Potanina (Respondent) v Potanin (Appellant)  UKSC 331 January 2024
Published: 01/02/2024 16:49
Part III of the Matrimonial and Family Proceedings Act 1984 (the 1984 Act) gives the courts in England and Wales power to grant financial remedies after an overseas divorce. Before granting such a remedy, the court must consider whether in all the circumstances of the case it would be appropriate for such an order to be made by a court in England and Wales, having regard, in particular, to a list of factors in s 16 of the 1984 Act, which include the connections of the parties with England and Wales, with the country in which they were divorced and with any other country.
Section 13 of the 1984 Act provides that no application under Part III for a financial remedy may be made unless the permission of the court has been obtained in accordance with rules of court; and that the court shall not give permission unless it considers that there is ‘substantial ground’ for making the application for a financial remedy.
The parties were born in Russia in 1961, were married in Russia in 1983, and had their marriage dissolved by a Russian court in 2014. Both parties were Russian citizens who, until the wife took up residence in London after their divorce, had lived in Russia all their lives, as the husband still does.
Initially, the parties were not well off but, since the 1990s, the husband had accumulated vast wealth, estimated to amount to around US$20bn. Almost all of the husband’s wealth, accumulated during the marriage, was held by various trusts and companies. Such assets were not regarded by the Russian courts as marital assets. The husband acknowledged that, although not the legal owner, he was the ultimate beneficial owner of those assets.
The divorce in Russia led to a blizzard of litigation in the Russian courts, which largely involved attempts by the wife to obtain half of the assets that were beneficially but not legally owned by the husband. There were also proceedings brought by the wife in the United States seeking disclosure, and in Cyprus seeking interim relief and declarations of ownership of assets held in trusts. The sum awarded to the wife by the Russian courts was around US$41.5m according to the wife or US$84m according to the husband. In either case, this was a tiny fraction of the sum which the wife would have received if the assets divided had included those beneficially owned by the husband.
Immediately after the couple were divorced in 2014, the wife obtained a UK investor visa and bought a flat in London. Since 2017 she has been habitually resident in England. In 2018, she applied for permission to seek a financial remedy under Part III of the 1984 Act.
Under the applicable rules of court, the permission application must be made without notice to the other party unless the court directs that the other party should be notified of the application (pursuant to FPR 8.25). If an application made without notice is granted, the rules then give the other party, when served with the court’s order, the right to apply to the court to set aside or vary the order made without notice (pursuant to FPR 18.10 and 18.11).
In January 2019, the wife’s application for permission under s 13 was made and heard by Cohen J without notice to the husband. The judge granted permission. Pursuant to rule 18.11, after being served with the order in Moscow, the husband applied to have it set aside. After a two-day hearing in October 2019 (with a day set aside for judicial reading), the judge decided that he had been materially misled at the without notice hearing and that, considering the matter afresh after hearing argument from both parties, the test for granting permission had not been met (mainly because the parties’ connection with Russia was infinitely greater than their connection with England and Wales). The judge set aside his original order and refused the wife permission to apply for a financial remedy under Part III.
The wife appealed to the Court of Appeal. The Court of Appeal took the law to be that the power to set aside may only be exercised where there is some ‘compelling reason’ to do so, and, in practice, only where the court had been misled. Furthermore, the court held that unless it was possible to demonstrate such a compelling reason by a ‘knock-out blow’, the application to set aside should be adjourned to be heard with the substantive application. The court concluded that on the facts of this case, the judge had not been materially misled at the without notice hearing. It followed that the judge had not been entitled to set aside his original order granting permission, which should be restored.
The husband appealed to the Supreme Court.
The Supreme Court’s Judgment
By a majority of three to two, the Supreme Court allowed the husband’s appeal. Lord Leggatt gave the leading judgment, with which Lord Lloyd-Jones and Lady Rose agreed. Lord Briggs gave a dissenting judgment, with which Lord Stephens agreed.
Lord Leggatt (giving the lead judgment): The court emphasised the fundamental rule of procedural fairness that, before making an order requested by one party, a judge must give the other party the chance to object. If for some reason it is not practicable to do this, a judge must do the next best thing, which is, if the judge makes the order, to give the other party an opportunity to argue that the order should be set aside or varied. It would be unfair to make a final order, only capable of correction on appeal, after hearing only from the party who seeks the order without affording the other party the right to respond.
