The law of unintended consequences and the nexus between divorce tourism and procedural fairness

On 31 January 2024, Justices Lord Lloyd-Jones, Lord Briggs, Lord Leggatt, Lord Stephens and Lady Rose of the Supreme Court handed down a majority judgment, three to two, in the case of Potanina (Respondent) v Potanin (Appellant).

This appeal to the Supreme Court was the most recent of many court hearings that have taken place following the end of the marriage between Natalia Potanina and Vladimir Potanin. Referred to as the ‘wife’ and ‘husband’ in this article, it was the husband’s application to the Supreme Court.

The background

The parties divorced in Russia in 2014 having spent their whole lives, including their 30-year marriage and raising their three now adult children, there. The husband is regarded as one of the richest people in the world, having amassed a fortune of around $20bn, mostly beneficially owned through trusts and corporate vehicles. He transferred a total of around $76m to his wife in 2007 and regarded this as the point at which they separated. His wife disagreed, and said they separated in 2013. Litigation continued after their Russian divorce from 2014 to 2019, reaching the Supreme Court in Russia, and also involving the courts in Cyprus and the USA. The outcome of all of this was that the wife, having sought half of her husband’s $20bn total assets, received a payment which brought her onto an equal footing with her husband in respect of his legally held assets (and excluding the much larger beneficially owned assets). Regard was had to the assets previously transferred to her in 2007. The total amount she received following the Russian litigation is disputed as she claims it was around US$41.5m and the husband claims it was around US$84m. The wife did not receive any spousal maintenance, or ‘alimony’.

The English courts

Their story now moves for the first time to the UK. The wife succeeded in her application for an investor visa and arrived in London in June 2014. She bought a flat later that year and claimed that, since 2017, London had been her permanent home. Her husband remained in Russia.

In what one may perceive as a second bite of the cherry, on 8 October 2018, the wife applied to the English courts for leave to apply for a financial order under Part III of the Matrimonial and Family Proceedings Act 1984 (‘Part III’). This application can be made by a party to a former marriage following a foreign divorce with the aim of ensuring fairness – the English Court can make orders for financial provision, even after a divorce in another jurisdiction, if insufficient provision has been made for the financially weaker spouse overseas. Despite the wife’s deep Russian roots, the fact that she had made her home in London in 2017 and her life was now based there, meant she qualified (she argued) for such an order as a habitual resident.

In order for the court to consider what financial provision may be fair, permission must first be sought to make the application at all. To apply for leave (permission), the wife had to meet the requirements of Section 13 of the Matrimonial and Family Proceedings Act 1984, which requires permission of the court to be ‘obtained in accordance with the rules of court’ as set out in Part 8 of the Family Procedure Rules 2010 (FPR), specifically FPR rule 8.25. This rule dictates that the wife’s application for leave must be made without notice to the respondent (the husband). On 25 January 2019, counsel for the wife successfully convinced Cohen J to grant such leave to the wife.

To take stock at this point in the journey – no financial order had yet been made for the wife or even considered. The wife had merely been granted permission to apply for financial relief and was now able to start proceedings in the UK under Part III.

As the order of 25 January 2019 was made without notice to the husband, it contained a statement that he was entitled to apply to set aside or vary the order (FPR rule 18.10(3)). The husband was served with a copy of the wife’s Part III application notice and the order of 25 January 2019 (FPR rule 18.11). No doubt extremely unhappy that yet more proceedings had been started, he applied to have the order set aside. It came back before the same judge. Cohen J, after hearing the husband’s application over two days, made an order on 8 November 2019 setting aside his earlier order (made without notice), thereby dismissing the wife’s application for leave. In the judge’s view, he had been materially misled, however unintentionally that might have been, on a number of issues including the wife’s failure to disclose when she first took legal advice from a London lawyer, the litigation history in Russia and Russian law. The wife was described as a ‘divorce tourist’, attempting to take advantage of the UK’s more generous legal system, having not been satisfied with the outcome of previous litigation.

The ball was then placed in the wife’s court to appeal this decision to the Court of Appeal, which she duly did and was successful (judgment was handed down on 13 May 2021). Following guidance in previous case law, the Court of Appeal applied the test from Agbaje v Agbaje [2010] UKSC 13 and determined that there was a lack of a ‘compelling reason’ demonstrable by a ‘knock-out blow’ for the lower court to set aside the without notice order, and therefore the husband’s application to set aside should instead be adjourned to be heard alongside the wife’s substantive application for a financial order under Part III. It was also found that the lower court did not have the benefit of oral or expert evidence, as would be available at a true return hearing. Additionally, it was found that the wife had not materially misled the court, and so Cohen J had not been entitled to set aside his order of 8 November 2019. The original order of 25 January 2019, which gave leave to apply for a financial order under Part III, was reinstated.

