. The properties could therefore be transferred to Mrs Prest to partially satisfy an order made previously by the High Court in divorce proceedings.

Mrs Prest had appealed to the Supreme Court (after the Court of Appeal had overturned the first instance decision) on three grounds:

• That the Court should pierce the corporate veil;

• That s.24 of the UK Matrimonial Causes Act 1973 conferred a suitable power to transfer company assets;

• That, in the circumstances of this case, the properties were held on trust for her husband.

The standard of Mr Prest’s disclosure and litigation conduct was harshly criticized as neither he nor the companies had complied with production orders and the companies had failed to file a defence to claims.  The Supreme Court concluded:

“The companies’ failure to co-operate suggests that proper disclosure of the facts would reveal the properties to have been held beneficially by the husband.” (Lord Sumption)

It isn’t unusual for UK resident but not domiciled individuals to hold UK property via an offshore company as there are legitimate reasons for doing so. The conduct of offshore directors and standard of administration should be of a sufficiently high standard to enable them to easily demonstrate that it is they who manage and control the company.

Any company caught up in litigation should carefully consider its position, be separately represented and, as advised, take part in the proceedings.