Potanina v Potanin (Rev 2)

At the leave hearing, as already noted, the judge was persuaded, by reference to Traversa v Freddi, to deal with the matter ex parte.

During the course of submissions, the judge was taken to and examined in some detail the judgment of Moylan J (as he then was) in AA v BB (Financial Remedies: Sharing Principle: Special Contribution) [2016] EWHC 3234 (Fam); [2018] 1 FLR 153 (‘AA v BB’). Mr Howard highlighted that the wife in that case had come to this country after the marriage broke down having had no previous connection with the UK and that there was a lacuna in the foreign court’s powers. Mr Howard submitted that the same applied in the present case as the Russian court ‘decided that it could not deal with the assets that he was the ultimate beneficial owner of’.

Further there was a discussion of the fact that in AA v BB, the court had been misled at the leave stage as the wife had not informed the court that there was an outstanding appeal against the orders which had been made in the Slovenian court. Moylan J, having acknowledged that the court had been misled, emphasised the importance of proportionality and declined to set aside the leave as the claim was ‘both substantial and meritorious given that the Slovenian Appellate Court had, in fact, held that it had no jurisdiction to deal with the non-Slovenian assets’.

In his leave judgment, the judge recorded the wife’s case as being that the ‘Russian court did not look at all at the husband’s business interests, which contain most of his fortune’ and that ‘the award fails to meet even her reasonable needs, which she says were not the subject of any examination at all in the Russian proceedings.’ 56. The judge said at para. [5] of the leave judgment:

“5.

The parties had no connection prior to 2013, but a schedule that has been produced to me today, and which is formally exhibited, shows that London has been her principal home since at least January 2016. I have not asked for any diarisation going further back before that date. She has lived over the last three years far more in London than she has anywhere else; the main other place she has visited being America, where the parties’ youngest child is living and studying. Her visits to Russia have been very limited due to various adverse circumstances which are set out in her statement and to which it is unnecessary for me to refer further in this short judgment. She has in my judgment, plainly established a connection with England and Wales.

6.

She did a have very strong connection with Russia, but that connection now has been very largely severed and remains in existence only because her elderly mother, who cannot travel for health reasons outside that country, is living in Moscow. Apart from Russia, the wife has limited connection with any other country outside England and Wales and, certainly, there is no other country at the present time with which she has a greater connection.”

It was against this backdrop that the judge heard the husband’s application to set aside the leave which had been granted.

The judge, having recorded his regret at having agreed to make an ex parte order, set out what he regarded as the most important allegations of misrepresentation at paras. [51-54]. The alleged misrepresentations were divided up as follows: ‘Factual misrepresentation’ (para. [51]), ‘Misrepresentations as to Russian law/proceedings’ (para. [52]) and ‘Misrepresentations of English law’ (para. [53]).

The judge having dealt briefly with each category, concluded at para. [59] that: “I am in no doubt that if I had had the full picture before me on 25 January 2019 I would not have granted W leave to make her application.”

With respect to the judge, that is not the test as set out in Agbaje but rather is an indication that he may or, even would, have reached a different decision had he held an inter partes hearing. The judge went on:

“I am further satisfied therefore that the grant of leave was given as a result of material misleading of the court, however unintentional that might have been.”

The judge therefore went on to set aside leave and to remake the decision. The judge at para. [85] accepted that the wife had received what by English standards was a ‘paltry award’ bearing in mind the length of the marriage, that the wealth had been accumulated by the husband during the marriage and that in an English case the award would probably not be held to have met her needs. The judge concluded that this was a classic example of a spouse, whose background and married life were ‘firmly fixed’ in her home country, seeking to take advantage of the more generous approach to divorce settlement found in this country. The judge in striking contrast to his judgment in the leave proceedings, set out at para. [55] above, went on: ‘Mr Bishop’ (who appeared for the husband at the set aside hearing) ‘is right to say that if this claim is allowed to proceed then there is effectively no limit to divorce tourism’.

The judge went on to consider whether the provisions of s.16(3) (set out again here for convenience) nevertheless enabled the wife to make a claim for maintenance.

