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16 Aug 2021

How Brexit Affects Legal “Forum Shopping”

HNW individuals have used the London courts for years to resolve various disputes, including divorce cases - often attracting front-page headlines in the media and plenty of commentary. How will the reality of the UK's departure from the European Union affect this sort of business?

The impact of Brexit on the British economy and legal system has been forced to take somewhat of a back seat in light of the global pandemic and the fleeting success of the England football team. As populations begin to emerge from their lockdown cages, focus turns once more to one of the biggest structural upheavals in British post-war history.

In the case of family law, the changes brought about by Brexit are significant and it would be foolish for any wealthy international couple considering a divorce to overlook them.

The first and perhaps most important decision to be taken by any internationally connected high-net worth spouse considering a divorce is in which country to issue divorce proceedings. It has far reaching consequences that will determine the course of the case. England (in particular London) has established a reputation as the “divorce capital of the world” and for good reason.

Not only can spousal maintenance payments be made for joint lives (i.e. for the duration of the financially weaker party’s life post-divorce), but the default starting point of the English court is an equal division of all marital assets. English courts have the power to invade trusts, corporate structures and even reverse previous transfers of assets. For many internationally mobile couples, establishing jurisdiction in the family courts of England and Wales can equate in financial terms to a difference of millions.

Thus, when Brussels IIa (“Council Regulation (EC) No 2201/2003 of 27 November 2003) was revoked without too much noise at 11pm on 31 December 2020, the divorce capital of the world opened its doors to potentially millions of eager spouses keen to maximise their claims on divorce. Two important changes have been made.

First, the basis for jurisdiction has been widened. In order to issue proceedings for divorce in England and Wales, it is necessary to satisfy the jurisdictional requirements, which are based on the parties’ domicile and/or habitual residence. This has just become easier with far-reaching consequences for international couples. Now, even if neither party is habitually resident in England and Wales, it is possible to establish jurisdiction on the basis of one party’s sole domicile (as opposed to residence). Prior to Brexit, it was necessary for the respondent to be domiciled in this country if neither party were resident here. Now, for example, a couple could have been living overseas for years and the wife may still have the ability to file for divorce in London if she can show that she is still domiciled in England, even if her husband is not.

Secondly, when more than one country has jurisdiction to deal with a divorce (for example because the couple live in a different country to that in which they are domiciled), the previous rules in place in England and Wales provided that the court second “seised” of the proceedings must defer to the court first seised (which in practice often resulted in a first-past-the-post race between spouses to secure jurisdiction in the country which would provide him/her with the most favourable outcome in financial terms). This rule has been replaced by a consideration instead of the most appropriate jurisdiction to hear the case, which takes into account a wide number of factors (for example where the parties are registered for health care, where their children attend school and so on).

Whilst potentially fairer, this will inevitably lead to an increasing number of disputes about the appropriateness of different jurisdictions, resulting in less clarity, more litigation and higher fees.

But it does not stop there. What can be increasingly concerning for the internationally-mobile billionaire is that even if divorce and financial proceedings are dealt with in one jurisdiction, the financially weaker party may still have the ability to apply to the English court for an order that his/her needs have not adequately been provided for. The case of Potanin v Potanina, which could in due course prove to be the highest value divorce case ever dealt with by the English court, proves that the English courts remain not only very much open for business but are increasingly comfortable with expanding the wide reach of their jurisdiction.

In this case, the Russian couple who had throughout their marriage lived in Russia, divorced there in 2014. Mr Potanin, worth reportedly over USD $20 billion, held most of his assets in trusts and corporate structures. Mrs Potanina received only USD $76 million by way of financial settlement in Russia and, having failed in her attempts in Russia to increase her award, moved to England in 2014. 3 years later she applied to the English court for financial relief, arguing that her needs had not adequately been met by the Russian award as the Russian courts will not invade trust and corporate assets, something that English courts are well versed in doing. In May this year, the Court of Appeal ruled that Mrs Potanina was permitted to pursue her claims in the English court, setting up potentially one of the biggest divorce cases in the country’s history with London, inevitably, its stage.

This case has sparked outrage in some corners; many considering that the family court in England and Wales is overreaching its powers and is too ready to entertain claims brought by parties whose links with this country are tenuous at best. Together with the impact of Brexit on the ability of the internationally mobile to pursue their divorce in England, this case simply adds fuel to that fire.

While football may have gone to Rome (as opposed to ‘coming home’), it is clear that more high net worth divorce cases will be coming to London.

This article was first published in the Family Wealth Report 16th August 2021.