Wednesday, 25 September 2013

Corporate Veils and Gender Wars - A Reply to Richard Todd QC

In the August issue of Family Law, I wrote a short article about the Supreme Court ruling in Prest v Petrodel [2013] UKSC 34. That article was, in turn, a slightly expanded a more 'academic' version of my post on this blog about the ruling. Petrodel, for those who don't know, was a matrimonial finance dispute. The massively wealthy husband held a large part of his wealth in a number of companies entirely owned by him. During the marriage, he used these companies to provide a lavish lifestyle for himself and his family, yet somehow once divorce proceedings began he found himself unable to access any funds and unwilling to disclose large swathes of relevant information to enable the family court to assess the extent of his wealth and make a fair award to the wife. So far, so fairly unexceptional as big money divorce cases go. The cases ended up in the Supreme Court on the question of whether the family court is entitled to 'pierce the corporate veil' to gain access to assets held by the companies in order to transfer them to the wife.

As with my blog post, the article in Family Law gave a summary of the decision, and then moved on to discuss some of the possible bigger questions arising from the judgment. In particular, since there was something of a dispute between the way that family lawyers and company lawyers saw the issues in the case, I said this:

'...two aspects [of the case] combined to give the initial impression that family law might have won the day. However, it seems more like a case where Mrs Prest won her battle but family law lost the war.' 
As I went on to say, the main way in which the case marks a 'loss' for family law is that one of the tools that had been used to ensure that family financial arrangements were fair after divorce was lost - the family court can no longer get at assets that are held by companies when one of the spouses has complete control of that company.

Anyway, I don't want to re-hash that argument here. My reason for coming back to the matter is that Richard Todd QC, who acted for the wife in the Supreme Court, wrote a short piece for Sweet&Maxwell explaining why my Family Law article was wrong about this, and I thought that it was interesting. (Also, what better way to tempt a response than with the sweet words 'Rob George is wrong'? No seriously, it's interesting, and flattering that someone as senior as Richard Todd QC spent time thinking about my article and replying to it.)

So first a quibble. Richard Todd has a dig at me for saying - in his words - that 'Mrs Prest (probably) won her battle' because, as he says, 'there is no "probably" about it'. Well, I agree, which is why I never said probably - I said she won. I quoted a cautionary point from Lady Hale's judgment about whether there might be difficulties ahead still in realising those assets (Todd says not, which is good news), but there wasn't any doubt that she won. The question for me is whether the way in which the Supreme Court reached that conclusion might be less useful for wives in future cases. The only place I can see that I can be mistaken for saying 'probably' is in the sentence quoted above, but as a matter of construction (!) I think that it's reasonably plain that I am contrasting my conclusion (she won but family law lost) with the initial impression given in the preceding sentence (family law won).

Anyway, that's by the by. A much more interesting point, where I truly hope that I am wrong, is about whether family law did indeed lose the day. Accepting my premise that the 'war' being fought is for gender equality, Richard Todd's argument is that since the Petrodel ruling he has been contacted by 'many troubled bankers' and companies wondering how secure their financial position is, but not one wife has been in touch to ask the equivalent questions. He goes on to give three reasons why this shows that wives will be better off after the Petrodel ruling.

Would that it were so, but I'm not convinced by the 'casual and unscientific illustration' (Richard Todd QC's words). I find it entirely unsurprising that after a big money court decision affecting company assets, the companies and men who run them would go running to expert lawyers to ask about their financial position. The companies have reason to be reading law reports and the money to get legal advice, and the men are the ones who know that they are siphoning off their assets into those companies - of course they're the ones going to specialists like Richard Todd. The wives, on the other hand, are unlikely to read Supreme Court judgments about piercing the corporate veil, and if they do they are unlikely to be aware that it is an issue which affects them. Meanwhile, the men - with the advice from lawyers that we now know they are already getting - are busy using the helpful guidance from Petrodel to make sure that the assets are indeed safe behind the veil.

So yes, I hope that I'm wrong and that Petrodel is indeed 'a triumph' for family law - but I'm not holding my breath.