Slutsker v Haron Investments Ltd & Anor

These proceedings concern the ownership of a house at 3, The Boltons, in London SW10 (“3TB”). The interests principally involved are those of the Claimant, Mr Vladimir Slutsker, and of his former wife, Mrs Olga Slutsker, though Mrs Slutsker is not a party. Mr and Mrs Slutsker are both Russian. They were married in Moscow in 1990. Mr Slutsker is a very wealthy businessman, having owned a successful investment company in Russia called Finvest. He was also from January 2002 to September 2010 a Senator in the Duma. Mrs Slutsker was initially a sportswoman, but following her marriage she set up a successful chain of fitness clubs in Russia called World Class Fitness Clubs (“WCFC”), which she eventually sold in 2006. Mr and Mrs Slutsker have two children, Mikhail (Misha), born in 1999, and Anna, born in 2003. They were divorced in Moscow in 2009. Regrettably, the divorce has been extremely acrimonious.

For the purpose of identifying the issues I will give a bare outline of the facts. I will return later to matters with which I need to deal in more detail.

It is the position of the Trustee that, in accordance with the formal documentation identified above, the entirety of the beneficial interest in 3TB is held by the Trustee on the terms of the Misha Trust as varied in 2009 - i.e. on terms under which Mr Slutsker now has no interest.

Mr Slutsker disputes that. His case is that 50% of the beneficial interest in 3TB belongs to him. The pleaded case, as amplified by Mr David Brownbill QC in closing submissions, can be summarised as follows:

The Defendants’ case in response, as developed by Mr Gilead Cooper QC (who appeared for both Haron and Summit), can be summarised as follows:

The present proceedings were formally issued on 6 October 2010. Initially Haron was the only defendant, Mr Slutsker being apparently unaware of the identity of the trustee of the Misha Trust. Indeed it is his case that he had not at that stage seen the Trust Deed, and it is not referred to in the original Particulars of Claim. Prior to the issue of proceedings an application was made for interim relief. This was heard before Roth J on 12 October, when Haron gave undertakings not to dispose of 3TB until the determination of the proceedings or further order. Summit was joined as a defendant in January 2011. Haron has made it plain that it has no position in the proceedings distinct from that of Summit.

The primary facts about the purchase of 3TB and the establishment of the Misha Trust are largely uncontentious, though there are differences about some points of detail. The disputed issues are essentially twofold, namely (a) who, as between Mr and Mrs Slutsker, provided the purchase price; and (b) their respective knowledge and intentions about the effect of the trust arrangements which were put in place. I will find the primary facts first and then consider in more detail the two areas of dispute; but before doing either I should say something about the nature of the available evidence.

The main documentary material available for the key period consists of Macfarlanes’ file. This is of reasonable quality but, although it sheds light on the factual issues which I have to resolve, it does not yield comprehensive answers to them. The Trustee’s file has also been disclosed, though the material relating to the establishment of the Trust is exiguous.

Otherwise I am largely dependent on the testimony of Mr and Mrs Slutsker, both of whom gave evidence before me. Neither struck me as a reliable witness. They were, inevitably, strongly committed to their respective cases, and their accounts of what they knew or thought at particular times were affected by what has happened since. Mrs Slutsker’s evidence was often unhelpfully broad-brush: when it could be pinned down, it often proved either internally inconsistent or irreconcilable with the contemporary documents. Mr Slutsker was determined throughout to downplay the extent of his involvement in and knowledge of the arrangements under which 3TB was purchased, and he committed himself to dogmatic statements about his ignorance which were generally implausible and often demonstrably wrong. A further difficulty was that they were not giving evidence in their first language. Although both had the assistance of an interpreter, Mr Slutsker for almost all his testimony, and Mrs Slutsker for much of hers, preferred to answer in English and without the questions being translated. Both spoke English reasonably fluently (though Mr Slutsker’s English was better), but neither was by any means perfect.

It was originally indicated by the Defendants that they would be calling Mrs Mitchell-Voisin. She remains employed by Summit, but in the event she was not called. The only Summit witness was Robin Lee-Smith, who is its general counsel. He had some involvement in the establishment of the Trust, but he was not the person with principal responsibility. Mr Cooper told me that Mrs Mitchell-Voisin had not been called because he did not believe, on the issues as he understood them, that her evidence was sufficiently relevant, and he was afraid of Mr Slutsker using the opportunity of her appearing in the witness-box to “fish” for material for use in the Cayman Islands proceedings; that there was no question of her being unwilling to give evidence; and that I should accordingly draw no inferences adverse to the Defendants from her unavailability. I am not sure that that is information that I should have been given; but even without it I would not in the circumstances of this case have thought it safe to speculate on what the reasons for her not giving evidence may have been, and I will have to do my best on the basis of the evidence that is in fact available.

The Defendants called evidence from three solicitors – John Rhodes, Christopher Harrison and Piers Barclay – who were part of the team at Macfarlanes handling the purchase of 3TB and the subsequent arrangements. They were all good and careful witnesses, but inevitably their testimony was largely dependent on the contemporary notes and correspondence.

There is a transcript of the oral evidence. I will refer to it as “T”, with reference by day, page and (sometimes) line numbers. The full disclosed documents were available in Court, but I was referred only to a core bundle (and a handful of other documents which were added to it during the trial).

Mrs Slutsker said in her witness statement that she and her husband decided to buy a family house in London for a combination of reasons. They wanted Misha, and any subsequent children (I will from now on refer to “the children” tout court, although in 2000 there was only one), to be brought up and go to school in England. That would mean that the London house would have to be the primary home for Mrs Slutsker and the children, though they would retain a home in Moscow. Mr Slutsker’s work would mean that he would continue to be based in Moscow, but he would visit frequently. Mrs Slutsker said also that she saw England as a “safe” environment. In her witness statement, and again in her oral evidence, she emphasised that she was anxious to have a safe haven for the family generally but more particularly for Misha and any subsequent children, which would be proof, so far as possible, against any vicissitudes that might affect her and her husband. She referred in this connection particularly to an attempt which had been made on her husband’s life in 1995, following which they had had to live with constant security. From other parts of the evidence it is clear that she was also concerned about litigation against her and/or her husband: the position of wealthy Russians may be precarious in numerous ways. There may have been an element of hindsight in the emphasis that she gave to this element, but, as will appear, there is confirmation in the contemporary evidence that she was throughout particularly concerned to secure the position of her children.

Mr Slutsker said nothing to contradict any of that, and it seems to me entirely credible. Although his witness statement was worded to suggest that he took the decision to buy 3TB on his own he accepted in cross-examination that it was a joint decision – “sure, we were a married couple”. There is no suggestion in the evidence that there was at this time any difficulty in the marriage.

Both Mr and Mrs Slutsker agreed that Mrs Slutsker took the lead in finding a property in London and carrying through the purchase of 3TB. Mr Slutsker said that he was particularly busy in buying another property in Moscow, and it was understood between him and Mrs Slutsker that he would focus on that and she on the London purchase. But it goes rather further. Although the purchase of 3TB was a family decision, it was as between the two of them principally Mrs Slutsker’s project. It was she who would be mainly living at 3TB and making a home there for the children, and the concern about creating a safe alternative home, and asset, outside Russia was peculiarly hers.

Mrs Slutsker was introduced to an agent, who quite quickly found 3TB. She then needed solicitors. She was recommended to Macfarlanes by a Mr Ostrovsky: he was an associate of hers rather than of Mr Slutsker (his brother worked for the Clariden bank in Switzerland to which I refer below).

On 14 November 2000 Mr Ostrovsky contacted Andrew Jackson, a property partner in Macfarlanes, to see if they would act in the purchase. He identified the buyer as Mrs Slutsker. He said that she had funds to invest from the sale of her fitness centre business: I return to this aspect in more detail below.

On 15 November 2000 Mr Jackson spoke both to the agent and to Mrs Slutsker (on the phone to Moscow). Mrs Slutsker said that she would be providing 30% of the purchase price and that 70% would funded by way of a mortgage (probably from the Bank of Scotland): again, I return to this in more detail below. Part of the attendance note of the conversation reads:

“We discussed whether you should be the named client alone or together with your husband, Vladimir Sloutsker (who is presently in New York). Evidently your husband had the meeting with the Bank to discuss the purchase.

Since you had indicated to me that it would be mainly your money that was invested in this property I suggested that in the first instance the file should be opened in your name.”

Mr Jackson sent Mrs Slutsker a formal client care letter the next day, together with a letter relating more specifically to the details of the purchase.

There followed a large number of contacts between Macfarlanes and, primarily, Mrs Slutsker but also Mr Slutsker, recorded in attendance notes and correspondence. The transaction was more complicated than a simple property purchase for a number of reasons. First, it was understood from the start that both Mr and Mrs Slutsker required tax advice. Secondly – and partly for that reason – it was envisaged that the purchaser might be a corporate vehicle or trust of some kind, rather than Mr and/or Mrs Slutsker personally. Thirdly, it was expected until a late stage that the purchase would be partly funded by a mortgage. I need not set out in full the various calls and meetings. The key events are as follows.

There was a telephone conference on 22 November 2000 between Mrs Slutsker, Mr Jackson and Mr Rhodes (a tax partner in Macfarlanes). Advice was given about the various options as to how 3TB might be held. Mr Rhodes’s long and careful note of the conference, dated 23 November, identified three options, as follows:

“(a)

OS buys the freehold in her own name, or jointly with her husband.

(b)

OS transfers the purchase price to a new trust which then completes the purchase in its own name.

(c)

The same type of trust incorporates a company, which then completes the purchase in its own name.”

The recommendation was for purchase by a trust. The advantages identified were: (i) anonymity; (ii) “certainty that the Property … will pass on OS’s death as she wishes”; and (iii) “a limited degree of creditor protection”. The section dealing with creditor protection canvassed the possibility of “a trust made by OS solely for the benefit of her children” but recommended against it. It said:

“However we do not think OS should make this trust solely for the benefit of her children because she intends to live in the property herself. It would be preferable for her to be the initial income beneficiary of the trust, otherwise she might be expected for tax and trust reasons to pay a full market rent, which would be very expensive.”

Mr Rhodes sent Mrs Slutsker a copy of his attendance note. In the covering e-mail (dated 24 November) he asked Mr and Mrs Slutsker to come to London for meetings on 28 and 29 November. He invited Mrs Slutsker to review the note with Mr Slutsker in advance of the meeting “with a view to making a decision on Monday [27 November] as to whether or not to create a trust”. Mr Slutsker says in his witness statement that he did not see Mr Rhodes’s note, and in his cross-examination he went so far as to say that he had never seen it before he was shown it by Mr Cooper. The latter point was demonstrated to be untrue because he had in fact referred to the note in his witness statement – this unthinking denial was typical of his evidence – and he at one point appeared to accept that he might have seen the note at the time it was sent to Mrs Slutsker; but he eventually reverted to an absolute denial (T1/82-88). I think it likely that Mr Slutsker did indeed see the note at the time. Quite apart from his equivocations referred to above, I can see no reason why Mrs Slutsker should have ignored Mr Rhodes’s recommendation: even if (as to which see paragraphs 68-83 below) she had plans which she wished to conceal from her husband, he would be attending the meeting for which the note was, in effect, the agenda, and withholding it from him would have been pointless. In any event I accept her evidence in her witness statement that her English was less good than her husband’s and that she was less familiar with legal matters than him: in those circumstances I would have expected her positively to want his help in explaining the note to her.

On 24 November 2000 Mr Harrison of Macfarlanes spoke on the phone to Mr and Mrs Slutsker together in relation to the impending exchange of contracts. The note says that “you” agreed to “speak to your bankers in Switzerland” to ensure that Macfarlanes were put in funds forthwith. The bankers in question are not identified, but it is common ground that the funds in question were paid by the Clariden bank in Zurich, who were Mrs Slutsker’s bankers (see paragraph 42 below), and the likelihood is that it was they who were being referred to. Mr Harrison spoke again to Mr Slutsker (on his own) on the telephone on 26 November, though no direct record of the conversation survives (T1/92).

On 27 November 2000 Mr Jackson and Mr Harrison spoke on the telephone again to Mr Slutsker on his own. There is a full attendance note. Mr Jackson updated Mr Slutsker on the conveyancing aspects. Among various points noted is that “we [Macfarlanes] will need to amend the signability clause in order to allow the contract to be taken in the name of Mrs Sloutsker and then subsequently transferred to a trust structure”; and the note goes on to record that for the purpose of exchange Macfarlanes would need “authority to sign on Mrs Sloutsker’s behalf”. That appears to show that it was understood between Macfarlanes and Mr Slutsker that Mrs Slutsker alone would be the purchaser pending implementation of a trust structure. Mr Slutsker said in cross-examination that he could not recall the conversation. The note goes on to consider “the financing of the deal”. Mr Slutsker updated Macfarlanes on his dealings with Mr Cohen of Cavendish Mortgage Brokers Ltd, who were hoping to obtain an offer from Bank of Scotland. Macfarlanes warned of the risk of exchanging contracts where the buyer is not sure he will have the necessary funds to complete.

Exchange took place on 28 November. No firm offer of mortgage finance had been received, but Mr and Mrs Slutsker were evidently happy to proceed notwithstanding Macfarlanes’ warning.

Mr and Mrs Slutsker attended at Macfarlanes’ offices the next day, 29 November. They met Mr Jackson, Mr Harrison and Mr Pritchard Jones (who attended in place of Mr Rhodes). Mr Pritchard Jones prepared a three-page attendance note (there is no evidence that this note, unlike that of the conversation of 22 November, was sent to either Mr or Mrs Slutsker). In a later note the meeting is referred to as having been “brief”, and it may be that it was less long than it might otherwise have been because of the ground covered in the earlier conversation and note. But “brief” is a relative term, and it is clear from the matters recorded that it cannot have been very short.

The attendance note shows that there were separate discussions of “the property aspects” and of the question whether 3TB should ultimately be held by some kind of trust or corporate vehicle. As to the latter, Macfarlanes repeated their recommendation of what is referred to as a “non-UK life interest trust”. Paragraph 5 reads:

“5.1

This would probably involve OS [i.e. Mrs Slutsker] settling a trust for her own benefit. She would have a life interest, meaning she would be entitled to all of the income arising from the trust as of right. However, in this case, no income will arise because the trust would simply hold property in the UK and allow her to occupy it rent-free …

5.2

The plan is that trustees would borrow funds from Bank of Scotland to meet 70% of the purchase price and OS would settle funds to the value of 30% of the purchase price. …

5.3

The advantage of this proposal is that the property would be OS’s principal private residence if she elected for it to be so …”

Paragraph 6 records that “OS agreed that the life interest trust was the best way forward”. Mrs Slutsker in her witness statement said that “in the meeting Vladimir and I discussed the trust structure in Russian together”: they agreed with the recommendation, and she told Macfarlanes accordingly. In cross-examination Mr Slutsker appeared to accept that Mrs Slutsker had said that she agreed to Macfarlanes’ recommendation (T1/99/20) but he said that that was only “her personal opinion” (T1/100/21) and that he himself had kept his own counsel: he believed that the two of them would need to have a discussion following the meeting “and then represent the common position” (T1/101/6-9). It is implicit in that evidence that he did not accept that Mrs Slutsker’s statement during the meeting reflected any agreement reached by the two of them during the meeting itself; but it is not inconsistent with their having spoken during the meeting, in Russian, and it seems to me likely that they would have done so. Mr Slutsker accepted that he said nothing to suggest any disagreement with Mrs Slutsker’s expressed view that the trust route was the best way forward (T1/101/1).

Following discussions of asset protection (in relation to which Mrs Slutsker referred to litigation in which she was engaged in Russia) and immigration issues, paragraph 10 of the note reads:

“The funds for the property purchase will be procured by means of a dividend from the Sloutskers’ principal company. This will be received by them as investment income. …”.

It is not said who provided that information. The “principal company” is not identified. There was then apparently some discussion, the detail of which is frankly obscure, about how the funds in question would be held; but the discussion appears to be on the basis that the dividends in question would accrue to Mrs Slutsker, who would either create a trust with them or “continue to hold the funds in her own name”.

Mr Slutsker said in cross-examination that, although he had not said anything in the meeting of 29 November 2000, he and Mrs Slutsker had discussed the position both before and after the meeting and had agreed that

“… whatever type of property would be chosen, trust, UK company, personal ownership or whatever, the guarantees of ourself and the children, equal guarantees are to be granted …”

(T1/100/4-7). I do not accept that evidence. If Mr and Mrs Slutsker had had an explicit discussion of the kind described in preparation for the meeting (which, I note in passing, would be hard to reconcile with Mr Slutsker’s denial that he had seen Mr Rhodes’s note of 23 November) I would have expected to see it referred to at the meeting. If there was a discussion between them following the meeting, with a view to confirming or qualifying Mrs Slutsker’s acceptance of Macfarlanes’ recommendation, again I would have expected to see the outcome notified to Macfarlanes. But, beyond that and in any event, Mr Slutsker’s evidence has a strong ring of retrospective “improvement”. No such express agreement is pleaded or referred to in his witness statement. I deal in more detail below with the question of what Mr Slutsker intended and understood at the time about the trust arrangements: it is sufficient to say here simply that it would be natural if in his anger and resentment following the divorce he should now have brought himself to believe that he made an express agreement covering a situation that in fact neither party contemplated. On balance, I think that Mr Slutsker’s non-objection at the meeting of 29 November to Mrs Slutsker’s acceptance of Macfarlanes’ recommendation reflected acquiescence by him in their recommendation as to “the way forward” – though of course the details remained to be worked out.