“(3)

If the court has jurisdiction in relation to the application or part of it by virtue of the Maintenance Regulation and Schedule 6 to the Civil Jurisdiction and Judgments (Maintenance) Regulations 2011, the court may not dismiss the application or that part of it on the ground mentioned in subsection (1) if to do so would be inconsistent with the jurisdictional requirements of that Regulation and that Schedule”.

The judge at para. [79] disagreed with each of the conflicting interpretations of that section which had been put forward by the respective parties. The judge held that whilst s.16(3) disentitled a judge from dismissing a claim ‘solely on the basis of connection of such applicant. It would not be inconsistent to dismiss a claim, if appropriate, on grounds relating to matters other than habitual residence/connection of the applicant with England and Wales’.

As already noted, the focus of the appeal hearing was the allegation made by the husband that the judge had been misled by the case as put on behalf of the wife at the ex parte hearing which, it was submitted, provided a compelling reason for the order granting leave to be set aside. The judge found by reference to a number of separate issues that he had been misled.

Although the judge did not make a finding that he had been deliberately misled, nevertheless an allegation that the court was misled with the consequence that it made an order which it would otherwise have refused is serious and the court has heard lengthy submissions in relation to the issue. An application to set aside leave on the basis that the judge had been misled should include consideration of the following:

The judge included at para. [51(i)] of his list of three factual misrepresentations the fact that the wife gave the court the wrong figure as to the amount of child maintenance she had been awarded. It was accepted by the wife that she made an error and that the figure was wrong by a significant amount. That, however, takes the matter no further as the wife makes no claim for child maintenance in these proceedings and child maintenance is not, in any event, provision for herself no matter how great the sum may appear to be to an outsider looking in.

At para. [51(ii)] of the ‘Factual Misrepresentations’ , the judge said that the wife did not tell the court that, before coming to this country to establish a home, she had two months after the husband had issued divorce proceedings in Russia, taken advice from specialist divorce solicitors in London, ‘a fact which was only revealed as a result of an order made by the judge at the directions hearing’.

At the directions hearing on 5 June 2019, the wife had opposed the husband’s application that the date of her first appointment with her English lawyers should be disclosed. It was submitted on her behalf that the only reason the husband wanted such disclosure was in order to imply that the wife had received certain legal advice and that it was as a result of that advice, that she had moved to England. In other words, the judge was being asked to infer both the purpose of the attendance and the content of the legal advice given.

It is well established that no inferences can be drawn from the assertion of or refusal to waive privilege. The judge rightly said, when allowing the husband’s application, that he (the judge) must ‘resist any desire to surmise what the legal advice sought might have been’ and that the wife could ‘rest assured that I will be cautious about drawing conclusions from it’.

In my view, the judge’s finding that the wife’s failure to volunteer that she had sought legal advice from specialist matrimonial solicitors in London before she came to this country amounted to a ‘factual misrepresentation’ demonstrates that, despite having rightly urged caution on himself at the case management hearing, when it came to the set aside hearing he did regard the fact of the wife’s attendance on her lawyers as relevant to the issue of her connection to this country and therefore as to whether leave should have been granted. In my judgment on the facts of this case, if the date when the wife first obtained English divorce advice is to have any materiality, it can only be as a consequence of inferring the nature of that advice, namely that it was for her to move to England as a ‘divorce tourist’. The only way for the wife then to rebut that inference would be to disclose the content of the advice she had received, thereby effectively forcing her to waive her legal professional privilege.

