A Look at the Recent Court of Appeal case of CWG v MH in the Context of Prest v Petrodel

In 2013, the case of Prest v Petrodel [2013] UKSC 34 left the family law fraternity debating and divided. At issue was whether the family courts can pierce the corporate veil when assets are owned beneficially by a company, but controlled by one of the spouses. In this case, the husband had effectively purchased a number of properties in England which he had put into the names of offshore companies.

The Court of Appeal held that the family court should not allow the properties to be taken into account in the division of assets because the companies were the beneficial owners of the properties and upheld the company law principle that there is nothing special about family law and the courts cannot pierce the corporate veil. A company cannot be deemed to be the alter ego of a party to the marriage, even if that party clearly operated the company, unless there had been some impropriety. However, the Supreme Court found that based on the facts, it was possible to infer a resulting trust in favour of the husband as he had provided all the funds for the companies to purchase the properties and made orders in favour of the wife.

As the legislation is so similar, Hong Kong courts often look for guidance in England. Supreme Court decisions thus have considerable influence here. For instance, in June 2016, the Hong Kong Court of Appeal in CWG v MH (Interest in off-shore companies) CACV 80-83/2013 considered a case involving the disputed ownership of shares in a number of offshore companies. Here, the husband alleged that he had no beneficial interest in the legal title to shares held in the companies, which, again, held assets which were located onshore but held in offshore companies.

In CWG v MH, some of the offshore provision was made prior to the handover of Hong Kong as asset protection in 1997. As with Prest, the court looked specifically at whether the husband had been able to use, had control over, and had an interest in the Hong Kong companies, the shares of which were placed offshore, pre allotment and post allotment. The court found that he had access to the underlying assets of their subsidiaries and his personal connection with one of the companies in particular was manifest – the company held the property which housed his children rent free, the office where he kept his collection of classic cars and provided all the family expenses including his mother-in-law’s credit card expenses. The Court of Appeal agreed with the trial judge that these underlying assets could be taken into account in the division of the marital assets and looked at the reality of the situation from past conduct. The disclosure by the husband was found to be incomplete and adverse inferences were made against him.

This case can also been seen as a reminder that the court can take into account a party’s access to wealth and assets whether acquired through gifts if enjoyed habitually as an established way of life. Here, the evidence showed that the husband not only received an allowance from his mother, but also was actively involved in his mother’s business affairs.

The issue of beneficial ownership often comes before the courts in Hong Kong for cases where assets are held on behalf of other family members or through corporate or trust structures. It is important to bear in mind the principles in Prest when considering the complexities of offshore corporate investments in divorce settlements.

Regional Professional Support Lawyer, Withers

Associate, Withers