Completion took place on 21 December 2000. Although Mr and/or Mrs Slutsker (as to which of them, see below) in the event provided the necessary funds from their own resources, a lender was still being sought, and despite the decision recorded in the attendance note, it was thought undesirable to make any final decision as to how 3TB would be held, because that was an issue on which the lender might have a view. Accordingly, although Macfarlanes had already bought Haron to act as nominee purchaser, 3TB was not at first registered in its name. As Macfarlanes advised Mrs Slutsker, “the transfer documents were made out in favour of [Haron], but we have agreed with the vendors that we can hold them here undated for a brief period whilst we decide with you exactly how you wish title to be registered”.

Macfarlanes proceeded on the basis that, as they had recommended, the beneficial interest would be held by a trust. They approached Close Brothers as potential trustees and met Mrs Mitchell-Voisin on 17 January 2001.

On the afternoon of 31 January 2001 Mrs Slutsker had a series of meetings at Macfarlanes’ offices, including, later in the afternoon, one attended by Mrs Mitchell-Voisin: that was the first occasion that they met. Mr Slutsker did not attend, but he was still actively involved in trying to find a lender. On the morning before the meetings he spoke to Mr Rhodes, who recorded the call in an e-mail to his colleagues as follows:

“Vladimir [i.e. Mr Slutsker] has just rung from Moscow to ask why we turned down the offer of finding a mortgage from a Mr Stephen Curtis, a London solicitor known to one of his business partners.

I said I had not heard of this but we had thought until about 1 hour ago that Coutts were in the bag.

He agrees that the property should be held though Haron by non UK res trust.”

(Coutts had replaced Bank of Scotland as the front runners to provide the mortgage.) It was Mr Rhodes’s evidence that, although he could not recall the conversation, the final part of his note probably reflected the fact that since there was about to be a meeting with the proposed trustee “I wanted to reassure myself that he understood what we were doing” (T3/383/13-15).

Mrs Slutsker met Mrs Mitchell-Voisin again, in the absence of Macfarlanes, the following day. Though no note of their meeting survives, Mr Lee-Smith confirmed that this would have been the occasion on which her intentions and wishes as settlor would have been formally ascertained.

In the meetings with Macfarlanes and Mrs Mitchell-Voisin on 31 January 2001 Mrs Slutsker said that a mortgage was no longer required. That simplified matters. Although there is no explicit note to this effect, it is clear that the decision was confirmed at that point that the purchase should now be registered in the name of Haron but that the beneficial interest should be held by it on behalf of a trust which would be set up by Macfarlanes and Close Brothers.

Throughout the various contacts summarised above, Macfarlanes’ primary and most frequent contacts were with Mrs Slutsker rather than her husband. As already noted, at an early stage it was decided to treat her as their sole client, because they understood that most of the purchase money for 3TB was to come from her. Accordingly both in Mr Rhodes’s note dated 23 November and in the note of the meeting of 29 November it was explicitly assumed that Mrs Slutsker would be the settlor and first life tenant: see paragraphs 20 and 26 above. But it is equally clear that Macfarlanes regarded Mr and Mrs Slutsker as acting together, with no question of any conflict between them. They understood themselves to be advising both of them as regards the tax implications of the purchase and referred to the possibility that Mr Slutsker would also have in due course to become their client. From time to time they described themselves to third parties as acting for both. They spoke to them together on 24 November (on the telephone) and 29 November (at a meeting). Mr Harrison (on 26 and 27 November) and Mr Rhodes (on 31 January) had telephone conversations with Mr Slutsker on his own. These were primarily concerned with the search for a lender: this was the aspect in which he seems to have been particularly closely involved (as he acknowledges at paragraph 7 of his second witness statement).

Arrangements for the establishment of the Trust duly proceeded between Macfarlanes and Close Brothers; and in due course the formal steps identified at paragraph 2 (4)-(5) above were taken. I need give no details at this stage, save that it is important to record that there is no suggestion in the evidence that Mr Slutsker had any involvement in those arrangements: there was no contact between him and Close Brothers (or Macfarlanes, so far as the establishment of the Trust is concerned), and matters were wholly in the hands of Mrs Slutsker, whom Close Brothers treated from the start as the intended sole settlor and first life tenant.

I should set out the material terms of the Trust, which are as follows:

The decision taken in March 2009 to exclude Mr Slutsker as a beneficiary was made by the Trustee in the exercise of its discretion under clause 5.1 (though I was told that the powers under clause 11 were also engaged). But it is worth spelling out that the decision ultimately reflects Mrs Slutsker’s position as settlor. While there was no formal letter of wishes, the Trustee will in the usual way have had regard in exercising its powers under clause 5.1 (and indeed any other powers such as the power of appointment in clause 3.1) to what it understood to be the interests and wishes of the settlor. In reality, though not in law, the power to exclude Mr Slutsker was inherent in Mrs Slutsker’s position as sole settlor.

Before I address the question raised by this heading I should say something about how it arises. Neither party made any averment in their “first-round” pleadings as to the source of the funds used in the purchase of 3TB (or indeed the subsequent refurbishment works). Thereafter:

The parties’ respective stances on the question of the source of the funds, as summarised above, are rather puzzling. As for Mr Slutsker, I can accept that on his primary case the question of the origin of the funds used to buy 3TB was strictly irrelevant: as long as the funds came from one spouse or another, it would not matter from which, since they would be joint family property in any event. But it would at least arguably be material to his alternative case based on a Stack v Dowden trust: the Reply indeed so pleads, though in his closing submissions Mr Brownbill put the case on a different basis. As for Mr Cooper, he has throughout reminded me of the burden of proof: indeed, he said in his opening submissions that he was considering calling no evidence. He is no doubt right that on both his ways of putting his case the burden of proof is formally on Mr Slutsker. But the clarity of that position is smudged by Mrs Slutsker’s positive evidence, adduced in chief, that the purchase moneys came from her: if no positive case was being advanced on the origin of the funds, why was the evidence led ?

I cannot help suspecting that the parties’ equivocation on the relevance of this question may reflect an unwillingness on the part of both, for whatever reason, to advance a case which might lead to a more general examination of the financial affairs of Mr or Mrs Slutsker as the case may be. But whether that is so or not, the lack of any real exploration of the issue prior to the oral evidence meant that I was provided with no particulars and no relevant documentation. Neither party appears to have given, or sought, disclosure relevant to the question of who funded the purchase price: Mrs Slutsker is not of course a party, but third-party disclosure could have been sought. (As noted above, Mr Slutsker said in his Further Information – though not, I think, in his List of Documents – that no relevant records survive. I am bound to say that I find that rather surprising, but the issue was not raised with him in evidence.) I am largely dependent therefore on the oral evidence of Mr and Mrs Slutsker, which was in both cases highly unsatisfactory.

Despite those problems it seems to me that I must consider this question and weigh the evidence relating to it. Even if the source of the funds is not directly relevant to the primary issue, Mr Brownbill relied on it as casting light on the parties’ knowledge of, and intentions in relation to, the transactions involving the title to 3TB and, more generally, as going to Mrs Slutsker’s credit as a witness.

The question of course presupposes that both parties had funds which could in some sense be described as peculiarly their own (subject, of course, to the application of the joint family property regime). It is clear that that was the case. Mr Slutsker had his wealth generated by his business activities, usually referred to under the general heading of “Finvest”. But the success of WCFC meant that Mrs Slutsker also had substantial resources, though I have no figures. How WCFC was first funded is a little complicated. Mrs Slutsker said that she did not come into the marriage with any money of her own. On their marriage Mr Slutsker gave her $1m. as a gift. The initial start-up capital for WCFC did not, it seems, come out of that money but as an investment, or loan, from Mr Slutsker. However, Mrs Slutsker’s evidence was that she subsequently, in effect, bought Mr Slutsker out by waiving repayment of part of a loan made by her to him of $1m. – his original gift to her – which he had had to borrow back in a temporary financial crisis. Be that as it may, it seems clear that from an early stage the WCFC business, and the sums generated by it, were regarded as “hers” (subject, I repeat, to the effect of the joint family property regime). Mrs Slutsker kept her money – or at least a substantial part of it – in Zurich, with a bank (apparently a subsidiary of Credit Suisse) called Clariden: its full name does not appear in the papers, though it is sometimes referred to as Clariden Trust. It was her evidence – not challenged by Mr Brownbill – that Clariden was trustee of a revocable trust called the OLMI trust (derived from her name and her son’s – Olga and Misha): she said that she saw it “as a confidential bank account rather than a trust” (witness statement, paragraph 23, and see T4/532-3). She said that that trust held sums derived from the profits of the WCFC business and which she used from time to time to fund further investment in that business. It was Mr Slutsker’s case that when Mrs Slutsker needed to spend money for “family business” matters, such as the purchase of works of art (of which they had a substantial collection) – or indeed, to anticipate, the purchase of 3TB – he would transfer the necessary funds to an account of hers with Clariden. He claimed not to know of the existence of any kind of trust associated with Clariden, and said that the account (or accounts) in question were ordinary bank accounts.

The starting-point in considering this question is that it is common ground that the immediate source of the moneys paid to Macfarlanes for the purpose of exchange of contracts and of completion was Clariden. But the real question is where they derived from before that point. As to that, the evidence is confused and contradictory. It can be summarised as follows.

As I have said, Mr Slutsker said nothing in either of his witness statements about where the purchase money for 3TB came from. However, in his cross-examination by Mr Cooper, he was referred to Mr Jackson’s note of his first conversation with Mrs Slutsker where he recorded her instructions that “it was essentially your [i.e. her] funds that would be invested”. He laughed. There was then the following exchange (T1/63-64).

“Q. Why are you laughing?

A. Okay. So I have my own opinion whose funds have been invested mainly in the property which has been acquired by our property, because whatever was accumulated on account of my former wife she considered to be her funds, independent on the source of this wealth. Am I clear?

Q. Could you explain exactly what you have in mind?

A. I have in mind that she could name her funds, or your funds as it is personal, related to the funds which she could manage or control, but how these funds were generated is out of this discussion.

MR. JUSTICE UNDERHILL: So how do you say they had been generated?

A. These funds were generated by me also, but they were controlled and managed by Olga Slutsker. That is why I laughed, because she says "my funds", or "your funds".”

The effect of that passage should perhaps be spelt out. Until I asked my question Mr Slutsker was hinting that the funds came ultimately from him but apparently maintaining the position that this was ultimately irrelevant (“out of this discussion”). He did then seem to state explicitly that he had generated the funds (though the “also” is ambiguous as to whether he was claiming to have been the only begetter).

Mr Cooper did not pursue the question of the origin of the purchase price at that point; but he returned to it later in his cross-examination, when he put to Mr Slutsker that the moneys derived from a gift from him to his wife. (There was no basis for that question in Mrs Slutsker’s evidence, but, as will appear, she had at one point signed a document to that effect: see paragraph 48 (8) below.) Mr Slutsker denied that. He accepted that he had given her $1m. when they were married but nothing thereafter: any moneys paid to her were “for the business needs of the family” (T2/156, esp. at 11. 22-23).

Mr Brownbill picked up this exchange in his re-examination and again asked why Mr Slutsker had laughed. He replied (T2/174-5):

“I laughed because whatever comes in hands was -- in hands of my former wife -- was considered to be her property and that is why, when the term "your investment" means that it had to come from her account, but how the funds were coming to her account and under her possession were not discovered by this statement. So that is why I laughed. I am sorry for that, because in our situation, at those time until we divorced, separated and divorced, it is very, very incorrect statement would be done by anybody of us that it comes from "my funds" especially in her case, because the source of my funds was at least mutual -- at least mutual, I would not say by the majority. But even in my case, it would be incorrect because I would never say it comes from my funds. I would say it comes from our funds, it is a family. I do not understand how one of the spouses can claim or state that the funds are his or hers. It is equally incorrect and legally and morally.”

That appears to be a reversion to the pleaded case that all moneys in the hands of either spouse were joint family property. However, Mr Brownbill then asked Mr Slutsker about the Clariden account. He said (T2/176):

“A. My former wife used to have an account in Clariden Bank in Switzerland wherein the director was Yuri Ostrovsky, as far as I remember, one of two brothers, Yuri and Alexander. It is how he was introduced to me. From time to time, I was sending the money, sending the funds, from different destinations to her account in Clariden, but it was not Clariden trust, it was different name. It was just an account.

Q. And the purpose of this account, the reason you were putting money into this account ----

A. The reason I put in my money to this account were family expenses and family acquisitions.

Q. Have you any idea approximately how much you were putting into this account?

A. Substantial amounts, enough to make any purchase. There were amounts for -- there were different transfers, hundreds of thousands, millions also; many transfers were done.

Q. You say enough to make the purchase?

A. Enough to make the purchase of any scale, including the property or art or anything else.”

Mr Slutsker went on to confirm that, so far as he understood, the Clariden account could not “be anything to do with [Mrs Slutsker’s] fitness clubs” and that – as Mr Brownbill put it to him – “the money that was in the Clariden account was to do with … personal expenses of the family” and “nothing to do with the [WCFC] business”. Mr Brownbill then asked “where did you get the money that you paid into the Clariden bank account”. Mr Slutsker replied (T2/178):

“So in Russia it was several activities of mine which were based on privatisation processes which were going on in the 90s and with the time it became formality in few types of businesses, like private equity, mergers and acquisitions and stock spot operations. All three types of these businesses were based on offshore activities and it is like that everywhere, especially with last, stock operations. So the proceeds from this activity were transferred to different accounts and also accounts of my former wife.”

The effect of that evidence taken as a whole is clearly, as stated in the Further Information, that the funds to buy 3TB were provided by Mr Slutsker from the profits made by his various businesses; and that was in due course put by Mr Brownbill to Mrs Slutsker (T5/635). But even as eventually teased out, the account is very unspecific, and it is unfortunate that it really only emerged in re-examination. I also note that at one point in cross-examination he said that “I was the main contributor [my emphasis]” (T1/102/21-22).

Turning to Mrs Slutsker’s account, it makes sense to start with what Macfarlanes and Close Brothers were told at the time. That does not however present a clear picture. Taking it in chronological order:

Turning to Mrs Slutsker’s evidence in these proceedings, in her witness statement she said (at paragraph 15):

“… I was going to be providing the majority of the funding for the purchase. I understand that Vladimir claims that he funded the purchase of the property. This is not correct. The property was purchased using funds generated from my fitness business.”

She also said (at paragraph 24):

“I was providing the purchase money for the property and so Vladimir saw it as my project.”

Mr Brownbill took Mrs Slutsker through the different statements that she had made about the source of the purchase price, as outlined above. He put it to her that the true position was indeed as she had eventually declared to Close Brothers, namely that the funds originated from Finvest – that is, from Mr Slutsker – rather than from WCFC. She denied that. In summary, her evidence was that the plans had changed from time to time. It had indeed been the intention at one point that Mr Slutsker would provide the funds (though it seems that he intended to do so mainly, if not wholly, by borrowing); but at a late stage it became clear that he would not be able to do so, and at that point she decided, at least in the short term, to use money from the OLMI trust, even though that had been put aside for her business. She said, at T5/603/19-23:

“I decided when it was really deadline and we need to decide something, we decide that I pay this money from my Clariden Trust but we will try to find financing after this transaction will be completed.”

A little later she said, at T5/620/16-24:

“As I explained, this money for me, it came from my business which I grow and it was impossible in Russia, the credit line in Russia was extremely expensive and that money only which I have to develop business. That means that if I spent that money to buy house, which really I fall in love and I wanted for my child and future children and I thought that it was a super right decision at that time, means that I did not open a couple of clubs more because I spent that money for the house and Vladimir understood this.”

Mr Slutsker did subsequently, she said, provide a further $1m which was asked for by the Trustee – I think, though this is not clear, that this was money required for the refurbishment works.

Mrs Slutsker’s attempts to reconcile that account with the contemporary statements set out above were riddled with inconsistencies and confusions. I need not set them out in full. In outline:

Where does that leave me ? It is deeply unsatisfactory that I should be asked (at least by one party) to make findings on an issue which could (probably) have been easily resolved by the production by Mrs Slutsker of the Clariden accounts or by Mr Slutsker of statements from his bank showing payments into Clariden. (I appreciate that it is said on Mr Slutsker’s side at least that no documents survive, but it is far from clear that any real search has been made.) The oral evidence of both Mr and Mrs Slutsker is unreliable, in Mrs Slutsker’s case for the reasons given above and in Mr Slutsker’s because it is extremely general and only emerged in the coy way that I have indicated. I am left to consider the inherent probabilities, by reference in particular to the contemporary documents. I make three points by way of preliminary.

