London courts: a home from home?

The long-running case of Potanina v Potanin [2021] EWCA Civ 702 has recently been heard by the Supreme Court, on the issue of whether the wife should be granted permission to apply for financial relief in England following an overseas divorce. This case has once more brought into focus the wide-ranging powers of the English court to intervene following foreign divorce proceedings.

Background to part III

Part III of the Matrimonial and Family Proceedings Act 1984 (“part III”) enables family courts in England and Wales to make orders for financial provision after a divorce has already been obtained in another jurisdiction, if insufficient provision (or indeed no provision at all) has been made to the financially weaker spouse overseas. The legislation was intended to protect vulnerable parties to a divorce who had strong connections to England, in circumstances where the other party had issued divorce proceedings in a foreign jurisdiction which was more favourable to him/her in minimising the financial award. Often this left the financially weaker spouse in very difficult financial circumstances and part III was therefore introduced in order to prevent parties to a divorce being left in a position of real need.

In order to make an application under part III it is necessary in the first instance to obtain permission (leave) of the court; an applicant must persuade the court that there are substantial grounds for bringing the application. The application for leave must be made without notice to the respondent and the court must determine the application without notice unless it considers it appropriate to provide notice to the respondent. The respondent is then given 7 days to apply to set aside a grant of permission, and will only succeed in doing so if he/she believes it will be possible to deliver a “knock-out blow” to the applicant’s case.

Only if leave is granted will the matter progress to a trial for consideration of the appropriate financial orders and the quantum of such.

Early case law in England and Wales

Since the 1984 legislation was enacted, the global divorce scene has moved on considerably; England has cemented its reputation as the most generous jurisdiction in the world for financially weaker parties to a divorce and the tabloids relish in emphasising the number of millionaires – and indeed billionaires – whose spouses flock to London to issue divorce proceedings in order to utilise the generosity of the English family courts.

Initially the court took a fairly restrictive approach to part III until 2010 with the Supreme Court decision of Agbaje v Agbaje [2010] UKSC 13]. This case involved a Nigerian couple who had divided their time during their marriage between Nigeria and London. Markedly, all five of their children were born in England and the wife had lived here since the parties separated. The husband obtained a divorce in Nigeria; the wife subsequently successfully applied under part III and was awarded 39% of the marital assets, enabling her to purchase a home in England.

Since the decision in Agbaje, momentum has continued to grow and the reported cases since 2010 demonstrate an increasing number of wealthy individuals who have sought to benefit from the generosity of the English family courts. This appears now to have culminated in the case of Potanina v Potanin involving one of the richest families in Russia.

Potanina v Potanin

The Supreme Court proceedings focus on the criteria for the court to grant leave to seek financial orders in the family court following the husband’s application to set aside the ex parte order granting permission.

In this case the parties were Russian and had spent their married life living in Russia. It was a long marriage producing 3 children. Although the parties were not wealthy when they met, during the course of the marriage circa USD $20 billion was amassed by the husband, much of which was not owned outright but rather in corporate and trust structures. The marriage broke down and the husband paid USD $76.1 million to the wife in 2007 which he claimed was the year of separation. There followed a “blizzard of litigation” between the parties in Russia, comprising 5 applications brought by the wife, all of which went on to appeal. These proved to be futile due to the fact that the majority of assets comprised shares in companies or other business entities which were not registered in the husband’s name, even though he was their beneficial owner.

The wife moved to England in 2014 on an investor visa, purchased a property in London and subsequently applied under part III for leave to seek financial orders following an overseas divorce, on the basis of her habitual residence in England. In 2019 Cohen J granted the wife leave to proceed with her application following an ex-parte application. The husband successfully applied for this to be set aside on the basis that the judge had been misled about the facts of the case. The wife successfully appealed to the Court of Appeal. The Court of Appeal considered the correct approach to be taken in part III cases and provided some important guidance, including:-

• Leave to apply under part III will not be granted unless there is “a substantial ground for the making of an application for such an order”.
• The test for the grant of leave is not high but there must be a “solid” case to be tried.
• The power to set aside may only be exercised where there is some compelling reason to do so; in practice only where a decisive authority is overlooked or the court has been misled.

The husband applied to the Supreme Court which heard the case from the 31^st October to 1^st November this year. The judgment is awaited.

How do other countries approach part III cases?

Some critics of part III cite the case of Potanina as an extreme example of forum shopping. Others criticise the English court for over-stepping their reach in respect of foreign judicial decisions. In analysing whether there is merit to these criticisms it is helpful to adopt a comparative perspective, considering the approach adopted in other jurisdictions.

Is there an equivalent to part III elsewhere? One need not look too far afield to gain a different perspective.  In Switzerland, for example, following divorce proceedings having taken place overseas, the Swiss family courts can only intervene where there is a real lacuna, and would in such cases only have jurisdiction to fill in that lacuna (for example the absence of spousal maintenance). A Swiss family court certainly would not be able to revisit the judgement of a foreign court in circumstances in which one party seeks to improve on the capital provision previously made by the court of another jurisdiction.

This approach appears to be fairly common. French family courts will only re-visit financial awards made by foreign courts if recognition of the order in question is not possible due to violation of public policy or if the order was fraudulently obtained (in which case it is possible to seek judicial review of a compensatory benefit such as periodical payments). Courts in Italy will only review a financial award following an overseas divorce if there are new factual or legal circumstances which have arisen since the original divorce proceedings.

It therefore appears, at least from a basic analysis of other European jurisdictions, that the position adopted by the English court is somewhat unique.

Conclusion

The extreme facts of the case of Potanina, and the fact that the legislation is now almost 40 years old, naturally leads family lawyers to question whether part III is doing what it was intended to do. As Lord Faulks, Mr Potanin’s KC, stated to the Supreme Court during the recent hearing, the law in England and Wales now encourages forum shopping and divorce tourism in big money cases such as this. Where parties have a very limited connection to England, as is arguable in the case in question, should the law really accommodate a second bite of the cherry following extensive litigation overseas?

On the other side of the fence, lawyers for Mrs Potanina argue that she is a fully entitled wife, having supported her husband throughout the marriage by looking after the children and various family homes. Under English family law she would be entitled to 50% of the marital acquest which on any account is several billion.

However, this is not an English case. The parties were Russian and lived in Russia for the duration of their marriage. The case has been extensively litigated in Russia already; indeed there have been 43 hearings during the course of the “blizzard of litigation” that has already taken place in Russia. The wife has already received an enormous amount of money in satisfaction of her claim.

The English Supreme Court needs to be very careful to avoid an inference that such judicial imperialism is at all appropriate in this day and age. Adopting a comparative perspective may be valuable in providing a reminder of the approaches adopted by our neighbours across the Channel which, ultimately, appear to be more respectful of decisions made by the courts in other jurisdictions.

In the meantime London’s reputation as the divorce capital of the world remains as strong as ever.

Many thanks to Annette Spycher at Kellerhals-Carrard for her support with the piece. This article was first published in The New Law Journal in December 2023.