In my judgment the date the wife sought advice is not material and failure to have disclosed that she had done so in the witness statement made in support of her application for leave cannot be regarded as a material non-disclosure. The judge was at all times aware that the wife had had no connection with this country prior to the breakdown of her marriage. That the same was the case in AA v BB had been drawn to the attention of the judge during the course of the leave hearing and was a matter which he was entitled to take into consideration when giving the wife permission to make a

At para. [51(iii)] of the ‘Factual Misrepresentations’, the judge said that whilst the parties’ daughter was living in England at the time of leave, ‘that presence is only short term, rather than long-term as W’s statement implies’. This gave the impression, he said, that the wife’s connection to England was greater than was justified. That is, however, a factual issue which is also in dispute as between the parties; the move abroad by the daughter took place only very shortly before the hearing in October, and on the wife’s case was temporary. The judge, submitted Mr Howard on behalf of the wife, made no mention of that factual dispute or that he had allowed the wife to respond in writing only to allegations of financial misrepresentation and that no oral evidence was called. The alleged misrepresentation, Mr Howard said, could therefore be dealt with only by way of oral instructions at the hearing. Moreover, as can be seen from the transcript of the leave judgment given in January 2019 at para. [5], the presence of the parties’ daughter in this country played no part in the judge’s analysis of the wife’s connection with this country when considering s.16 for the purposes of granting leave, the key feature having been that London had been the wife’s home for 3 years.

To rehearse the point I made earlier, these examples expose one of the dangers of ex parte hearings in complex cases; once the full picture emerges at trial, with the benefit of inter partes submissions and oral evidence, a judge may well take the view that, had he ‘known all he or she does now’, he would not have granted permission, but that does not mean that the judge had necessarily been ‘misled’ at that initial ex parte hearing.

The judge complained that he was given ‘a far from complete’ picture of the Russian litigation and that he was not shown the underlying documents, in particular the Russian code or the Russian judgments. Whilst it is arguable as in AA v BB, that more information could, and perhaps should, have been made available to the court at the leave stage and in particular the relevant Russian Code, I would not criticise the absence of a translation of all the relevant judgments. The key point being put before the judge at the leave hearing was that on the wife’s case, there is a lacuna in Russian Law in that Russian courts do not recognise beneficial interests and that as a consequence the wife had failed in her endeavour to obtain half, or indeed more than a small fraction, of the assets despite massive litigation in three countries.

The judge concluded at para. [52(ii)] that the Code and the judgments together ‘show a proper application of the law by the Russian courts’ that ‘makes the wife’s argument that she was defeated by corruption/influence untenable’. With respect to the judge, whilst the wife laid heavy emphasis on alleged corruption in her witness statement, it

I accept the argument of Mr Howard that the judge had not granted leave as a consequence of any submission made at the leave hearing that Russian law had been misapplied by the Russian Courts as a consequence of corruption, or otherwise. As the transcript reveals, leave was granted on the wife’s alternative, lacuna, point following detailed consideration of AA v BB and parts of Agbaje together with the wife’s case on reasonable needs.

At para. [52(iii)] the judge said that he had not been told that the wife had not made a

In the set aside judgment, the judge said at para. [53]:

“It would be wrong for me to say that the court was not directed to the appropriate passages of Agbaje. They are set out along with a paragraph of Zimina v Zimin [2018] 1 FCR 164 in the skeleton argument… but they did not form a significant part of the hearing and were not the subject of discussion. In particular, I was not referred in oral submissions to paragraphs 70-72’”

The judge went on to set out paragraphs 70-72 of Agbaje with certain passages underlined as follows:

“70.

This is not the solution adopted in Part III. Section 18 could have provided that, once England and Wales was to be regarded as the appropriate forum under section 16, then the case was to be treated as a purely English proceeding for financial relief. But it did not do so. Instead a more flexible approach was deliberately adopted. There will be some cases, with a strong English connection, where it will be appropriate to ask what provision would have been made had the divorce been granted in England. There will be other cases where the connection is not strong and a spouse has received adequate provision from the foreign court. Then it will not be appropriate for Part III to be used simply as a tool to ‘top-up’ that provision to that which she would have received in an English divorce.

The proper approach

71.