First, the intention at all times up to the end of January 2001 was that the lion’s share of the purchase price would be obtained from a loan. In fact, although Macfarlanes were at first told that 70% would be borrowed, it is clear from the contemporary documents that the intention was to borrow 100% of the purchase price: an indicative offer of £6m. was received from Coutts on 14 December. There would of course be other expenses associated with the purchase (and the subsequent cost of refurbishment); but the fact remains that if matters had proceeded as intended the cash element to be supplied by Mr and/or Mrs Slutsker would have been comparatively small (subject perhaps to any short-term bridging). I was given no explanation from either party as to why a loan was thought desirable; but the obvious reason is that it was not convenient for either, even though it might be possible if necessary, to come up with £6m in cash at fairly short notice. Mrs Slutsker indeed said as much: see paragraph 48 (5) above. Although Macfarlanes apparently saw IHT advantages in Mr and/or Mrs Slutsker borrowing a large part of the purchase price, the intention to borrow formed part of Mrs Slutsker’s original instructions.

Secondly, the documentation relating to the proposed loans is unspecific as to whether the borrower (or, if a company, the guarantor) would be Mrs Slutsker alone or both her and Mr Slutsker: generally both are referred to. The loans were to be interest-only.

Thirdly, and following from the previous two points, although the question of who, as between Mr and Mrs Slutsker, would fund the purchase now looms large, it should not be assumed that it was of critical importance at the time. Both had substantial assets; they were happily married; 3TB was a project to which both were committed, albeit that it was Mrs Slutsker who was taking the lead; and even if they to some extent kept their finances separate it was all in a broad sense “family money” – a phrase used not only by Mr Slutsker but also by Mrs Slutsker (see paragraph 51 (2) above). Thus there may have been a degree of vagueness or fluidity in their plans about where the money would come from.

Against that background I turn to the contemporary documents. The starting-point must be that Macfarlanes were initially told that the cash element at least in the purchase price was to be paid “mainly” by Mrs Slutsker. I place less weight on Mr Ostrovsky’s initial call, which is second-hand; but Mrs Slutsker’s subsequent conversations with Mr Jackson and Mr Rhodes are explicit. Why should she wish to mislead Macfarlanes about that ? Mr Slutsker’s explanation is that she wanted to conceal the true source of the funds so that Macfarlanes would treat her as the sole client and so that 3TB could be conveyed into her sole name (or that of a company or trust controlled by her). I regard that as prima facie unlikely. In the first place, there is, as I have said, no evidence that at that time Mr and Mrs Slutsker were anything but a happily married couple or that Mrs Slutsker had any motive to use his money to acquire, without his consent, an asset for her sole benefit. Nor do I have the impression that sophisticated planning of this sort would come naturally to her. In any event, however, even if she might have had such a wish it is hard to see how she could have expected to get anywhere by misleading Macfarlanes about the source of funds unless she was also careful to see that they had no contact with Mr Slutsker: otherwise any lies by her would be liable to be exposed, and he would be able to insist – if he so wished – on 3TB being acquired in a way which preserved his equal rights. But there was clearly no such attempt: although Mrs Slutsker had rather more contact with Macfarlanes than her husband did, there is no sign whatever of any constraint on communications between them, and indeed the possibility of 3TB being acquired in their joint names was freely discussed. I also note that the suggestion that Mrs Slutsker be treated as the sole client appears to have emanated from Mr Jackson (see paragraph 18 above). (Another possibility is that Mr and Mrs Slutsker were colluding to paint a false picture to Macfarlanes about the source of the funds in order to make it easier to conceal his interest in 3TB from third parties. That is not inherently implausible (cf. paragraphs 90-92 below); but, unsurprisingly, Mr Slutsker did not advance any such case, and I could not fairly proceed on the basis of it.)

In short, in the absence of later evidence contradicting what Mrs Slutsker told Macfarlanes at the start of the relationship I should be very slow to find that that did not represent her intention at the time.

If it was indeed the original intention that Mrs Slutsker would provide most of the purchase price (or at least the cash element), what about the reference in the note of the meeting of 29 November to “funds … [being] procured by means of a dividend from the Sloutskers’ principal company” ? Mr Brownbill submitted that that was plainly a reference to Finvest, since it would hardly make sense to describe WCFC in those terms; and he pointed out that this (unlike the statements that Mrs Slutsker would be providing the funds) was said on an occasion when Mr Slutsker was present. It should, he submitted, be treated as stating the true position. This is a serious point, but I am not persuaded by it. It is dangerous to ascribe too much significance to a single phrase in a note of this kind (particularly since it was taken by Mr Pritchard Jones, who had not been involved in the previous discussions). The phrase “the Sloutskers’… company” does not in fact apply easily to either WCFC or Finvest, since (at least on the evidence before me) Mrs Slutsker did not have an interest in Finvest any more than Mr Slutsker did in WCFC. The rest of the note refers consistently to Mrs Slutsker as the intended settlor, and, as noted above, appears to treat the intended “dividend” as accruing to her. If Macfarlanes had understood that the intention as to the source of the purchase moneys had changed fundamentally from what they had been told previously I would have expected this to have been explicitly recognised, since it would have altered the entire basis on which they were dealing with Mr and Mrs Slutsker. Only a fortnight later, on 15 December, Mr Barclay noted that his understanding had up to that point been that funds would be provided from “her company” (see paragraph 48 (6) above): that is hard to reconcile with a belief that the money would be coming from Finvest.

That brings us to the date of completion. The essential point here is that the expected loan had not materialised. Instead of (about) £1½m., Mr and/or Mrs Slutsker were going to have to find £5½m. in cash. That possibility had been anticipated by Macfarlanes. An e-mail sent to Mrs Slutsker by Mr Rhodes on 7 December refers to the difficulties that Cavendish were encountering. The e-mail concludes:

“I am aware that you would rather not involve Clariden Bank if possible, but if this is the only way to secure funding for 20 December then I feel it should not be ignored. Please could you let me know whether or not we may approach Clariden or Credit Suisse tomorrow if we do not have firm proposals from Cavendish or Coutts by then.

I should add that bearing in mind these difficulties it may be sensible for you to draw up a contingency plan under which you could send us sufficient funds of your own by 18 December to allow us to complete the transaction even if the bank lending is further delayed.”

(The language of the e-mail suggests that Mr Rhodes understood that if the Cavendish loan did not materialise the necessary money would be coming from Clariden/“funds of your own”. The reference to a reluctance to approach Clariden is hard to reconcile with a situation where it was merely a conduit for money from Finvest/Mr Slutsker. I accept, however, that the “funds of your own” could have been derived at one remove from Mr Slutsker, whether or not that was what Mr Rhodes expected.)

Against that background Mrs Slutsker’s account of having had, unexpectedly, to use money from her OLMI trust does not seem particularly unlikely; and I am bound to say that this part of her evidence, unlike some others, did not strike me as having been made up on the spur of the moment. The reference in Mr Rhodes’s e-mail of 7 December to wanting to avoid involving Clariden if possible has at least some echo of her account. Without any figures having been put in evidence, I am unable to judge whether WCFC or its associated businesses had generated profits (or proceeds from disposals) to the tune of £5½m.; but I certainly cannot say that it is impossible. It is worth noting that if this is indeed what happened, the meaning of the various earlier references to the intended source of the funds would be less important: things had changed.

There remains the question of what Mrs Slutsker said in the source of funds declaration which she signed on 1 February 2001. At first sight that appears clearly to support Mr Slutsker’s case that, although the immediate source of the purchase money was Clariden, it had been put in funds for the purpose by Mr Slutsker/Finvest. But this is not straightforward either. Clearly something happened at the meeting on 31 January to make Mr Barclay think that his original draft of the declaration should not be used, and certainly one possibility is that that something was that Mrs Slutsker had wholly changed her account. But it is not easy to see why, if she had been misleading her advisers up to now, she should have dropped the pretence at this point; and the context in Mr Barclay’s manuscript note does not suggest a change in Mrs Slutsker’s instructions so much as attempts by the advisers to re-characterise the transaction more advantageously for tax purposes. I note that in an e-mail written at the time of the break-up of the marriage – see paragraph 85 (6) below – Mrs Mitchell-Voisin states that it was her understanding that Mr Slutsker had not contributed to the purchase price of 3TB. It should be noted that the revised document is not entirely consistent with Mr Slutsker’s account either. It refers to him having made a gift to a “trust”, presumably Clariden/OLMI; but Mr Slutsker in his evidence denied making any gift to Mrs Slutsker (apart from the $1m. on their marriage – see paragraph 42 above) and disavowed any knowledge of any Clariden trust. Nor does the reference to “dividends” make sense: it smacks to me of adviser-speak rather than anything that Mrs Slutsker is likely to have said. It is at least possible that what Mrs Slutsker had told her advisers was that the money had come out of the OLMI trust, but that ultimately all “her” wealth derived from an initial gift – I note the word “originally” – made to her by Mr Slutsker on marriage. The resulting wording is on that hypothesis confused, but it would not be surprising if the advisers had failed to understand the position properly in the context of a meeting of this kind (with much else being discussed): my own experience is that Mrs Slutsker does not always tell a clear story. It would also not be surprising if Mrs Slutsker simply signed what was provided to her: one of the more convincing parts of her evidence was that she had no understanding of legal formalities.

The evidence reviewed above is so unsatisfactory that I would prefer not to have to make a decision about the source of the funds for the purchase of 3TB unless it is essential to do so. (I would be even less comfortable about doing so if my conclusion gave rise to an issue estoppel in proceedings in any other jurisdiction – though it may well be that it would not.) As will appear, I do not in fact need to do so. The only finding that I do make is that I reject the contention that Mrs Slutsker’s original statements to Macfarlanes that she would be providing most of the purchase price – or at least of the cash element – were made falsely in order to procure a situation where she would be able to cheat Mr Slutsker.

The picture painted in Mr Slutsker’s Amended Particulars of Claim and in his first witness statement is that he was wholly unaware of the intention to purchase 3TB in the name of a company or to make use of a trust structure. That is quite unsustainable. It is clear beyond argument that he was aware of both points from an early stage. The use of a company and a trust was discussed explicitly and in detail both in Mr Rhodes’s note of 23 November 2000 and at the meeting which Mr Slutsker attended on 29 November. I have already found that he probably saw the note. But even if he did not, he could not have sat through the meeting without appreciating at least the broad lines of what had been discussed: indeed he accepted as much (T1/101).

In his oral evidence before me Mr Slutsker adopted a rather less extreme stance. He now acknowledged that all options, including the purchase of 3TB in the name of a company and/or by a trust, had to his knowledge been discussed by Macfarlanes; but he said that he had never agreed to any particular option nor had he been informed which had been implemented (T1/101-2). I cannot accept that either. It is clear that at the meeting of 29 November the trust route was not only discussed but was agreed as “the best way forward”, and I have already found that he acquiesced in that. At that point, of course, completion had not yet taken place; but he must, and in any event should, have appreciated that Mrs Slutsker, who was with his full agreement taking the lead in dealing with the purchase, would proceed on the basis of the recommendation; and accordingly he must have appreciated that in due course the trust proposal had been implemented.

In one respect at least there is explicit evidence of Mr Slutsker’s agreement to the arrangements made. Mr Rhodes’s attendance note of 31 January 2001 quoted at paragraph 31 above shows that Mr Slutsker explicitly agreed to the conveyance of 3TB to a company. Mr Slutsker denied in his witness statement ever having heard the name of Haron before the present dispute arose (and added in his oral evidence that he would have remembered it if he had, since Haron is the Russian equivalent of Charon and would thus have struck him as a name of ill omen); and Mr Rhodes accepted that though he had used the name of the company in his note he might not have used it in speaking to Mr Slutsker. But what matters is that the note shows that Mr Slutsker knew – entirely consistently with what he already knew was being planned – that title to 3TB would not be registered in the name of either himself or his wife.

Frankly, however, this is mere skirmishing. Mr Slutsker’s unsustainable protestations that he was ignorant of matters of which he was in fact perfectly well aware mask a more legitimate point, namely that he did not know, still less agree to, the terms in which the Trust was eventually set up: more specifically, he did not understand, still less agree, that he would have a different and lesser interest under those arrangements than his wife, and an interest that could be extinguished altogether if the Trustee, who would take into account the wishes of his wife as settlor, so decided. As it is pleaded in paragraph 7 (3) of his Reply, he did not know or agree:

“… that his interest in the Property would be disposed of irrevocably upon trusts such as those of the Misha Trust and/or

(i)

under which VS had only a limited interest;

(ii)

which interest was wholly defeasible upon the exercise of discretionary powers held by the trustee;

(iii)

in the exercise of such powers the trustee would be guided solely by OS.”

As to that, Mr Rhodes’s note of 23 November 2000 and the discussion at the meeting of 29 November, which Mr Slutsker attended, proceeded on the explicit basis that Mrs Slutsker would be the settlor of the proposed trust and first life tenant. Whether or not Mr Slutsker understood all the implications of that (as to which, see below), I am satisfied that he appreciated at least that the affairs of the Trust would be in his wife’s hands rather than his own, and that he accepted that. That was entirely consistent with the division of responsibility understood between them. It is also reflected in the fact that he took no steps at the time to be involved in the running of the Trust: he was content to leave that up to her – as he said repeatedly in his evidence, he trusted her.

The remaining question is what Mr Slutsker understood about the effect of the trust arrangements which were put in place. Apart from the initial discussions with Macfarlanes, his only source will have been what Mrs Slutsker told him: as previously noted, he had no dealings with Close Brothers (or, on the trust aspects, with Macfarlanes), and I accept that he never saw a copy of the Trust Deed.

It was Mrs Slutsker’s evidence, which I accept, that she made no secret of the existence of the Trust and will have mentioned it to him from time to time; but she did not suggest, and it is inherently unlikely, that she explained its detailed terms (even if she understood them herself). The extent of Mr Slutsker’s understanding was explored by Mr Cooper in cross-examination. He started by accepting, notwithstanding his previous statements to the contrary, that he knew about a trust called the Misha Trust. He said, at T1/125/13-23:

“A. … Misha Trust, she told me that she was going to arrange a special trust for the children. That is all. So any structural connections between the property in London, Misha Trust, Haron, etc., etc., are hidden from me and I did not know that to which extent the Misha Trust was involved in that, what was my position in that, etc., etc.. I just was informed that I am an equal owner and my rights are guaranteed granted and her rights are granted and the children's rights are granted. That is all. Which consequences and how these names, etc. etc., plans, or trusts were incorporating between the children, I do not know.”

But he later, albeit grudgingly, went rather further. I should reproduce the whole passage (T1/129-131):

“Q. Let's try and sum up what it was exactly that you did and did not know about the purchase up to this point in time. You knew that it had been taken, that is to say registered, in the name of a company, not the name either of yourself or your wife?

A. Yes.

Q. That is correct?

A. Yes.

Q. You knew that the company held the trust -- sorry, held the property under the terms of a trust?

A. (No verbal response)

Q. You are nodding your head. Will you please answer out loud so it will get on the record.

A. It is a question?

Q. Did you know that?

A. I did not know the exact relationships between the entities and I did not know the structure of the trust itself.

Q. That was not the question I asked you. Please try and answer the exact question I ask.

A. Yes.

Q. Did you know that the company in whose name the property was registered held the property on trust?

A. I was not sure in that. I did not know the structure.

Q. Did you know that there was a trust involved?

A. Very possible, but I did not know the origin of the trust, the nationality, structure of the trust, etc., and where the trust is located.

Q. You knew that it was offshore?

A. The trust?

Q. Yes.

A. I did not know it.

Q. You did not know that?

A. No. I thought probably because the office was in Switzerland, but this office was managing some kind of service for Olga, that is all. Misha Trust was in association -- I have to be very clear here. We specifically detailed in our discussions the children's rights for the property and that is for Misha Trust, I was taking Misha Trust as a guarantor of our children's rights, which somehow to be in the structure. So my fault was that it means I was not very much pushy to get all the elements of the structure, of the holding in the focus. That was probably my mistake, but I totally relied on my wife how to structure it and her advisers, legal ones. So I did not concentrate -- that is true. I never required from her, never demanded from her any exact information about these structures, considering that it guarantees my rights, her rights and the children's rights. That is all. So the rest of the discussions, to myself, it is not very much important because the actual structure of the trust, registration of the trust, terms of the trust, if it is a final structure to be holding the house, this is main point. Also the company and how it is connected to the trust, etc., etc.. So that was unknown to me, probably due to my not very much demanded mode probably, because it was never paid back with goodwill to disclose to me everything. Finally, it has been found that unfortunately I was crossed away, the trust was really designed on a way which I did not believe it could be, etc., etc ... .”