The test applied by the Court of Appeal had led to the patently unfair and perverse result that, because the husband could not demonstrate by a ‘knockout blow’ that the court had been materially misled at the hearing held without notice to him, the judge was not entitled to hear any argument from the husband on the question whether the test for granting permission had been met, or to set aside the order made after hearing from the wife alone. That had resulted in the original order granting permission being restored, despite the fact that, after hearing argument from both sides, the judge had concluded that the test for granting permission had not been satisfied.
The current law does not require this approach. The relevant rules give a party served with an order made without notice the right to apply to have the order set aside on the ground that the test for granting permission under s 13 is not met. This right is unconditional. There is no requirement to show a ‘compelling reason’ or to show that the court was materially misled or to deliver a ‘knock-out blow’. The source of these supposed requirements was guidance given by the Supreme Court in Agbaje v Agbaje  UKSC 13, which the Court of Appeal had endorsed in Traversa v Freddi  2 FLR 272. However, that guidance was not binding as the test and procedure for dealing with applications for permission under s 13 was not in issue in those cases and the court heard no argument on the point.
Furthermore, the guidance was based on a misunderstanding of a suggestion previously made by several judges and on a false analogy with the procedure for dealing with applications for permission to appeal to the Court of Appeal. The practice currently being followed on the basis of this guidance was unlawful, as it was contrary to the applicable rules of court and to a fundamental principle of procedural justice.
The correct position, therefore, is that if a court makes an order granting permission under s 13 after hearing from the applicant alone and without notice to the other party, the other party has an absolute unfettered right to apply to have the order set aside. At the hearing of an application to set aside, the onus remains on the party requiring permission to show a ‘substantial ground’ for making the application for a financial remedy in England and Wales. In this context, the word ‘substantial’ means ‘solid’. Although it is not necessary or advantageous to draw analogies with tests applied in other procedural contexts, the closest analogy is with the test applied in deciding whether a claim should be summarily dismissed, which is whether the claim has a ‘real prospect of success’.
Because of its erroneous conclusion that the judge had not been entitled to reconsider his original decision, the Court of Appeal had not determined certain grounds of appeal raised by the wife. As the Supreme Court has allowed the husband’s appeal, the issues raised by those grounds would need to be decided and the case remitted to the Court of Appeal for that purpose.
Lord Briggs (dissenting, with whom Lord Stephens agreed) would have dismissed the appeal. In his view, the ‘knockout blow’ test had been established by the unanimous, albeit obiter, guidance of the Supreme Court in Agbaje, decided in 2010, which had subsequently been treated as the last word on the subject by a unanimous Court of Appeal in Traversa v Freddi in 2011. Since then, it has been consistently applied without criticism or dissent by family law judges, or been the subject of professional dissatisfaction or academic criticism, until the frontal attack on it made by the appellant husband in this case. Furthermore, the rules of court governing applications under s 13 of the 1984 Act had been adopted on the assumption that the ‘knockout blow’ test applied. Departing from that settled practice would undermine both the default rule that s 13 applications be brought without notice to respondents and judges’ discretion as to whether it was necessary to hear from respondents.
Lord Briggs noted that the Supreme Court usually left questions of procedure to the Court of Appeal and the appropriate Rules Committee, which were better placed to choose the best procedural regime for the achievement of the Overriding Objective. In his view, the wholly exceptional characteristics of this case made it an unreliable platform for the enactment of a radical change that would apply across the board to all applications for leave under Part III.
Whilst the Supreme Court can and should intervene in matters of procedure where fundamental principles of justice, equity or fairness were at stake, no such principle was engaged by the procedural issue in this case. This was because, unlike a typical order made without notice, such as a freezing order, the grant of permission under s 13 would have no immediate effect on an absent respondent’s rights and liberties. It merely postpones until a later date the occasion when the respondent may advance reasons why permission should not have been given. The respondent would be in the same position as any other respondent or defendant to legal proceedings, the overwhelming majority of which do not require the court’s permission before they can be commenced.
The Court of Appeal decision can be found here.
The first instance decision (Cohen J) can be found here.