To take up some of the points made in the preceding paragraphs, the proper approach to Part III simply depends on a careful application of sections 16, 17 and 18 in the light of the legislative purpose, which was the alleviation of the adverse consequences of no, or no adequate, financial provision being made by a foreign court in a situation where there were substantial connections with England. There are two, interrelated, duties of the court before making an order under Part III. The first is to consider whether England and Wales is the appropriate venue for the application: section 16(1). The second is to consider whether an order should be made under section 17 having regard to the matters in section 18. There are two reasons why the duties are inter-related. First, neither section 16(2) nor section 18(2) and (3) refers to an exhaustive list of matters to be taken into account. Section 16(1) directs the court to have regard to ‘all the circumstances of the case’ and section 16(2) refers the court to certain matters ‘in particular.’ Second, some of the matters to be considered under section 16 may be relevant under section 18, and vice versa. An obvious example would be that section 16(2)(e) refers the court to the financial provision which has been made by the foreign court. Plainly that would be relevant under section 18. So also the direction in section 18(6) to the court, in considering the financial resources of a party, to have regard to whether an order of a foreign court has been complied with would plainly be relevant in considering whether England is the appropriate venue.

72.

It is not the purpose of Part III to allow a spouse (usually, in current conditions, the wife) with some English connections to make an application in England to take advantage of what may well be the more generous approach in England to financial provision, particularly in so-called big-money cases. There is no condition of exceptionality for the purposes of section 16, but it will not usually be a case for an order under Part III where the wife had a right to apply for financial relief under the foreign law, and an award was made in the foreign country. In such cases mere disparity between that award and what would be awarded on an English divorce will certainly be insufficient to trigger the application of Part III. Nor is hardship or injustice (much less serious injustice) a condition of the exercise of the jurisdiction, but if either factor is present, it may make it appropriate, in the light of all the circumstances, for an order to be made, and may affect the nature of the provision ordered. Of course, the court will not lightly characterise foreign law, or the order of a foreign court, as unjust”.

The judge held at para. [54] that had he been specifically referred to those passages he would have had ‘more in mind’:

“i)

The extent of the connection of the parties to England;

ii)

Whether or not W was attempting to use these proceedings as a top-up;

iii)

The interplay between the adequacy of the Russian award and the connection with England;

iv)

Whether W has suffered injustice and or hardship

This is not to say that these are necessarily pre-conditions of an award, but are matters that need consideration. As a result of these deficiencies I am satisfied that I did not properly consider the legislative purpose of Part III of the Act”.

I fully sympathise with any judge faced with lengthy skeleton arguments which set out pages of quotations from judgments. A failure to highlight critical passages by Counsel in their oral submissions, whilst frustrating, cannot in this case be regarded as a ‘Misrepresentation of English Law’ as it was characterised by the judge. The judge said that he had read the skeleton argument before the hearing, but in any event, the three paragraphs to which the judge referred form a central part of the judgment in Agbaje, a case which, since 2010, has been the seminal Supreme Court judgment governing the proper approach in relation to Part III cases to the grant of leave and setting aside, passages which inform every application for leave to issue an application.

The judge’s emphasis here is on the dangers of applications designed to obtain a ‘top up’ through the more generous English courts. The judge omitted however, as in relation to the issue of disclosure of the Russian judgments, to refer to the fact that the case was and substantially remains based on an alleged ‘lacuna’ and inadequately met needs. The undisputed evidence, it would seem, remains that (i) the husband is the beneficial owner of the bulk of his fortune and that (ii) the Russian courts do not recognise beneficial ownership and will deal only with assets held in the names of the divorcing parties. That does not mean that the wife will succeed in satisfying the court that there is a true lacuna as in AA v BB, or that her needs have not been adequately met, but the court needed to have in mind, as part of the decision-making at the set aside hearing, that they were the issues on which the wife had relied at the ex parte hearing.

In my judgment the fact that Counsel did not specifically highlight paragraphs [70-72] of Agbaje in oral argument, when they were quoted in full in his skeleton argument, cannot be said to have misled the judge in any material way.

With respect to the judge, on an objective analysis of the transcript and the leave judgment, there is no basis for concluding that he did not properly consider the legislative purpose as identified in Agbaje. Rather what is clear, is that the judge having heard argument on both sides changed his mind in particular in relation to his assessment of the wife’s connection to this country, and he regretted having granted leave.