The most important point to emerge from that evidence (despite some equivocations) is that Mr Slutsker accepted that his wife told him that she was establishing a trust, the Misha Trust, in order to safeguard the position of the children. (I note that in the evidence set out at paragraph 28 above he also referred to the interests of the children.) In so far as he suggests that that might have had nothing to do with 3TB – that is, that it was different from the trust which he already knew that Macfarlanes had recommended – I reject that as a piece of over-subtle retrospective rationalisation. It was, as I have found, always part of Mrs Slutsker’s conception that 3TB would be in one way or another safeguarded as an asset for the children. I see no reason why she should not have shared that thinking with her husband (indeed, as we have seen, it underlay some of the discussion at the meeting of 29 November 2000); and I am sure that it will have been clear to him that title to 3TB was in one form or another vested in the Misha Trust. Although on a literal reading Mr Slutsker appears to deny knowing that the trust was “offshore”, I understand him in fact to be accepting that whatever service was being provided was being provided from Switzerland; but in any event I am confident that he will have well understood, both as a matter of common knowledge as a sophisticated businessman and more particularly from his contacts with Macfarlanes, that the contemplated trust fell outside the scope of Russian law. It follows that he knew that a structure had been created which was necessarily inconsistent with straightforward joint family property under the Russian Family Code. I accept that he may well not have understood the details of the structure; but, as he acknowledges, that was because he did not ask. I do not find his lack of involvement particularly surprising. The London project was Mrs Slutsker’s project: it was she who would be mainly living in 3TB and it was she who was particularly concerned to make it a safe asset for the long-term future of the children.

I do not accept Mr Slutsker’s evidence that he was explicitly told by Mrs Slutsker “that I am an equal owner”, at least in the sense that he evidently means it, or that his rights were “guaranteed”. I have already rejected his evidence of any such agreement in the context of the meeting of 29 November 2000; but if Mr Slutsker intends to suggest a further agreement or assurance at or around the time that the Trust was created, I regard that too as a piece of retrospective improvement. It is likely enough that he was told by Mrs Slutsker that he and she were both beneficiaries (and perhaps that both their parents were too). She may, though I think this is less likely (because more technical), have said that they were both life tenants. But I do not believe that Mr Slutsker asked for or was given an authoritative reassurance that his rights under the Trust were legally equivalent to hers or were guaranteed: that is inconsistent with the kind of general discussion otherwise reflected in his evidence and which I regard as likely.

What I do accept is that Mr Slutsker will not have appreciated that his interest, whatever its precise nature, could be extinguished at the discretion of the Trustee in accordance with the wishes of Mrs Slutsker as settlor. That is not something that would occur to a layman without sight of the Trust Deed or an understanding of the nature of the discretion enjoyed by a trustee under a typical discretionary trust. As appears below, I do not believe that Mrs Slutsker’s understanding was any different.

So much for Mr Slutsker’s understanding. Turning to Mrs Slutsker, in the interlocutory proceedings before Roth J. Mr Brownbill said that it was Mr Slutsker’s case that Mrs Slutsker had planned from the start to arrange affairs so as to deprive him of what would otherwise have been, under Russian law, his 50% interest in 3TB, and to conceal from him that she had done so: he had been “hoodwinked”. Similar allegations were made in his witness statements and in his oral evidence (T1/102/8-10 – “a very ugly plan … that somebody has to swindle somebody”). No such case was in fact pleaded, and while before me Mr Brownbill made it clear that he did not resile from those allegations, he acknowledged that they were not a necessary part of his case in law. Nevertheless I should make findings about how it came about that Mrs Slutsker was sole settlor and thus in a position – in practice, albeit not in law – to achieve Mr Slutsker’s exclusion.

So far as the contemporary documents are concerned, the essential starting-point is that, as we have seen, Mrs Slutsker was understood by Macfarlanes to be the principal source of the purchase moneys for 3TB and was introduced to Close Brothers on that basis. The contract to purchase 3TB had been made in her name. The funds had come from her bank and had been declared by her to be her own property: that would remain significant even if the position were, as she said in the final version of the source of funds declaration, that they had originated in a gift from her husband. I have rejected above the contention that this state of affairs was deliberately procured by Mrs Slutsker in order to cheat Mr Slutsker.

Against that background, it was natural that Mrs Slutsker was regarded as the settlor and first life tenant once a trust mechanism was adopted. As Mr Rhodes said (T3/381/14-18):

“… because she had introduced herself originally to us as our primary client and said that it would be principally her money that was being used to buy the house, … it followed that she would be the person who would be making the trust and she would be the initial beneficiary of it.”

(Indeed, I understood him to say that once the original contract had been made in Mrs Slutsker’s name it was necessary that she be the sole settlor in order to avoid a capital transfer tax liability arising at the moment of transfer to the Trust: see T3/390/8-23.)

Once that point is reached, the terms in which the Trust were drawn are unremarkable. Mr Rhodes’s evidence was, generally, that its provisions were what would be expected in such an instrument (T3/390/4-7); and more particularly that it was his practice to include wide general discretions of the kind found in the present case (T3/396-7). He did accept, in answer to a question from me, that it would have been possible for Mr and Mrs Slutsker to be joint life tenants on a sole basis, but I can understand that that would not have been the obvious course, particularly since 3TB was to be her primary home rather than his; and so long as the two of them remained married it made no real difference. In any event, Mr Slutsker’s inferior position arises ultimately not from his being second life tenant but from the fact that he was not a settlor: see paragraph 37 above.

It seems to me unlikely that Mrs Slutsker paid any close attention to what she was told about the terms of the Trust. It is apparent from the documents and from my impression of her as a witness that she does not have a mind for legal formalities. I am of course aware that it can be convenient for a witness to give such an impression; but in the present case I think it is genuine. A telling illustration appears in an email sent by her to Mrs Mitchell-Voisin in 2003 asking her “if we have ever had any contact with Haron Investment Limited” – a very surprising enquiry if she had had any grasp of the structure established for her benefit. (Mrs Mitchell-Voisin replied “yes absolutely !” and gave a rather words-of-one-syllable explanation of Haron’s function.) I think it most unlikely that she was ever conscious of the fact that the Trust Deed included a power of exclusion; and I accept her statement (T3/416/22-23) that “I was not thinking about excluding anyone”.

Nor can I see anything sinister in the fact that no attempt was made by Mrs Slutsker or her advisers to involve Mr Slutsker in the setting up of the Trust. It was Mr Lee-Smith’s evidence, which I accept, that there is nothing unusual in a trustee dealing only with one spouse where the other spouse appears content with that arrangement: see T6/692/13-23 and T6/719-720. Further, if Mrs Slutsker had intended from the start to conceal the terms of the Trust from Mr Slutsker, I would have expected that to be apparent from the contemporary documentation generated by Close Brothers, since it would have been important that they were aware of the position. Regrettably, there is no note of Mrs Mitchell-Voisin’s meeting with Mrs Slutsker on 1 February 2001; nor, as I have said, was any letter of wishes written. But there is a standard-form “New Business Questionnaire” completed by Mrs Mitchell-Voisin in April 2001. Mr Lee-Smith gave evidence that if there had been a sensitivity about revealing information about the Trust to Mr Slutsker that would have been noted on the questionnaire; but it was not (T6/695/12-25). I should add that it is in any event difficult to see how any effective concealment could have been achieved. Mr Slutsker knew that a trust was to be set up, and if he had asked to meet the Trustee or to be taken through the terms of the deed there could have been no basis for refusing.

Thus far, however, I have been considering only the documentation from the time of the creation of the Trust. It was Mr Brownbill’s submission that a very different picture emerges if one considers certain later documents. He relied principally on documents generated in 2009, following the break-up of the marriage, but he also put to Mrs Slutsker in cross-examination two documents dating from April 2001. I take the two episodes in chronological order.

The background to the 2001 document is that attempts to find a lender continued after completion. Specifically, there were dealings with a bank in Geneva called EFG. These seem to have been handled by Close Brothers and Macfarlanes, on instructions from Mrs Slutsker (though she said in her oral evidence that the initial contact with EFG came from Mr Slutsker). In an e-mail to Mrs Mitchell-Voisin dated 5 June 2001 Mr Imison of EFG referred to a forthcoming meeting with her and identified a number of points for discussion, one of which was “non-involvement of Mr Sloutsker”. On 7 August 2001 EFG made an indicative offer of a loan to the Misha Trust of £3.9m. One of the terms was that personal guarantees should be given by both Mr and Mrs Slutsker; but on 9 August, following a conversation with Mrs Mitchell-Voisin, the terms were amended so that a guarantee was only required from Mrs Slutsker.

Mr Brownbill put it to Mrs Slutsker that the e-mail of 5 June 2001 and the removal of the requirement of a guarantee from Mr Slutsker were “indicative of an intention to keep Mr Slutsker away … from this trust … because you did not want him to have any particular knowledge of this trust”. Her response was that Mr Slutsker had made it clear that he wanted to have nothing to do with the Trust because he was hoping to be appointed to the Duma and (to paraphrase) did not want to be associated with the ownership of offshore property. I discuss that aspect more fully below: in short, it is certainly possible that even though he did not become a Senator until January 2002 Mr Slutsker was even at this date wishing to distance himself from any formal involvement with 3TB. But even if that were not the explanation for the explicit “non-involvement” evidenced by these documents, that non-involvement does not necessarily imply that Close Brothers or Mrs Mitchell-Voisin were deliberately excluding him. It is not clear that Mrs Mitchell-Voisin was herself saying that Mr Slutsker should not be involved: the reference may reflect a query by Mr Imison, who wanted to know why the borrower/guarantor would be Mrs Slutsker (that would be particularly likely if, as Mrs Slutsker suggested, his primary relationship was with Mr Slutsker rather than with her). But even if it was Mrs Mitchell-Voisin who was insisting on the fact – which is formally correct – that Mr Slutsker was neither a settlor nor the first life tenant, it does not follow that she was doing so because of a wish to exclude him from any knowledge or involvement.

There is in fact evidence that is inconsistent with any intention at this time to conceal information about the Trust from Mr Slutsker. In September 2002 Mrs Slutsker asked Macfarlanes to pass the file in relation to 3TB to a solicitor called Stephen Curtis of Curtis & Co. The trigger for the change appears to have been that Curtis & Co. were thought to have found a lender. Mr Curtis (who in fact died in March 2004) and his colleague Mr Lewis continued to deal with Close Brothers, and in particular with Mrs Mitchell-Voisin, over the following couple of years, both about the proposed loan (which in the event did not materialise) and about the refurbishment works. Not only, therefore, did Curtis & Co know the identity of the Trustee, and of Mrs Mitchell-Voisin as the responsible manager, but there was no attempt whatever to withhold information about the structures under which 3TB was held. Indeed Mrs Mitchell-Voisin in May 2003 sent Mr Lewis a diagram setting out the roles of the Misha Trust (so named) and Haron. The significance of all this is that Curtis & Co was closely associated with Mr Slutsker. According to Mr Slutsker, he and Mr Curtis had first met when they spent a week as fellow-guests on a “boat” and had become friendly. Mr Curtis had tried to find a lender for 3TB at the time of the original purchase (Curtis & Co. were the firm which Mr Slutsker complained in January 2001 that Macfarlanes had failed to contact – see paragraph 31 above). Mr Slutsker was evidently involved in the decision to instruct Curtis & Co in place of Macfarlanes; and it was in fact him rather than Mrs Slutsker who they put forward as the borrower under the loan which was proposed at that time. Curtis & Co regarded themselves as acting for both: for example, on 14 May 2003 Mr Lewis wrote to the project manager for the works describing Mr and Mrs Slutsker as “my clients”. Although Mr Lewis may not have had the personal relationship with Mr Slutsker enjoyed by Mr Curtis, he certainly met him: there is a reference to such a meeting, without Mrs Slutsker being present, in a letter from Curtis & Co dated 11 November 2003. Mr Lewis wrote to Mrs Mitchell-Voisin in April 2004 in terms that made it clear that he was dealing with both Mr and Mrs Slutsker. If Mrs Slutsker and Close Brothers had agreed to keep Mr Slutsker in the dark about the affairs of the Trust these contacts with Curtis & Co would be inexplicable: there was nothing to stop Mr Curtis or Mr Lewis telling Mr Slutsker everything they learnt. When all this was put to Mr Slutsker he attempted to distance himself from Curtis & Co. He initially denied that he had ever met Mr Lewis, though this was demonstrated to be wrong by reference to the file; and he said that, whatever they may have represented in their letters, they had never been formally retained by him. Even if that is correct, it misses the point: what ultimately matters is the openness which Close Brothers showed to a firm who they clearly understood to be close to Mr Slutsker.

It is also worth noting that if Mrs Slutsker and Close Brothers were attempting to conceal from Mr Slutsker the details of the “structure” under which 3TB was held they were pretty incompetent about it. Haron was shown in the Land Registry as the owner of the property. Its returns filed at Companies House described its business as acting as nominee for the Misha Trust: the accounts show 3TB as its only asset (held as a nominee). Its Directors were Mrs Mitchell-Voisin (who was also Company Secretary) and various colleagues. Close Brothers was not identified by name, but the addresses of the Directors in Geneva (one of whom at least is described as a “Trust Officer”) are all given. It seems to have been through these indications that Mr Slutsker’s lawyers were able to contact Summit/Close Brothers following the break-down of the marriage (see paragraph 85 (2) below).

There is a further aspect to this. It was common ground that a file of the documents relating to 3TB was kept at Mr and Mrs Slutsker’s home in Moscow. Mrs Slutsker said in her witness statement that it was kept initially in the library and, after they moved house, in Mr Slutsker’s study, and that he would have had access to the file whenever he wished. Mr Slutsker said that the file, marked “London”, was in a “closet” belonging to his wife (T2/154/20) – he did not say in which room – and that he found it when he was gathering up her possessions to return to her. It was as a result of looking at the file on that occasion that he instructed Python & Peter to make the inquiries about 3TB which led to their making contact with Summit/Close Brothers in March 2009. But he said that the information in the file was partial and incomplete: although it gave “some names” it did not reveal “the whole structure of the ownership” (T2/169). Mr Brownbill cross-examined Mrs Slutsker about how much information was really in the file. It was her evidence that it contained all the documents that she had received from Macfarlanes and Close Brothers including “the copy of the trust documents with the list of all beneficiaries, all the names and name of the Haron” (T5/589-590). Although Mr Brownbill set out to demonstrate by reference to the list given by Mr Slutsker on disclosure that the Trust Deed was not among the documents in the file, he was unable in the event to lay the necessary foundation for the point and it was not pursued (T5/596). Irrespective of precisely what was in the file, which I consider below (see paragraph 172), the fact that Mrs Slutsker kept it at home in Moscow (whether in Mr Slutsker’s study or not) is a further counter-indication to the suggestion that she was trying to conceal the affairs of the Trust from him.

I turn to Mr Brownbill’s point based on the documents from 2009. The break-up of Mr and Mrs Slutsker’s marriage generated considerable correspondence on Mrs Mitchell-Voisin’s file. I can summarise the communications as follows:

Mr Brownbill put it to Mrs Slutsker that these documents showed that it was never intended that Mr Slutsker should benefit from the Trust and that she had deliberately concealed all details from him for that reason. She denied that that was so. She said that the fact of the trust was often mentioned between them. She said that she would certainly have mentioned “Stella” to him from time to time because she was much involved with her over the refurbishment works. When matters blew up in early 2009, Mr Slutsker threatened her that if she did not agree to a divorce on his terms, giving him custody of the children and the house in Moscow, he would ruin her business and ensure that she lost both the children and the house in London. She was in a panic and “thrashing around”. Her attempts to prevent him learning details of the Trust did not mean that they had been deliberately withheld in the past. If it was irrational of her to be trying in 2009 to prevent him learning information which (as events showed) he could easily discover, whether from the file in the Moscow house or otherwise, that was understandable in the circumstances.

I do not find anything particularly significant in the e-mails showing that Mrs Slutsker believed that her husband did not know the details of the Trust. That is entirely consistent with the undisputed fact that he had had no direct involvement in its affairs, and I accept that her reactions at the time may in any event have been more emotional than rational. In fact, her request for advice about whether Mr Slutsker could assert a claim under Russian law to a 50% share in 3TB tends to suggest that this was not something which had previously been considered.

Mrs Mitchell-Voisin’s e-mails to Withers and to Blum & Grob require more careful consideration. Although, regrettably, I have not heard evidence from Mrs Mitchell-Voisin, she is a professional woman of good reputation (as Mr Lee-Smith confirmed), and I should be very slow to find that she was deliberately mis-stating the position when writing to Mrs Slutsker’s lawyers. On the other hand, it is necessary to bear in mind that the e-mails were sent eight years after the period to which they refer and that their expression is bound to have taken some colour from the circumstances in which they were written. The actual points which Mrs Mitchell-Voisin is making – that Mr Slutsker had no involvement in the setting-up of the Trust; that he had not contributed to the purchase of 3TB; and that the intention was to “safeguard” 3TB for Mrs Slutsker and the children – are all consistent with the conclusions which I have already drawn from the contemporary evidence. It does not follow that either Mrs Slutsker or her advisers saw those features at the time as unacceptable to Mr Slutsker or as something that required to be concealed from him; nor do the e-mails say so. It is true that they emphasise his non-involvement in strong terms, but the strength of the language used is likely to reflect the concerns of 2009 rather than anything said in 2001.