In the final rally, this matter was heard in the Supreme Court on 31 October and 1 November 2023, after the husband successfully appealed to the highest court in the land. The Supreme Court appeal was allowed three to two. It was found that the three-pronged test used by the Court of Appeal (Agbaje v Agbaje [2010] UKSC 13) to determine whether the order made at the without notice hearing should be set aside (a ‘compelling reason’ demonstrable by a ‘knock-out blow’ and the issue of whether the court had been ‘materially misled’) was incorrect. Instead, to deal with the husband’s initial application under FPR rule 18.11 to set aside an order made without notice, the court must start from scratch and hear from both sides about whether the order should be made. The onus, it was determined, was on the wife to satisfy the court that there is a substantial ground for the making of a financial order under Part III.

The issue was determined on the underlying principle of procedural fairness. As Lord Leggatt explained in the lead judgment (Potanina (Respondent) v Potanin (Appellant) [2024] UKSC 3, paragraph 1): “What is always unfair is to make a final order, only capable of correction on appeal, after hearing only from the party who wants you to make the order without allowing the other party to say why the order should not be made.”

How did the supposed three-pronged test come into question in the Court of Appeal in the first place? The answer lies in the guidance provided in Agbaje v Agbaje [2010] UKSC 13 that was later echoed and endorsed in Traversa v Freddi [2011] 2 FLR 272, which the Court of Appeal applied. This was examined in some detail in the Potanina v Potanin Supreme Court judgment, which concluded that the Agbaje and Traversa judgments did not address applications for permission for leave under Section 13 and that the Agbaje judgment was itself based on a misconstruction of previous dicta and a false analogy to the procedure for dealing with applications for permission to appeal to the Court of Appeal.

The Potanina v Potanin Supreme Court judgment, therefore, highlighted that the rules of the court and procedural fairness must not be muddied by previously incorrect applications of the same. The reader should note, however, that the dissenting Lord Justices felt quite the opposite about Agbaje and Traversa, the applications of the same in case law, and the underlying principle of the ‘knock-out blow’ test upon which Section 13 lies.

What now for the husband and wife?

Their legal tennis match may well resume in due course. The Supreme Court did not consider it necessary to look at all the grounds of appeal put forward by the wife to the Court of Appeal. There remain the following grounds of appeal:

1. Even if Cohen J was entitled to set aside the leave granted without notice, he should not have done so because after hearing the argument from both sides he should still have concluded that the test for granting leave under Section 13 was satisfied.
2. The wife’s application should not in any case have been dismissed insofar as the court has jurisdiction in relation to it by virtue of the Maintenance Regulation (Council Regulation (EC) No 4/2009 of 18 December 2008) (Potanina (Respondent) v Potanin (Appellant) [2024] UKSC 3, paragraph 99).

It is yet to be decided in which court and when these grounds may be considered, but it has been indicated that, as the element of public interest has fallen away, as well as for other reasons, the Court of Appeal is the correct venue.

So, what does all this mean for future litigants?

The Lord Justices were unanimous in what they considered to be the threshold for granting permission: there must be a ‘substantial’ or ‘solid’ ground. This will make it harder for divorce tourists to secure permission to apply for relief, which may deter them from applying in the first place. Whether this is seen as a positive or negative of the law is open to debate. Where the UK can be seen as a safer haven in respect of gender bias and economic equality in comparison to other jurisdictions, one may wonder whether a narrower point of entry would only further the pursuits of those wealthier foreign nationals who are eligible to apply for financial relief in the UK and to whom costs are not an issue. How much benefit this is to the average litigant is questionable.

The fact that natural justice requires the court to hear from both the applicant and the respondent at an earlier stage does not prevent an application for relief. It is likely to front load costs that may not have been incurred until later in the proceedings, but it is unlikely to affect the end outcome. Again, what difference this makes to the average litigant is moot as divorce tourism is widely regarded as a rich person’s game, as it arises following the conclusion of a legal battle elsewhere in the world, followed by the applicant setting down roots in the UK, neither of which are cheap pursuits.

A reduction in divorce tourism may lead to some relief on the already overburdened UK courts. Only time will tell in this regard, but there has been a general rise in financial remedy claims over the years. This is reflective of London being afforded the title of the ‘divorce capital of the world’. In England and Wales, there were 11,118 financial remedy applications made in July to September 2023, up 15 per cent from the same period in 2022. The proportion of these applications made under Part III is unknown, but this area of the Matrimonial and Family Proceedings Act 1984 is often considered ‘niche’ and so how much of an effect this all may have on our overburdened courts is uncertain.

Peripheral aspects aside, the essence of this Supreme Court judgment landed squarely on the fundamental principles of justice, equity and fairness. It levelled the playing for respondents to challenge the grant of permission to apply, in keeping with the concept of procedural fairness. It also clarified the grey areas created by Agbaje over a decade ago by making it clear that a respondent has an absolute and unfettered right to apply to have an order made without notice set aside. The nexus between divorce tourism and procedural fairness in this context, therefore, is that the latter is the prime driving force in such applications, with any impact on the former being unintentionally, not intentionally, consequential.

Shaili Gohil-Desai is a solicitor at Burgess Mee Family Law
burgessmee.com