[2024] UKUT 222 (AAC)

Is Prest v Petrodel relevant when calculating ZA’s capital?

In its latest response, Barnet states it did not rely on the Supreme Court decision in Prest v Petrodel Resources Limited and others [2013] UKSC 34 (“Prest”) when making ZA’s benefit entitlement decisions. Barnet also states it now considers Prest is not relevant to this appeal unless the Upper Tribunal believes otherwise. The tribunal did not apply Prest as part of making its decision. I therefore deal with this issuesimply for completeness.

Barnet first raised Prest in its letter dated 17 December 2021, in response to ZA’s representations.Barnet referred to regulation 49(5) and (6) of the 2006 regulations. It stated that it accepted ZA and JA undertook activities in the course of CG’s business. Barnet stated it had decided, by reference to Prest, that ZA was the beneficial owner and controller of the three companies. Barnet referred to ZA’s argument that she and JA were in a benefit trap and quoted from her letter (pages 1090-1 of bundle). Barnet stated that ZA’s letter indicated JA was the beneficial owner of the capital held in the companies, and they had chosen to leave the capital in the company for now and remain in the benefit trap.

In its Response to the appeal, Barnet argued that if the tribunal decided ZA was analogous to a sole owner, by reference to Prest, JA should be seen as the beneficial owner and controller of the companies, with ZA and JA taking advantage of the housing benefit scheme. Barnet stated the public purse cannot be used to subside a claimant’s living costs to build up a portfolio of profitable companies.

Barnet’s argument was that if the tribunal considered ZA and JA had control over the companies, JA could be seen as the beneficial owner and controller of those companies and Prest would allow the companies’ assets to be viewed as his directly and taken into account.

However, this does not reflect what Prest decided. It concerned ancillary relief in divorce proceedings under the Matrimonial Causes Act 1973 (“the 1973 Act”). The wife argued that properties owned by companied controlled by her husband should be transferred to her.

The Supreme Court acknowledged there is no general legal principle allowing a company’s assets to be reached by piercing the corporate veil. It confirmed that to do so is a remedy of last resort, largely reserved for where a company’s separate legal purpose is abused for a purpose that is in some way improper.

The Supreme Court did not accept the circumstances before it justified piercing the corporate veil, or that the 1973 Act gave it a distinct power to do so. It decided the companies could be seen as holding the properties on trust for the husband, but not because he was the sole shareholder and controller per se. Lord Sumption KC emphasised that where a matrimonial home is owned by a company, it is more likely to justify the inference it is held on trust for a spouse who owned and controlled the company. Lord Sumption explained that whether assets legally vested in a company are beneficially owned by its controller, is a highly fact-specific issue.

I do not consider the decision in Prest was relevant to what Barnet (and the tribunal) needed to decide. Nor does it provide a clear basis for creating a different, additional category for treating a claimant as having capital. As explained above, the 2006 regulations already provide a complete legislative system for dealing with capital. That system includes dealing with intentional deprivation of capital to obtain housing benefit (regulation 49(1)). It also provides for looking beyond the corporate veil into the net assets of a company, but in a limited way and with specific parameters (regulation 49(5) and (6)). In my view, there is neither scope, nor need, to use Prest to create a new approach for treating a claimant as having capital.