In short, therefore, I do not think that this later documentation justifies the conclusion, contrary to the impression that I get from the contemporary documents, that Mrs Slutsker and her advisers set out from the start to hoodwink Mr Slutsker. In my view the reason why Mr Slutsker was not involved in the arrangements setting up the Trust was that he chose not to be.

There remains the question of why Mr Slutsker chose not to be more involved than he was. Mrs Slutsker, as already noted, attributed it to his role as a Senator: as she put it, “as a public figure one is not allowed to be involved in anything that was anything to do at all with foreign banks …” (T4/537/2-6; T4/539/20-25). Mr Cooper put it to Mr Slutsker rather more specifically, namely that he wanted 3TB to be held in a trust structure in order to avoid having to refer to it in a declaration of assets which he had to make as a Senator (T1/135/9-17 and T1/138/15-19). That was derived from Annex 2 (paragraphs 10-16) of the report of the Defendants’ Russian law expert, Professor Karabelnikov, where chapter and verse is given of the relevant legislation. (The position in fact appears to have been that at the relevant time a politician did not have to declare property belonging to his spouse, in which case a trust machinery would seem to have been unnecessary; but in his oral evidence Professor Karabelnikov said that knowledge that a spouse had substantial offshore assets would be damaging (T4/497/14).) Mr Slutsker’s answer was lengthy and not very clear, but in substance he agreed that the fact that the property was held in a “structure” meant that he did not have to declare it. Mr Brownbill put to Professor Karabelnikov that these considerations would have been irrelevant to the reasons for the establishment of the Trust, since it was not until January 2002 Mr Slutsker entered the Duma: his response was that Mr Slutsker’s appointment would not have come out of nowhere and that he would necessarily have been planning for it for at least a year (T4/511).

I do not think that Mrs Slutsker invented her evidence that Mr Slutsker was aware of, and welcomed, the fact that because 3TB was not held in his name he did not have to declare it. It is entirely plausible that the ownership of substantial offshore assets should be a sensitive matter to Russian politicians, as Professor Karabelnikov said. That is to some extent confirmed by evidence which I was shown that in 2006 a journalist sought to embarrass Mr Slutsker by publishing on the internet an article about him and Mrs Slutsker which included photographs of 3TB and a copy of the Land Registry entry. Mr Slutsker had the journalist prosecuted for blackmail.

It is more difficult, however, to be sure whether a concern about the effect on his political career of being known to have an ownership interest in 3TB was an operative consideration for Mr Slutsker in early 2001. There is no evidence that it was ever mentioned to Macfarlanes; but I can understand why Mr Slutsker might have preferred to say nothing about it. I take Mr Brownbill’s point that the time at which the trust arrangements were being put in place was the best part of a year before Mr Slutsker became a Senator; but I also see force in Professor Karabelnikov’s response. A different objection is that if the use of a “trust structure” was enough Mr Slutsker could have been the settlor or co-settlor without having to declare his interest and in any event could have been more closely involved in the arrangements than in fact he was; but I can understand how he might have thought it safest to remain completely hands-off.

On balance I incline to the view that one reason at least for Mr Slutsker’s non-involvement with the arrangements for the Trust was indeed that he did not want to have a paper trail linking him to 3TB in the light of his political ambitions. But that is not ultimately a point of central importance. What matters is that the evidence shows that, for whatever reason, he had the opportunity to be involved in those arrangements but did not take it.

In broad summary, what has happened here is that Mrs Slutsker became sole settlor of the trust which owned 3TB, and first life tenant, because it was understood by all concerned, including Mr Slutsker, to be essentially “her” project. It was she and the children who were going to make 3TB their home; she found it and was to be responsible for its refurbishment; and it was she who primarily dealt with the lawyers. It would of course be all the more her project if the purchase moneys came out of WCFC-derived funds; but in my view that is not the fundamental feature. The terms of the Trust, which in practice privileged her rights and those of her children over Mr Slutsker’s, reflected an essential part of what she, to his knowledge, intended, namely that it was she who would be living in 3TB, bringing up the children, and that ultimately it would pass to them. But what was not understood by either party and was certainly not part of any plan was that a combination of Mrs Slutsker’s position as sole settlor and the ordinary provisions of a discretionary trust of this kind meant that Mr Slutsker’s interest could be excluded altogether: that was happenstance. I can see why, through the bitter lens of a divorce, it may all look sinister; but I do not believe that that is how it was.

In their initial submissions before me both parties proceeded on the basis that the relevant choice of law rules were those relating to property rights. As I explain below, Mr Cooper subsequently suggested a different analysis, but I start by considering the case as initially put. The law in this area is unfortunately not straightforward. It is necessary to consider separately the position as regards movables and immovables.

As regards movables, the first rule in chapter 28 of Dicey Morris and Collins on The Conflict of Laws (6^th ed.) (“Dicey & Morris”) reads:

“156 - In the absence of a contract or settlement, the rights obtained by the husband and wife in each other’s movable property as a result of the marriage, whether that property is possessed at the time of the marriage or acquired afterwards, are determined by the law of the matrimonial domicile. Where, at the time of the marriage, both parties are domiciled in the same country, the matrimonial domicile is (in the absence of special circumstances) that country.”

That proposition is very well established and was accepted by both Mr Brownbill and Mr Cooper.

As regards immovables, however, the position is highly debatable. The relevant authorities do not speak with one voice. I summarise their effect, as briefly as may be, as follows, taking them in chronological order.

The earliest authority to which I was referred is Welch v Tennent [1891] AC 639, a decision of the House of Lords on an appeal from Scotland. It concerned a wife, owning land in England, who married a husband domiciled in Scotland. She sold the land and paid the proceeds to the husband. They subsequently separated and she brought proceedings claiming that under Scottish law she was entitled to reclaim the proceeds of the sale of the land. It was held that the issue depended on English law. Lord Herschell, who delivered the only substantial speech, said, at p. 645:

“There can be no doubt … that the rights of the spouses as regards movable property must in the circumstances of this case be regulated by the law of Scotland but it is equally clear that their rights in relation to heritable estate are governed by the law of the place where it was situate.”

Lord Herschell appears to treat that proposition as self-evident and the speech contains no justification or reference to authority. But the basis for his view is in fact reasonably clear. The received wisdom at the time was that it was both wrong in principle and unworkable in practice for the legal system of one country to seek to determine rights over land situated in another. That appears from Story on The Conflict of Laws, then the leading work, which states that even in the context of marriage “real or immovable property ought to be left to be adjudged by the lex rei sitae, as not within the reach of any extra territorial law [my emphasis]”: I take that quotation from the judgment of Kekewich J. in the De Nicols case to which I refer below (pp. 415-6). Against the background of that common understanding, the wife in Welch v Tennent did not in fact dispute that the title to the land itself was governed by English law as the lex situs: rather, the argument of her counsel was that once the land was sold and the proceeds paid to the husband as personalty the lex situs ceased to apply (see at pp. 633-4, and Lord Herschell’s rejection of that argument at p. 646).

Lord Herschell’s statement of the law might seem decisive of the point. But only a few years later a different approach was taken in Re De Nicols (no. 2) [1900] 2 Ch. 410. That case, like the present but unlike Welch v Tennent, was concerned with property allegedly held under a community property regime. M. and Mme. De Nicols were French and were married in France. They subsequently moved to England where they prospered (principally by opening the famous Café Royal in Piccadilly). Substantial assets, both movable and immovable, were acquired in England in the husband’s name. On his death the question arose whether the assets in question were to be treated as community property, which was the position under French law absent agreement to the contrary, or as his sole property, as would be the case under English law. The first issue considered by the courts was whether the parties’ change of domicile affected the applicable matrimonial regime. The House of Lords held that it did not, so that – prima facie – French law applied: see De Nicols v Curlier [1900] AC 21. But the question then arose whether French law applied to the immovable as well as the movable property. In Re De Nicols Kekewich J. held that it did. His reasoning can be summarised as follows. He took the view that the evidence on which the House of Lords had proceeded in the earlier decision established that the community property regime in France operated by way of an implied contract: since under the French code the parties were free to agree a different regime, in a case where they did not do so they were to be treated as having, in substance, agreed to the community property regime. If that were the correct approach, there could be no reason in principle why the implied contract should not apply equally to immovables (whether situated in France or elsewhere) unless French law itself provided otherwise. On the evidence which he heard, that was not the case. That reasoning, it will be noted, involves an acknowledgement that the general rule was that even in the context of marriage the lex situs should apply to determine property rights in immovables (it was indeed in that connection that Kekewich J. cited the passage from Story referred to above); the point, however, was that that rule was displaced by the parties’ choice. Kekewich J. did not refer to Welch v Tennent (and it does not appear to have been cited to him), but his acceptance of the general rule meant that he did not need to do so.

A similar approach had apparently been taken in a Chancery case a few years previously, though unfortunately there is no record of the reasoning. This is Chiwell v Carlyon, which is most fully discussed in Cheshire North and Fawcett Private International Law (14^th ed.) (“Cheshire & North”) at p. 1303. A husband and wife were married in the Cape Colony. Roman-Dutch law has a community property regime for husband and wife. The husband subsequently acquired land in England, and on his death the question arose whether the wife had an interest in it. Stirling J. treated the issue as falling to be determined by the lex domicilii matrimonii. He sought the opinion of the Supreme Court of the Cape Colony accordingly, and gave effect to that opinion (which was in favour of the wife) when received. We do not, however, know how (or indeed if) the issue was argued before him.

The question whether title to immovables owned by a spouse is governed by the lex situs or the lex domicilii matrimonii arose again in Callwood v Callwood [1960] AC 659, on an appeal to the Privy Council from the Supreme Court of the West Indies. The dispute concerned land owned by the husband in the former Danish Virgin Islands (now the US Virgin Islands), where Danish law, which applies a community property regime, was said to apply. The issue was fully argued, but unfortunately the Judicial Committee did not decide it since it held that proper evidence of Danish law had not been adduced: it observed only that the question was “difficult” (see at p. 683). The respective arguments of Sir John Foster for the appellant and Mr Godfray Le Quesne for the respondent are interesting nonetheless. Welch v Tennent was relied on by the appellant (p. 667), but the respondent argued that it did not constitute binding authority because “the vital question … was conceded” (p. 670).

In Murakami v Wiryadi [2010] NSWCA 7 the Supreme Court of New South Wales had to consider whether title to land owned by a husband in New South Wales should be governed by the lex situs or by the law of Indonesia, where the parties were married. It decided in favour of the latter, adopting the “implied contract” reasoning of Kekewich J. in Re De Nicols. Welch v Tennent was distinguished on the basis that there had been in that case no basis for implying any agreement that the lex domicilii matrimonii should apply: see paragraph 117 in the judgment of Spigelman CJ.

I have been referred to a certain amount of academic discussion on the effect of these authorities. The consensus is that the approach embodied in Welch v Tennent should be rejected. I can summarise the position of the various writers as follows.

Spigelman CJ in Murakami quotes (at paragraph 118) from a case note at p. 139 of vol. 1 of the Sydney Law Review by A. M. Gleeson (the future Gleeson CJ) discussing the decision in Callwood. I was not referred to the whole article, but the passage quoted seems to me compelling. It reads:

“The attitude adopted by Lord Herschell in Welch v Tennent is, it is suggested, symptomatic of a tendency in English private international law to exaggerate the role of the lex situs in disputes concerning immovable property. This attitude is seen at its extreme in the principle, stated in the Mocambique Case, that an English Court has no jurisdiction to try an action for damages for trespass to foreign land. The effective administration of land law does require that certain aspects of that law be left to the exclusive control of the lex situs. The country in which land is situated clearly has an interest in requiring that the formalities of its conveyancing system be observed, and that interests in land be within the scope of its real property and conveyancing laws; a fortiori where a system of public registration of title operates. But so long as the local law concerning the nature of interests in land, and their modes of transfer, be complied with, then surely the source of these interests must not be governed by the lex situs.

The chief merit of the De Nicols v Curlier approach is that in most cases it will give effect to the intention of the parties. It is reasonable to assume, for example, that a husband and wife whose domiciliary law provides for a system of community of property would regard their dealings with all their property, including foreign immovable, as operating within that system. Thus in the case under discussion it is probable that a decision in favour of the widow would have given effect to the intentions of the testator. If the law is to frustrate the intentions of parties, justice requires that there be some reason of policy behind it. Mere timidity in the face of unfamiliar legal conceptions is not sufficient.”

In an article entitled Matrimonial Property Rights in Conflict of Laws: a Reconsideration (in Reform and Development of Private International Law), Professor Trevor Hartley says, at p. 225:

“Should the law of domicile or the lex situs determine the matrimonial property regime of the parties with regard to immovables? As we shall see below, there are good reasons why the lex situs should apply with regard to rules specifically applicable to the matrimonial home. There are also good reasons why it should apply where the rights of third parties are in issue. Where this is not the case, however, there is no good reason why the matrimonial property regime of the parties should be different with regard to land owned by them outside their domicile. If an English couple buy a villa in Spain, there is no reason why it should be subject to Spanish matrimonial property law. Likewise, if a Spanish couple buy a flat in London, they would be surprised to learn that English matrimonial property law applied to it. To have different matrimonial property regimes applicable to different items of property is extremely inconvenient. Put in more general terms, the justification for applying the law of the domicile is that it is likely to reflect the values, attitudes and expectations of the parties. There is no reasons why this should be the case with regard to the lex situs of any particular piece of land owned by them. It is suggested, therefore, that an English court should refuse to follow Welch v Tennent: the law of the domicile should apply to immovables as well.”

As there appears, Professor Hartley acknowledges that while the lex domicilii matrimonii should apply as between husband and wife (save in the case of the matrimonial home), this should not be to the prejudice of third parties. He says, at p. 233:

“As between husband and wife, the law of the matrimonial domicile at the time of marriage is an appropriate system because, as explained above, it is most likely to be the system under which they married. It gives effect to their expectations. For this reason it is fair to apply it to disputes between them. However, where third parties are involved the position is entirely different. There is no way in which it can be said that the application of that law upholds the reasonable expectations of the creditors when they decide to do business with the husband. How could they even know where the husband and wife were domiciled when they married?”

He develops those difficulties, and concludes at p. 234:

“The solution is to apply the lex situs to determine the matrimonial property regime of the spouses, with regard to both movables and immovables, when the rights of third parties are involved. It might be thought wrong to apply different choice-of-law rules to decide the same issue, depending on the parties involved. However, this is the only way in which justice can be done both to the spouses and to third parties. Of course, this means that the rights of one spouse could be defeated if a third party claims an interest in the property – for example, if a couple married in community of property invest their joint money in foreign land and register that land in the name of one spouse only. However, many authorities maintain that, even as between the spouses, the lex situs should determine matrimonial property rights in land. This was rejected above except in the special case of rights that apply specifically to the matrimonial home. However, the rejection of the lex situs is possible only if it is restricted to disputes between the spouses. Where third parties are involved, the lex situs must be applied. The arguments in favour of the lex situs are just as strong when items of movable property – for example, securities – are concerned.”

(That qualification is in line with the final sentence of the first paragraph quoted from Gleeson CJ’s article.)

Dicey & Morris says this, at paragraph 28-028:

“The disadvantage of the rule laid down in Welch v Tennent is that the estate is juridically fragmented, there being a separate matrimonial property régime for each piece of land owned in a different country. The application of the lex situs could also result in the application of a matrimonial property régime based on social considerations alien to the couple and could run counter to their legitimate expectations: an Englishman who bought a holiday home in a Mediterranean country would probably be surprised if he were told that it was subject to the matrimonial property régime of the lex situs; a foreigner who bought land in England would be equally surprised if he were told that the property was not subject to the régime of the matrimonial domicile. In a future case, it would be open to an English court to follow Re De Nicols (No. 2), rather than Welch v Tennent, since the latter, being a Scottish appeal, is not strictly speaking binding on English courts. It should do so.”

However, it appears that the editors adopt that position as a matter of policy rather than on the basis of Kekewich J’s reasoning in Re De Nicols, since at paragraphs 28-021-025 they advance cogent reasons for disapproving the “implied contract” basis for the application of a community property regime.

Cheshire & North appears to regard Re De Nicols (and also Chiwell v Carlyon) as correctly decided, though, like Dicey & Morris, it doubts the reasoning adopted by Kekewich J: see pp. 1302-3.