In his appropriately brief judgment given at the conclusion of the ex parte hearing, the judge had specifically considered those parts of s.16 relevant to a consideration of leave and had applied the Agbaje test, namely were there ‘solid grounds or substantial grounds for the court to be able to say that an order might be made’. The judge had specifically noted that if the husband felt himself to have a ‘knock-out blow’ he could make the appropriate application to set aside the order.

It is perfectly understandable that a judge who makes an ex parte order may re-evaluate his decision upon hearing inter partes argument. As the law presently stands however, a set aside hearing is not a ‘return date’ of the type listed following the making of an ex parte injunction; at a return date, the judge, having had the benefit of both sides of the argument, decides whether fairness requires the injunction made on an ex parte basis to be continued and if so on what terms. The judge here was concerned with a set aside application requiring compelling reasons justifying the revocation of leave which per Agbaje must, absent a readily identifiable and briefly stated knock-out blow or omission of a decisive authority, be listed for hearing together with the substantive application for financial relief for which leave has been given.

It may be that the judge would have refused permission for the wife to issue proceedings had the s.13 leave application been heard inter partes, but that is not the issue on appeal. In my judgment the judge’s analysis was tainted by the procedure adopted at the set aside hearing which on the one hand was too elaborate and lengthy, but on the other hand led to the making of serious adverse findings against the wife without the benefit of either oral evidence or any expert evidence as to Russian law that either party may have wished to call. The alleged deficits identified by the judge, even where established, cannot for the reasons set out above be said objectively to have either misled the judge or to have been sufficiently material to the issues which informed the grant of leave to amount to a compelling reason to set aside the permission granted at the ex parte hearing.

It follows that the wife’s appeal against the judge’s order which set aside leave for the wife to make an application for financial relief is allowed. It is therefore unnecessary to consider whether the judge was wrong in refusing leave when he reconsidered the application. It follows that leave having been granted, the matter will therefore proceed to trial in order for the court to determine what if any order to make pursuant to s17 of Part III. I should make it clear that this appeal has been limited in its scope as described. The fact that the appeal has been allowed and that the wife may therefore proceed to make an application under Part III for financial relief should not be taken by either party as an expression by this court of any view as to the merits or otherwise of that application. In the event that the parties cannot reach some sort of compromise in this long running and expensive litigation, the case will be determined with the benefit of oral and, I anticipate, expert, evidence by a High Court judge in due course.

Mr Nagpal QC acting as second silk to Mr Howard, addressed the court on the difficult issue of the scope of s.16(3). No disrespect is intended to him or to the careful skeleton arguments prepared on both sides when I say that, having allowed the appeal and the wife’s leave as a consequence remaining undisturbed, it is unnecessary for the court to consider whether s.16(3) was capable in law of providing the wife with a safety net so far as her needs are concerned.

Mr Nagpal and Mrs Bailey-Harris, junior counsel for the husband, at the request of the court prepared a note on the impact of ‘Brexit’ upon s.16(3). I am grateful to them both for the clarity of their joint submission:

It follows that there are likely to be few if any cases outstanding to which s.16(3) will have any application and that future Part III applications will be considered without reference to the Maintenance Regulation.

This case has, in my judgment, highlighted a number of the complexities which arise in Part III applications. Whilst the emphasis in this appeal has been in relation to the approach to leave and set aside in the light of Agbaje and the FPR (the relevant rule now being in its third iteration), the matter does not become more straightforward even after the parties have successfully navigated their way through the thicket of leave and potential set aside. The complexities include the approach and balance to be taken in relation to s16, consideration of which comes into play at the leave stage and then again at trial.

By no means all Part III cases relate to families with massive or even substantial wealth and it is important that the cohort of persons for whom Part III proceedings were designed have access to a straightforward and cohesive procedure. Looking more broadly, as we approach the 40^th anniversary of the 1984 Act, the complexities and challenges to which I have referred would suggest that this is an area which could well benefit from consideration by the Law Commission in due course.