I find the policy arguments advanced by Gleeson CJ and Professor Hartley, and in Dicey & Morris, convincing; and unless I were bound by Welch v Tennent I would wish to hold that, as between husband and wife, the question of title to immovables would fall to be decided according to the regime governing matrimonial property under the lex domicilii matrimonii. There are three possible bases for arguing that I am not bound by Welch v Tennent, namely:

None of those routes is entirely straightforward. As to (1), I am prepared to accept that I am not formally bound by Welch v Tennent, but it would be surprising and unsatisfactory if the law on this issue was different as between England and Scotland. As to (2), this is correct as far as it goes, but the proposition was nevertheless a necessary part of Lord Herschell’s ratio and appears to have reflected the general understanding at the time. As to (3), I have already noted that Dicey & Morris has some powerful criticisms of the implied contract theory. Further, even if the theory were correct it would leave open the possibility that the lex situs would still apply in cases where the implied contract argument was unavailable, which I regard as undesirable on policy grounds.

In these circumstances I prefer, as a judge at first instance, to take the most conservative course and to base my decision on the third route – that is, I will follow Re De Nicols (no. 2). I acknowledge the problems identified in Dicey & Morris about the implied contract approach, but it does not seem to me so obviously wrong as to justify me in departing from Kekewich J’s decision, particularly where it leads (at least in the usual case) to the application of what I believe to be the right rule on policy grounds. I am comforted in that conclusion by the fact that the Supreme Court of New South Wales was willing to adopt Kekewich J’s reasoning. However, it may well be that if the question falls to be considered (in this case or another) by a higher court it may take a different route to dealing with Welch v Tennent.

In both De Nicols and Murakami (and indeed in Chiwell v Carlyon and Callwood) the issue of the applicable law arose in the context of the death of one of the spouses, and the dispute was between the surviving spouse and the beneficiaries under the will. Thus although they were cases in which, in one sense, the interests of third parties were involved, the third parties in question had not given value for the interests which they were claiming. That is also the case here, though the circumstances are different: both Haron and the Trust (and the beneficiaries under it) are volunteers. Mr Cooper did not suggest that, if De Nicols was good law, it could be distinguished on the basis that the rights of third parties were involved.

So far I have been dealing with the issue purely as a question of property rights. However in his closing submissions Mr Cooper developed a contention that that was not the right analysis and that what we were concerned with in the present case was a question of capacity: it is well-established that questions of capacity to dispose of immovable property are governed by the lex situs - see Bank of Africa Ltd v Cohen [1909] 2 Ch 129. The late stage at which this point emerged meant that Mr Brownbill did not have the opportunity to deal with it fully, and I gave the parties the opportunity to make further submissions in writing, which they did. Having studied those submissions (which referred among other things to a useful article by Professor Matthews entitled Capacity to Create a Trust: the Onshore Problem and the Offshore Solutions (Edin LR, vol. 6 p. 176)), I am satisfied that Mr Cooper is wrong. The questions of (a) whether a spouse has a property interest in a particular asset and (b) whether he or she has capacity to dispose of that asset are distinct. The first is logically anterior: it is only if he or she has a property interest that the question of capacity to dispose of it arises. The issue in the present case is whether Mr Slutsker has an interest in 3TB, not whether Mrs Slutsker had capacity to dispose of title to the property.

I therefore hold that if and in so far as any interests in 3TB would be regarded as a matter of Russian law as falling within the joint family property regime I should apply the rules of that regime to determine the rights of Mr and Mrs Slutsker and, consequently, of Haron and the Trust. It is accordingly necessary to review the relevant provisions of Russian law.

I heard expert evidence of Russian law from Professor William Butler for Mr Slutsker and from Professor Boris Karabelnikov for the Defendants. I should say something about the two of them as witnesses.

Professor Butler has an extremely distinguished academic record as a comparative lawyer, specialising in the law of the Soviet Union and more recently of the Russian Federation and the other successor states. He has held a variety of academic posts in universities in this country, the United States and Russia. He is currently Emeritus Professor of Comparative Law at University College London and John Edward Fowler Distinguished Professor of Law at Pennsylvania State University. He is a member of the Russian International Court of Commercial Arbitration. He is admitted to the bar of the Supreme Court of the United States and is licensed as a lawyer in the Russian Federation: he was for a while a partner in an international law firm based in Moscow. He has wide experience as a consultant and expert witness. He has published English translations of the Civil Code and the Family Code of the Russian Federation.

The materials comprising Professor Butler’s written evidence can be summarised as follows: -

I should clearly pay great attention to the evidence of so eminent an expert as Professor Butler; but the weight that I would otherwise attach to his views is a little qualified, for essentially three reasons:

Professor Karabelnikov is Professor of Law at the Moscow School of Social and Economic Sciences and at the Law Faculty of the Academy of National Economy of the Russian Federation. He too has a very distinguished academic CV as a specialist in Russian law and comparative law. He has an extensive practice as an arbitrator and worked for seven years in the Moscow office of an international law firm. He has published widely, mostly in the field of international commercial arbitration and labour law in Russia. His written and spoken English is excellent and he gave evidence without an interpreter.

Professor Karabelnikov produced only a single report, dated 8 November 2011; but it is much more extensive and analytical than Professor Butler’s first report. He gave his oral evidence with notable clarity and intelligence, but in his case too I must record a reservation. His evidence was given in so confident and uncompromising a manner that it verged on the dogmatic. This might simply be a matter of intellectual style, but it did sometimes suggest to me a degree of partisanship. On at least one occasion in his oral evidence he made a remark suggesting antagonism to Mr Slutsker, comparing “oligarchs owning apartments and palaces in London” with ordinary Russians (T4/436/5); and I was a little surprised that without instructions (T4/497/10) he advanced in his report, and volunteered in his oral evidence (T4/496-7), the view that Mr Slutsker chose the trust route in order not to risk any prejudice to his political career by declaring his ownership of 3TB.

I was struck in the case of both experts by the absence of any reference in their reports to the writings of other academic lawyers or to decisions of the Russian courts. Professor Karabelnikov did in fact in the course of his oral evidence produce two reports of decisions of Russian courts on one of the issues and two short passages of commentary, but they were of very limited assistance.

Matrimonial property is the subject of a distinct regime, contained in the Family Code of the Russian Federation. The experts in their joint memorandum agree that a lex specialis of this kind is recognised by article 253 (4) of the Civil Code. The experts each provided their own translations of the provisions to which they referred. I will below use primarily that of Professor Karabelnikov (save in the case of article 34 of the Family Code, for which he did not supply a translation), partly because his version appears the more literal – which is an advantage in this context – and partly because, as already mentioned, Professor Butler was constrained to accept that there was a serious error in his own version. However I will draw attention below to any significant differences in the two translations.

The fundamental provision is article 33. This reads:

“Article 33. Notion of Default-by-Law Regime of Property of the Spouses

The default-by-law regime of property of spouses is the regime of joint ownership. The default-by-law regime of property of spouses applies unless a marriage contract provides otherwise.”

The default community property regime there set out is of a kind adopted in most continental legal systems as between husband and wife: see the useful account in Dicey & Morris at paragraph 28-006. It is common ground that Mr and Mrs Slutsker made no “marriage contract” modifying or disapplying the default regime.

The concept of joint ownership is glossed in article 34, as follows (using perforce Professor Butler’s translation):

“Article 34. Joint Ownership of Spouses

1.

The property acquired by spouses during marriage shall be their joint ownership.

2.

To property acquired by spouses during marriage (common property of spouses) shall be relegated the revenues of each of the spouses from labor activity, entrepreneurial activity and the results of intellectual activity, pensions and benefits received by them, and also other monetary payments not having a special special-purpose designation (amounts of material assistance, amounts paid in compensation of damage in connection with the loss of labor capacity as a consequence of mutilation or other impairment of health, and others). Moveable and immoveable things, securities, shares, contributions, participatory shares in capital deposited in credit institutions, or in other commercial organisations also acquired at the expense of common revenues of the spouses, and any other property acquired by spouses in the period of the marriage, irrespective of in the name of which spouse it is acquired or in the name of which of the spouses monetary means have been deposited, also shall be the common property of spouses.

3.

The right to common property of spouses shall also belong to the spouse who in the period of the marriage who effectuated the conducting of the household, care for the children or for other justifiable reasons had no autonomous revenue.”

(Professor Karabelnikov said that the word translated by Professor Butler as “contributions” was better translated as “deposits”.)

It will be seen that the joint family property regime covers all assets of either spouse, whichever may have earned or acquired them or in whichever’s name they may have been acquired or may be held. It covers instruments such as shares; and, although this is not spelt out, it was common ground between the experts that it covers money held in bank accounts. It was also common ground that in principle it applies to property (movable or immovable) situated outside Russia.

Article 35 reads as follows:

“Article 35. Possession, Use, and Disposition of the Joint Property of Spouses

1.

Possession, use, and disposition of joint property of spouses is performed of the basis of mutual consent of the spouses.

2.

When one of the spouses executes a transaction concerning disposition of the joint property of the spouses it should be presumed that he [or she] acts on the basis of consent of the other spouse.

A transaction concerning disposition of the joint property of the spouses executed by one of the spouses may be declared invalid by court for the reason of absence of consent of the other spouse only as per that spouse’s claim and only if it can be proven that the other party to the transaction knew or certainly ought to have known about the other spouse’s disagreement with execution of the transaction.

3.

For execution by one of the spouses a transaction concerning the disposition of immovable property and a transaction which requires a notarial certification and/or registration in accordance with a procedure established by law, it is necessary to obtain the consent of the other spouse certified by a notary.

A spouse whose consent certified by a notary, for execution of this transaction was not obtained is entitled to claim a declaration of invalidity of this transaction by court within a year from the date when he [or she] knew or ought to have known about execution of such transaction.”

The error in Professor Butler’s translation to which I refer at paragraph 117 above was in article 35.2. The phrase which Professor Karabelnikov translates as “if it can be proven that the other party to the transaction knew …” appears in Professor Butler’s translation as “if it is proved that the other spouse in the transaction knew …”.

Article 35 is at the heart of this case and I heard a good deal of evidence about it from both experts. I should take the different elements in it in turn.

The requirement of consent. Any “disposition” of joint family property requires the consent of the other spouse: that is in truth inherent in the nature of joint property, but it is anyway explicitly stated by article 35.1. In the ordinary case, which is the subject of article 35.2, there are no particular formal requirements for the manifestation of consent. In the particular cases of the disposition of immovables and of transactions requiring notification or registration, which are the subject of article 35.3, there is a formal requirement, namely that the consent of the other spouse must be certified by a notary; but subject to that additional requirement (and the special limitation regime applying to it) the underlying analysis is the same. There is a potential question about how much knowledge a spouse has to have about a disposition before he or she can be said to consent to it. Neither expert addresses this point as such in his report, and although Mr Brownbill sought to raise it with Professor Karabelnikov in cross-examination, it got lost in a misunderstanding (T4/494-5). There was, however, evidence on the cognate question of what degree of knowledge was required in order to start time running for limitation purposes; and I address that issue below.

Burden of proof. The burden of proving lack of consent is on the party alleging it. That is the effect of the first sentence of article 35.2. Professor Butler said that the Russian word translated by Professor Karabelnikov as “presumed” should more appropriately be translated as “presupposed”, which he said was somewhat softer. But that seems to me a distinction without any practical difference, given that no-one suggests that the “presumption” is irrebuttable. (The presumption/presupposition has in practice no application in cases under article 35.3, since a notarised certificate of consent will either be produced or not.)

Avoiding dispositions made without consent. Article 35 is not concerned with the rights of the spouses where a disposition is made without the consent of one of them. Rather, it is concerned with the effect of the disposition as between the non-consenting spouse and the third party to whom the disposition is made. The article makes no distinction between third parties who give value and volunteers. The rights of the non-consenting spouse are different depending on whether the case falls under article 35.2 or article 35.3. Under article 35.2 the disposition can be avoided – and the property restored accordingly – if, but only if, the non-consenting spouse can prove (a) his/her lack of consent and (b) that the third party, in Professor Karabelnikov’s translation, “knew or certainly ought to have known about the other spouse’s disagreement with the execution of the transaction”. Professor Butler translates the latter phrase a little differently – “knew or knowingly should have known about the lack of consent of the other spouse to conclude the particular transaction”. The experts disagreed about the precise effect of the phrases “knowingly/certainly should/ought to have known” and “disagreement/lack of consent”. As will appear, my decision does not depend who was right on either point; but, taking it briefly:

Limitation. Article 35.2 provides for no limitation period for a claim against a third party to avoid a disposition on the grounds of non-consent; but it was common ground between the experts that such a claim was subject to the limitation regime applying under the Civil Code generally, namely that a claim must be brought within three years of the time when the claimant “knew or should have known of the violation of his right” (see articles 196 and 200 – paragraph 133 below). Article 35.3, by contrast, has a self-contained limitation period, namely one year from the date on which the non-consenting spouse knew or ought to have known about the execution of the transaction – or, in Professor Butler’s translation, which is not substantively different, “from the day when he knew or should have known about the conclusion of the particular transaction”.

Article 36 deals with circumstances in which the property of a spouse does not fall within the joint family property regime. It is not relied on in these proceedings, but I set it out for completeness:

“Article 36 Property of Each of the Spouses

1.

Property which belonged to each of the spouses prior to marriage and also property obtained by one of the spouses during the marriage as a result of a gift, inheritance and other non-pecuniary transactions (property of each of the spouses) should be considered as his [her] property.

2.

Articles of individual use (clothing, footwear, etc.) except for jewellery and other articles of luxury, should be considered as property of the spouse which used them, even if those articles were purchased in the course of a marriage at the expense of the common funds of the spouse.

3.

Exclusive rights for the result of intellectual activity created by one of the spouses belong to the author of that result.”

Article 38 gives the court the power to divide joint family property either during the currency of the marriage or on its dissolution. Article 39 provides that (absent agreement to the contrary) the shares on any division will be equal, but that the court has the power to depart from that principle for (to paraphrase) good cause. Professor Karabelnikov pointed out (T4/428-430) that in a case where the property cannot be recovered from the third party by avoiding the disposition under article 35, the non-consenting spouse will be entitled to a share of the proceeds of the disposal by an application under article 38 (typically, though not necessarily, on the occasion of a divorce). I heard no evidence about what would happen if the disposition had been by way of gift (or at an under-value), but presumably on an application for severance the court could make any appropriate adjustment as regards the remaining joint family property. This point was put by Mr Cooper to Professor Butler, albeit in fairly general terms, at T2/221-2. He was cautious about accepting that the court would, in performing an exercise under article 38/39, take account of previous non-consensual dispositions; but he appeared to accept that it would be legitimate in principle. In any event I accept Professor Karabelnikov’s evidence, which seemed to reflect a coherent and principled position.

The limitation provisions of the Civil Code referred to above are as follows. Article 196 reads:

“General Time Period of Limitation of Actions

The general time period of limitation actions is established at three years. ”

Article 200 reads:

“Start of the Running of the Time Period of Limitation of Actions

1.

The running of the time period of limitation of actions starts from the day when a person knew or should have known of the violation of his right. Exceptions from this rule are established by the present Code and other statutes.

2.

On obligations with a defined period for performance, the running of limitation of actions starts at the end of the time period for performance.

For obligations for which the time period of performance is not defined or is defined as the time of demand, the running of the limitation of actions starts from the time when the right to make a demand for performance of the obligation arises for the creditor and, if the debtor is given a grace time period for the performance of such.”

Professor Karabelnikov argued that it is necessary for the purpose of the issues in this case to consider certain general provisions relating to property in the Civil Code. These are as follows. Article 209 reads provides:

“Content of the Right of Ownership

1.

An owner has the rights of possession, use, and disposition of his property.

2.

The owner has the right at his discretion to make, in connection with the property belonging to him, any actions not contradicting a statute or other legal acts and not violating the rights and interests protected by a statute of other persons, including alienating his property to the ownership of other persons, transferring to them, remaining the owner, the rights of possession, use, and disposition of the property, to give the property in pledge and to burden it in other manners, to dispose of it in another way.”

Article 244 reads:

“Definition of and Bases for the Origin of Common Ownership

1.

Property may be in owned by two or more persons belongs to them by right of common ownership.

2.

Property may be in common ownership with a definition of the share of each of the owners in the right of ownership (share ownership) or without the definition of such shares (joint ownership).

3.

Common ownership of property is share ownership with the exception of cases when a statute provides for the formation of joint ownership to this property.

4.

Common ownership shall arise when property that cannot be divided without changing its purpose (indivisible things) or is not subject to division by force of statute enters into ownership by two or several persons.

Common ownership of divisible property shall arise in cases provided by a statute or the contract.

5.

By agreement of the participants in joint ownership and in case of failure to achieve agreement, by decision of a court, share ownership of these persons may be established to the common property.”

Article 253 reads:

“Possession, Use, and Disposition of Property That is in Joint Ownership

1.

Participants in joint ownership, unless otherwise provided by an agreement among them, possess and use the common property in common.

2.

Disposition of property that is in joint ownership shall be conducted by agreement of all the participants which shall be presumed regardless of which of the participants conducts a transaction for disposition of the property.

3.

Each of the participants in joint ownership has the right to make transactions for the disposition of the common property unless otherwise follows from an agreement of all the participants. A transaction made by one of the participants in the joint property connected with the disposition of the common property may be declared invalid on demand of the remaining participants on motives of the absence for the participant that made the transaction of the necessary powers only in the case if it is proved that the other party to the transaction knew or clearly should have known of this.

4.

The rules of the present Article shall be applied to the extent not otherwise established for individual types of joint ownership by the present Code or other statutes. ”

Finally, and importantly, I should note that it is agreed in the joint memorandum that “Russian law has no concept of trusts similar to that in English law”. In this respect also Russian law is similar to that of other continental countries.

The right way to proceed is to consider consecutively the stages by which 3TB was acquired and the various interests in it were created. However, that is subject to a couple of exceptions. The first is that I believe that I can in practice ignore the fact that the purchase price was paid in two tranches – i.e. 10% on exchange and the balance on completion – and can proceed as if a single payment of £6m. had been made on 20 December 2000. Similarly, I believe that I can ignore the period of limbo between completion – or, at least, payment of the full price – and registration in the name of Haron. Both those features represent complications on the facts, but they are irrelevant in the events which actually happened.

PAYMENT OF THE PURCHASE PRICE TO MACFARLANES

In my judgment Mr Brownbill is right in his submission that the £6m. which was paid from Clariden to Macfarlanes in order to fund the purchase of 3TB was, in the hands of Clariden, joint family property. Whether it came from Mr Slutsker/Finvest or from Mrs Slutsker/WCFC, it was “property acquired by [the] spouses during marriage” within the meaning of article 34. (It was not submitted that any “trust” arrangements at Clariden were material to the analysis.) This was not in fact disputed by Mr Cooper in his closing submissions.

Those moneys were paid initially to Macfarlanes’ client account, which will have been designated as Mrs Slutsker’s since she was regarded as the sole client and indeed as the source of the funds. I find that during the (very short) period before their payment out to the vendors those moneys remained joint family property as a matter of Russian law. Unsurprisingly, article 34 does not refer in terms to moneys held by a solicitor; but there is a clear analogy with money held in a bank account, which Professor Karabelnikov accepted fell within the terms of article 34 (T4/462-6), and I note also the reference in article 34.2 to “monetary means … deposited” in the name of either spouse.

I accept Mr Brownbill’s submission that if, while those moneys were still held by Macfarlanes, a question had arisen as to the title to them, an English court would have made a declaration giving effect, in English law, to the parties’, and specifically to Mr Slutsker’s, rights under Russian law; and I am inclined, further, to accept – though this is not entirely straightforward – that that meant that Mr and Mrs Slutsker would have been treated as tenants in common in equal shares.

Mr Brownbill contended that once that point was reached he was home and dry: Mr Slutsker enjoyed a beneficial interest in the intended purchase moneys and that interest could, on ordinary principles, be traced into the property acquired with those moneys. That is temptingly simple, but I think it is wrong. The putative tenancy in common is not a substantive right under English law: it would be declared, if at all, only as a means of vindicating Mr Slutsker’s rights under Russian law as they stood at that point. I do not believe that it can be used to create rights at a later stage, in different property, except to the extent that Russian law would do so. Mr Cooper described that as a “hybrid” approach and as illegitimate. I agree. It is in my view necessary to ask afresh at each stage what rights under Russian law Mr Slutsker would enjoy in 3TB at that point. I proceed with the analysis on that basis.

REGISTRATION IN THE NAME OF HARON

I consider under this heading the position between the registration of Haron as the owner of 3TB on 15 May 2001 and the declaration in favour of the Trust on 30 August 2001.

At paragraphs 22-23 of his report Professor Karabelnikov addresses the question “would Russian law treat the acquisition of the Property by Haron as a joint property asset ?”. His answer is that it would not. The first reason given is that, according to his instructions from the Defendants’ solicitors, the person authorised to “possess, use and dispose of” 3TB – those being the criteria in article 209 of the Civil Code – is the Trustee. That is not accurate as regards the period which I am at present considering: no declaration of trust had yet occurred. However, Professor Karabelnikov goes on to say that even if Haron is to be regarded as being the owner of 3TB, applying the criteria in article 209, his answer would be the same. The way he puts it in his report is that “it is incontestable that … Haron … [is not] bound by norms of the Family Code”. That by itself might seem rather opaque, but it is clear from his evidence as a whole that his essential point is that a Russian court would simply not understand or recognise a beneficial interest in real property different from the registered interest. He emphasises the agreed fact that Russian law has no concept of a trust. As he puts it at paragraph 56, “as a matter of Russian law OS could not be viewed as a title-holder of the Property since it was never registered in her name”: the same point is made in paragraph 12.2 of the joint memorandum. Such rights as Mrs Slutsker might enjoy as against Haron would be regarded under Russian law as contractual in character; and Russian law does not regard contractual rights as property rights.

Under careful and probing cross-examination by Mr Brownbill, Professor Karabelnikov summarised his position, and the reasons for it, as follows (T4/479):

“My Lord, as it was many times repeated in these proceedings, Russian law is a formalistic system. If you turn to … paragraph 10 of my report, I explain that the entitlement to dispose of the property is the most important in order to answer the question whether or not the person in question is the title holder or not the title holder. If Olga Slutsker can dispose of that property herself with no additional formal steps to be done, she is the owner. But if she has to instruct someone, and that someone has to have something done in some registry, that would not amount to property. Property means no intermediary and no bureaucratic obstacles existing between the title holder and the object owned by the title holder. Please take it as it is, but if you allow me more time I would be in a position to provide examples. … The real criterion is not ability or assignability of a contractual right or any right. The real criterion is whether or not the title holder may alienate that property and he/she may do that herself with no more duties to be borne by third parties. If that is correct, there is a title, there is an asset, this may be divided under the Family Code. If that is not met, this is not an article which is divisible under the Family Code, I am sorry.”

At the conclusion of his evidence (T4/516-7) I asked Professor Karabelnikov the following, regrettably lengthy, question:

“… The exercise that I have to do, if Russian law applies, is I have to ask myself, if I were a Russian judge sitting in Moscow, or anywhere, and it was necessary for me to decide the question of whether this house in London was ever joint property under article 33, how I, as a Russian judge, would approach that question. Now, you have explained very clearly the Russian law concepts of property, but might not a Russian judge say to himself, "I understand Russian law perfectly but this property is in London and the transactions in relation to this property are governed by English law and employ concepts which we do not recognise in Russia. So I, as a Russian judge, must say to myself, ‘I must translate these English concepts as best as is possible into Russian concepts. If I am told that in England this kind of nominee arrangement is regarded as giving a right of property, I should respect that in deciding whether title to this English property counts as property under the Family Code’". I am sorry, that is a long question, but is that not the way in which a Russian judge could approach this question – would approach this question?”

He answered:

“I am afraid it will be a different approach. I have plenty of experience of pleading cases before Russian judges and I am in a position to testify that their way of thinking is heavily formalistic and this is because Russian law is formalistic and because they are overloaded with work, they have to decide four or five cases a day. So probably the answer would be something like that. Is this English house as it was purchased qualifies as an article of property under Russian civil law? What is property under Russian civil law, the judge knows. This is what could have been alienated under 209 of the Civil Code. If it is, I would be happy to divide. If it is not, then this is just beyond the scope of Russian family law and I have no reasons to consider that dispute. Not because of jurisdictional issue, no; the jurisdiction is there, as long as their marriage is governed by Russian family law.”

Professor Butler challenged Professor Karabelnikov’s analysis in paragraphs 7-18 of his supplemental report. His essential point is that the fact that 3TB was not registered in Mrs Slutsker’s name did not mean that her beneficial interest in it – which gave her, in English law, the absolute right to dispose of the property, albeit that as a matter of form that would have to be achieved indirectly – did not constitute property for the purpose of article 34. He emphasises the width of the “definition” of property in article 34.2 and points out that if Professor Karabelnikov were correct a spouse could simply evade the effect of the joint property regime by transferring joint property to a nominee entity. He contends that it was not appropriate to apply article 209 of the Civil Code since the Family Code is a lex specialis; but in any event he questions whether, even if it were applied, it would not cover the interest in question, since the beneficiaries enjoyed the absolute right, as against Haron, to “possess, use and dispose of” 3TB.

Professor Butler amplified those contentions in his oral evidence. He argued that even if Mrs Slutsker’s rights against Haron were characterised as contractual, such rights could constitute property within the meaning of article 34 (T2/268-281): I am bound to say that I did not find his evidence on this aspect particularly cogent, but for reasons which will appear I need not go into it here. At the core of his argument was the proposition that the Russian court would approach the issue in such a way as would prevent the joint family property regime being evaded: the point is succinctly made also in paragraphs 8 and 9 of the joint memorandum. Towards the end of his oral evidence I put to him essentially the same question as I had put to Professor Karabelnikov. The exchange was as follows (T3/292-4):

“Q. Can I just look at it another way? The particular problem in the present case is that if this arose in a Russian court, it is they, in a sense, who would have to be adjusting to a foreign system because property abroad, which unquestionably is caught by article 34, is not governed by Russian rules about notarisation, registration, how you show formal title. So a Russian court would be having to say to itself "Here is a situation in which I am told that the registered title is
in the name of a company, but I am also told that that company is called something odd, … which I am told means that the person for whom the company is the nominee can make it do whatever it wants and can at any time ask to have the property transferred to that person. Do I, as a Russian judge, regard that as the property of the company or the property of [the person for whom it is the nominee] ?” That is the exercise a Russian judge would have to do, is it not, if they were being asked to decide the very question that I am being asked to decide?

A. I think, my Lord, they might put the question to themselves ever so slightly differently. The formalities of registering the property in this case would be governed by foreign law and there is nothing the Russian court can do to bring that into the Russian system at all. It is real property and quite frankly, under the Civil Code conflicts rules, local law would govern that. But what I believe the Russian court would say is that the spouses in this case, because they are married under Russian law and because the marital regime of their ownership is governed by Russian law, cannot do anything on the
foreign law that would defeat that regime. Russian law simply requires that they jointly consented to the dispositions they make. It seems to me that nothing in foreign law calls that into question.

Q. I suppose so, and you are the expert on how a Russian judge would think, and I must not try to be an English judge wearing Russian clothes; but I would be inclined to think that he would say "The question for me is, is this property which has been acquired by one of the spouses? If it is, it is property to which the regime applies … I am told that at no time in England was Mrs Slutsker this thing which the English court would call the legal owner of the property, but I am told that she was this thing which the English court would call the beneficial owner of the property. The question for me, a Russian judge, is whether what the English call the beneficial property and ownership conforms to what I as a Russian judge would recognise as a right of property". Is that not the question he would ask himself?

A.

He may well, but I believe that he would have to perforce answer it for himself by saying if English law has beneficial ownership, which we do not have and perhaps do not fully understand, can either of the spouses, by acquiring that beneficial ownership, defeat what is otherwise the imperative regime of Russian law?”

I have not found it entirely easy to choose between the evidence of the experts on this question. They depend on contrary assertions as to the likely attitude of the Russian court, without reference to any academic discussion of the issue or to any decisions of the courts on similar questions. On balance, however, I prefer the evidence of Professor Karabelnikov. My reasons are as follows.

The starting-point is that both experts were agreed about the generally formalistic approach adopted by Russian law, although in Professor Butler’s case it was a point which he made in other contexts (see, e.g., T3/313/4-20). Against that background, I find it plausible that, faced with a situation in which property is registered in the name of a third party, it would simply refuse to recognise the existence of a separate beneficial interest of a kind unparalleled in Russian law itself. (In this connection, I acknowledge that according to Professor Butler the Russian court recognises the rights of mortgagees and, it seems, purchasers who have not yet taken possession; but it does so only if the transactions have been both notarised and registered – see T2/230/20-24, and T2/273-4.) To a common lawyer, that might seem too black-letter an approach, particularly when dealing with rights under a foreign law; but Professor Butler himself counselled against trying to predict the approach of a Russian court from the viewpoint of a common lawyer, or even a “continental” civil lawyer: as he put it, the Russian law “is still a socialist legal system in transition” (T2/208/8-10).

That approach involves accepting the second of the two points made by Professor Karabelnikov, as identified at paragraph 142 above. It does not depend on the application of article 209 of the Civil Code. If it did, I would see considerable force in Professor Butler’s point that, in substance, Mrs Slutsker did indeed have the rights to “dispose of, use and possess” 3TB, since Haron was a bare nominee. But the problem is in the qualification “in substance”: if form is what governs, those rights were enjoyed by Haron and not by Mrs Slutsker. Similarly, I need not decide whether contractual rights are capable of constituting property for the purposes of article 34. What we are concerned with here is not a contractual right such as a debt but an interest in property of a kind not known to Russian law.

I appreciate Professor Butler’s point about the potential for evasion if the use of nominee companies were sufficient to take a case outside the article 34 regime. However, I do not find that decisive. In the first place, the potential would only arise in the case of sophisticated spouses owning property abroad, in a jurisdiction which recognises beneficial interests of the kind with which we are concerned here. I do not think it is axiomatic that the Russian courts would wish to take an expansive view of what is meant by “property” in article 34 in order to prevent abuse in such cases. Professor Butler acknowledged, at T3/303, that wealthy Russians make extensive use of offshore “structures” and trust arrangements, apparently with impunity. As he said:

“I have seen that time and time and time again. Trust is a favourite vehicle for this and I see it most often in corporate, relations, not in interpersonal relations. But because Russian law does not have trusts, it does not normally legislate by taking trust arrangements into account that may exist abroad. It is very easy for Russians to come abroad, defeat what are effectively imperative provisions of Russian law, and not only this one, by creating trust arrangements.”

But, more fundamentally, it does not seem to me to follow from Professor Karabelnikov’s position that spouses could in such a case simply side-step the family property regime. The disposal of joint family assets in order to acquire assets falling outside the regime, without the consent of the other party, would be liable to be invalidated under article 35 if the third party had the relevant knowledge; and, if it could not be so invalidated, the non-consenting spouse would be entitled to relief under articles 38/39: see paragraph 132 above.

Finally, though this is a makeweight consideration, I have already said that I found Professor Karabelnikov’s evidence generally more coherent and clearly articulated.

I should before leaving this aspect mention for completeness one other matter. In the course of his oral evidence (T1/141/11-16) Mr Slutsker appeared to say that in the course of the divorce proceedings in Moscow his lawyers had sought to include 3TB in the list of matrimonial assets but that the court had refused to consider it, “saying that the … title of my former wife to Boltons is not clear and the jurisdiction of the other means that it is located in another country”: that is a little obscure, but the most obvious reading is that at least one of the reasons why 3TB was not allowed to be included was that it was not held in Mrs Slutsker’s name. In re-examination (T2/183/4-13) he corrected that evidence by saying that the court had made no ruling and that what he had been referring to was a point made by Mrs Slutsker’s lawyers. It would of course have been an important confirmation of Professor Karabelnikov’s argument if the court had indeed made the ruling first suggested by Mr Slutsker’s evidence. But in view of his subsequent clarification I ought not to place any weight on what he said. If any such ruling had indeed been made it would have been open to the Defendants to adduce evidence of it.

The point which we have therefore reached is that as a matter of Russian law the beneficial interests in 3TB never became property subject to the joint family property regime because the registered owner of 3TB was Haron. On that basis the payment by Mrs Slutsker of the £6m. purchase price constituted a “disposition” of joint family property. By reason of article 35.2 that disposition could be avoided by the Court on proof of the matters discussed in paragraph 129 above, with the result that Haron would have to repay the purchase moneys. That is not of course the relief sought by Mr Slutsker in this action; but that relief is in any event not available to him, since it is clear from my findings of fact that he consented to the payment by Mrs Slutsker (whether or not funded by him) of £6m. for the purchase of 3TB by a company (whether or not he happened to know that its name was Haron). That is fatal to any claim against Haron under article 35.2.

It follows that Mr Slutsker has never had any claim under Russian law to any share of the beneficial interest in 3TB in the hands of Haron. I see nothing unjust in that conclusion. He deliberately acquiesced in a sophisticated transaction under a foreign system of law, using mechanisms unknown to Russian law. He has no legitimate complaint if Russian law affords him no remedy in those circumstances. If the end result is that he also has no interest in 3TB under either English or Cayman Islands law, it may be that the court in the Russian divorce proceedings will, in severing the joint family property under articles 38 and 39, take account of the fact that Mr Slutsker has had no benefit from the disposition of £6m.-worth of joint family property; but that is not a matter for me.

However, that is not the end of the matter. If Russian law would not treat the beneficial interests in 3TB as falling within the joint family property regime, it seems to me to follow that the law of the lex situs falls to be applied, according to the general rule to which Re De Nicols constitutes an exception. I must accordingly consider the question of the beneficial ownership of 3TB during this period as a matter of English law.

The starting-point is that Mrs Slutsker was (to Mr Slutsker’s knowledge) the sole purchaser named in the contract, and prima facie it was the beneficial interest thereby created that continued following the registration in the name of Haron. The burden is accordingly on Mr Slutsker to show, following the law as now clarified in Stack v Dowden (and see Abbott v Abbott [2007] UKPC 53), that it was the common intention of the two of them that they should hold the beneficial interest in 3TB in equal shares. Mr Brownbill in his closing submissions disavowed any reliance on the factors typically advanced in such a case: the way he put it was that both Mr and Mrs Slutsker clearly understood and expected that their matrimonial property would be held in accordance with the rules established in the Family Code, and that they cannot sensibly be taken to have intended anything different as regards 3TB, notwithstanding that (as I have found) their use of a “structure” meant that those rules did not in fact apply. That being so, their intention must in effect have been that they should enjoy as a matter of English law the same rights, so far as possible, as they would have enjoyed if the beneficial interests in 3TB had been governed by the terms of the Code: that means a tenancy in common in equal shares.

I cannot accept that submission. It is in my judgment clear that certainly Mrs Slutsker, but in fact Mr Slutsker too, intended that the interests in 3TB would be held in a way which differed from the effect of the Family Code not only in form but in substance. Even if both may have intended that, so far as their own interests were concerned, those should be equal (though that is in fact debatable), the crucial point is that under the intended trust, the broad nature of which was known to Mr Slutsker as well as Mrs Slutsker as far back as November 2000, they would not be the only persons with an interest in the property: most obviously, Misha and any other children were intended to be beneficiaries (though so also were Mr and Mrs Slutsker’s respective parents). That being so, the position was fundamentally different from that obtaining under the Code: they could not dispose of 3TB for their own benefit, even by agreement or in equal shares. It is also the case that if 3TB was not joint family property covered by the Code neither could invoke the powers of the Russian court to sever in anything other than equal shares. The fact is that they had chosen, for reasons that seemed good to them, to employ structures which took them outside the regime of the Family Code, and it is unsurprising that the effect of that regime cannot now be replicated in the manner for which Mr Slutsker contends.

THE TRANSFER OF THE BENEFICIAL INTEREST TO THE MISHA TRUST

I only need to consider the position at this stage if, contrary to my conclusion in the foregoing paragraphs, the beneficial interest in 3TB enjoyed by Haron constituted joint family property falling within the terms of article 34. I should nevertheless consider it, since I have acknowledged that that question was not easy and I accept that I may be wrong.

Professor Butler accepted that even if the beneficial interest in 3TB was indeed joint family property up till 30 August 2001, the declaration of trust as at that date constituted a disposition of that property. It was different in character from the registration in the name of Haron: whereas at that earlier stage no third party was truly involved – Haron being a bare nominee, the only parties with a potential claim to an interest in 3TB were the two spouses – the declaration of trust created other interests, and the Trustee was not a bare nominee but had responsibility in law for dealing with those interests. I understood that to be implicit in his supplemental report, but I sought and received his explicit confirmation at the conclusion of his oral evidence (T3/331/2-7).

Professor Butler proceeded on the basis that the declaration constituted the disposition of an immovable and consequently that it fell within the terms of article 35.3 (see paragraph 31 of his supplemental report). Professor Karabelnikov appears also to have accepted that analysis if, contrary to his primary case, the declaration involved the disposition of joint family property (see paragraph 57 of his report). It follows that the disposition is liable to be avoided because Mr Slutsker’s notarised consent was not obtained, subject only to the effect of the limitation provision in the second part of article 35.3. Limitation is accordingly the real issue here.

The effect of article 35.3 is that Mr Slutsker's claim is time-barred unless he commenced proceedings within one year from the date when “he knew or ought to have known of [the] execution of such transaction" (or, in Professor Butler's translation, "the conclusion of the particular transaction"). Proceedings were issued against Haron on 6 October 2010. Summit was added as a defendant on 18 January 2011. On the facts, nothing turns on which of those dates should be treated as the date of the relevant claim, and I will assume in Mr Slutsker’s favour that it is the
earlier.

Unsurprisingly, the parties adopted different positions before me as to the degree of knowledge, actual or constructive (I adopt that convenient shorthand, without assuming that the English and Russian approaches are identical), which is required to start time running. If it is simply the fact that 3TB had been put into a trust, Mr Slutsker, on my findings, had known that fact since mid-2001. But Mr Brownbill submitted that that was not enough. He contended that the relevant knowledge is knowledge of the actual terms of the trust. Mr Slutsker had no knowledge of those terms until he saw the Trust Deed when it was disclosed in these proceedings. Nor should he have known them, because nothing that he had been told put him on enquiry that, as he put it, the proposed trust arrangement would produce anything materially different from his existing rights under the joint family property regime. Mr Cooper's case was that, as I have found, Mr Slutsker knew from the start (and certainly should have known) that the proposed trust arrangements would necessarily be inconsistent with his rights under the joint family property regime. He submitted that that constituted sufficient knowledge, but that in any event it put Mr Slutsker on enquiry; and if he wanted to know the detailed terms of the Trust he could and should have asked. He accordingly had constructive knowledge even if his actual knowledge did not suffice.

So far as the expert evidence is concerned, Professor Karabelnikov addresses the question at paragraphs 39-44 of his report. At paragraph 39 he says that, according to his instructions, Mr Slutsker knew from the start that Mrs Slutsker was going to purchase 3TB “in her name or in the name of Haron or the trustees" and that in those circumstances it was unreasonable of him not to make enquiries as to the nature of those arrangements; and that that meant that he should have known of those arrangements, within the meaning of article 35.3, by the end of 2001. He says at paragraph 43 that Mr Slutsker would, or should, have had the necessary knowledge if he took part in any of the meetings with the advisers in relation to "the transactions completed by [OS]". At paragraph 44 he says:

Professor Karabelnikov’s language at some points suggested that he was asserting a positive obligation to enquire; but he made it clear in cross-examination that that was not what he intended and that he meant simply that, since it would have been reasonable to enquire about the details of the Trust, Mr Slutsker should have known the matters that he would have learnt if he had done so (T4/499-505). He acknowledged that there was no general duty to distrust one’s spouse; but he maintained that if a transaction by one spouse affecting family property is sufficiently important and sufficiently unusual the other spouse should reasonably acquaint themselves with the details and will have constructive knowledge of them if they do not do so (T4/506-9). However, he confirmed the acknowledgement in his report that the issue was for the Court to decide as essentially a question of fact (T4/498-9).

Professor Butler in his supplemental report agreed that "the application of
this test is decided by the courts on a case-by-case basis" (see paragraph 38). He denied that there was any positive obligation to make enquiries: he observed (paragraph 42) that "it is only when he has reason to believe that the other spouse has purported to conclude a transaction in breach of the Family Code that the spouse is put on enquiry". He appeared, however, in his oral evidence to commit himself to the position that the only circumstances in which a spouse "should have known" something that they in fact did not know was if they had signed a notarised consent but had not troubled to read or understand what they were consenting to (T2/262/17-25). If that is in truth what Professor Butler meant to say (and the prolonged passage of questioning leading up to it involved some confusions, to which I may have contributed) I cannot accept it. The general language of article 35.3 does not suggest so surprisingly narrow a meaning, and it seems inconsistent with what Professor Butler says in his report.

In practice, as the submissions and evidence summarised above demonstrate, the questions of the degree of knowledge required to start time running and the test for finding constructive knowledge are two sides of the same coin. The same results may be achieved by setting the bar for actual knowledge low or by treating that degree of knowledge as sufficient to put the spouse whose notarised consent has not been obtained on enquiry.

From whichever angle I approach it, the underlying question is whether prior to October 2009 Mr Slutsker knew enough, on my assessment of the
circumstances of the case, to make a decision about whether to object to the vesting of 3TB in a trust. In my judgment he did. My essential reasoning is similar to that in paragraph 156 above. Mr Slutsker knew from 2001 that 3TB was being held under arrangements which afforded him different rights than he would have enjoyed if it had been held as joint family property. I do not believe that it was necessary that he should know more than that. He may not have understood the details or worked through the implications, but in my view it should have been clear to him at that stage that he could not expect his rights to be the same, even in substance, as they were under the Family Code. In Professor Butler’s words (see paragraph 164 above), he was aware that Mrs Slutsker "had purported to conclude a transaction in breach of the Code"; and he had to decide whether to accept it or not, making such further enquiries as to the implications as he saw fit.

But even if that were not enough, Mr Slutsker in fact knew (or should have known) more than that. He knew (or should have known, if he had paid any attention), from the note of 23 November 2000, from the meeting of 29 November and from his other communications with Macfarlanes, that they were proceeding on the basis that, consistently with the contract for 3TB having been made in her name alone, any trust would be set up by Mrs Slutsker rather than by the two of them together; that she would be “the initial income beneficiary” because she was to be living in the house; and that the children were intended to be the eventual beneficiaries. More generally, he knew from his wife that she saw 3TB as an asset for the ultimate benefit of the children. In those circumstances, whatever he may or may not have known about the special position of a settlor, he should have appreciated, if he had thought about it, that he was in fact unlikely to have any kind of “guaranteed” property interest in 3TB: on the contrary, such interest as he had was likely to be qualified and to have to conform to that overall scheme. Although, as I have found, it was reasonable for him not to contemplate that the Trustee would have a power of exclusion, that is a difference of degree rather than of kind.

Mr Brownbill submitted that the differences between the position as, even on my findings, it should have appeared to Mr Slutsker and the position obtaining under the Family Code were essentially formal and that he could not reasonably have expected them to involve any substantial departure from the position as it would have been under the Family Code. He could legitimately expect that both the trustee and Mrs Slutsker would be obliged to exercise such powers as they might enjoy in such a way as would preserve his equal share under the joint family property regime; and that the children's interests meant no more than that they would be entitled to the income and/or capital value of 3TB after his and his wife's deaths, which was no doubt what would have happened anyway. I do not accept that submission. Once Mr Slutsker knew that 3TB was to be held under arrangements governed by a foreign system of law, he was entitled to make no assumptions.

Mr Brownbill also in his submissions emphasised that the trustee is a volunteer, as, likewise, are the beneficiaries. I appreciate that, but I do not see what difference in principle it can make in applying the test under article 35.3, which applies to dispositions by way of gift as much as to dispositions for value.

I have so far been considering the position under article 35.3, since that was the way that Mr Brownbill, on the basis of Professor Butler’s evidence, put his case. However, as I understood it, it was his position that even if that claim foundered on the limitation provisions contained in that article, Mr Slutsker could claim in the alternative under article 35.2 – which, although it presents a higher hurdle so far as the substantive claim is concerned, has a more generous limitation period. But even if that is possible in principle it could not assist Mr Slutsker in the present case, for two reasons:

For those reasons I hold that any claim by Mr Slutsker to have the disposition of joint family property, if that is what it was, in favour of the Trust avoided was time-barred from some time in 2002.

On that basis I need not, strictly speaking, reach a decision on a fallback argument advanced by Mr Cooper to the effect that in any event Mr Slutsker acquired the necessary knowledge (actual or constructive) in the months following the break-down of the marriage and comfortably before 6 October 2009; but I should nevertheless state my conclusions. I was not in fact told when Mr Slutsker was first informed of the deed of exclusion; but even if this was not until after the critical date, it is clear that by early 2009 Mr Slutsker was concerned about whether the arrangements made in 2001 had prejudiced what he believed to be his rights. Python & Peter had been instructed by mid-March. They had ascertained that Haron was the registered owner of 3TB and had discovered that the Directors were Mrs Mitchell-Voisin and Mr Martineau: they had on that basis made contact with Close Brothers/Summit, even if they had not discovered their precise role. They should have seen the reference in Haron’s accounts to the Misha Trust. On the approach which I have adopted above that information does not add decisively to what Mr Slutsker already knew or should have known; but certainly it represents a significant increase in his knowledge and on a different approach it might indeed be regarded as decisive. But if Mr Brownbill is right that time did not start to run until Mr Slutsker knew the precise terms of the Trust, it does not suffice. There is nothing in the evidence which decisively contradicts his explicit evidence that he did not see the Trust Deed until after the commencement of the proceedings. I appreciate that Mrs Slutsker could be understood to be asserting that the Trust Deed was in the file kept in Moscow; but her evidence is vague, and I think it unlikely that she knew at the time, still less that she now reliably remembers, what exactly was in the file. A perfect file would no doubt have included a copy of the Deed, but I am far from sure that Mrs Slutsker would have kept a perfect file; and if Mr Slutsker had a copy of the Deed it is hard to see why he would not have referred to it from the start in these proceedings. (It is far-fetched, and Mr Cooper did not put to him, that he foresaw the limitation problem and wanted to downplay the extent of his knowledge.)

An alternative argument advanced by Mr Cooper in his closing submissions depended on an answer given by Professor Butler in cross-examination, where he accepted that if one spouse, without the consent of the other, made a gift of joint family property to a third party, and English law was the applicable law of the gift, a Russian court, following its own conflicts rules, would apply English law, sc. notwithstanding that the transaction was voidable as a matter of Russian law (T3/297-303). Mr Cooper submitted that the settlement by Mrs Slutsker on the Trust of her beneficial interest in 3TB constituted a gift and that it was unquestionably governed by English law; and that accordingly a Russian court would recognise its validity. That may be right, but it was not very fully explored and I prefer not to base my conclusion on it. In particular, it was not bottomed out whether, in a case of this kind, the conflicts rules applied by a Russian court would indeed lead to the application of the foreign law: Professor Butler accepted as a general proposition that “it is legitimate for Russian citizens outside the country to make a gift under foreign law to … a third party” (T3/300/12-16), but he later appeared to question whether that proposition would apply to a non-consensual disposition of joint family property (T3/302-3). I was told that both experts agreed that the joint family property regime applied to property held outside Russia; but that agreement would be largely empty if it had no application against third parties, or in any event third party volunteers.

I should for completeness mention that Mr Brownbill contended that the declaration of trust in favour of the Misha Trust was ineffective because by reason of section 53 (1) (c) of the Law of Property Act 1925 it required to be signed by the person disposing of the interest in question, and that the relevant “person” was not only Mrs Slutsker but himself. But that point is of course dependent on the proposition, which I have rejected, that Mr Slutsker had an equitable interest in 3TB prior to the declaration of trust. There may also be a question whether, since ex hypothesi the validity of the disposition falls to be governed by Russian law, section 53 (1) has any application; but that point was not argued before me.

If, contrary to my conclusion at paragraph 113 above, title to 3TB falls from the start to be decided according to English law as the lex situs, the issue would be whether Mr Slutsker has established a Stack v Dowden trust. But that simply gets us, by a more direct route, to the question considered at paragraphs 154-6; and for the reasons there given I find that no such trust can be proved.

I accordingly dismiss the claim. I have had to reach this conclusion by an elaborate process of reasoning, and I have tried at the end of the process to stand back and consider whether the result is a just one. In my view it is. At first sight it may seem harsh that Mr Slutsker is – subject of course to the decision of the Cayman Islands court – excluded, without his consent, from any interest in a property bought with family money, and still more so perhaps if the money in question was generated exclusively from his business rather than Mrs Slutsker’s. But on my findings of fact the position is not so straightforward. While Mr Slutsker may not have intended uncomplicatedly to make a gift to either his wife or his children, he did intend 3TB to be his wife’s project in the sense that I have explained above. He never intended it to be his primary home: to the extent that he would live there at all, it would only be when visiting his wife and family. He knew, and did not object to, his wife’s concept that it would be held on trust, ultimately, for the children, which meant that he would not himself have access to its capital value. While he may not have appreciated the detailed provisions of the Trust Deed, any prejudice to him from the way that the Trust was set up was theoretical rather than real so long as the marriage subsisted, for the reasons given at paragraph 167 above. The expectation that Mrs Slutsker would, as first life tenant, be entitled to occupy 3TB (I say “expectation” because Mr Cooper pointed out that the Trust Deed in fact separates the right of occupation from the interest of the life tenant – see clause 14) was entirely consistent with their joint intentions; and the right (in practice) of the children to enjoy the property after his and his wife's death is also likely to have corresponded to his intentions or at least to have been acceptable to him. He was losing no income or capital or right of occupation that he had in practice intended or expected to enjoy. It might be said that the divorce creates a new situation, in which his interests are indeed prejudiced. But I am not sure that that is really the case: his exclusion as a beneficiary, in deference to his wife’s wishes as settlor, did not take away any expectation that he personally would benefit from the Trust. It may in fact be, as I have noted above, that the Russian court can make appropriate adjustments in its severance of the joint family property in the divorce proceedings; but, whether it can or not, I do not see anything fundamentally unjust in Mr Slutsker being unable now to set aside arrangements made long ago on the basis that he had not taken the trouble to understand how they might work out in the event of a breakdown of the marriage. That is quite apart from any consideration of the fact that the arrangements may have suited him in his role as a Senator, though if that is the case his cause for complaint is still less: Mr Cooper reminded me of the decision of the Court of Appeal in Tinker v Tinker [1970] P 136.

I regret the time that it has taken for me to produce this judgment (though the substance of it was communicated some weeks ago): the parties have been made aware of the reasons.