Supreme Court Judgment on Potanina v Potanin: what does it mean for Part III applications?

These cases are rare and we acted in what is believed to be the second reported case of an application under 15 (1) (c) MDPA 1984 in the recently reported judgment of A v B (In the matter of the Matrimonial and Family Proceedings Act 1984) [2023] EWFC 241 (B) . There is a concern that these types of applications will lead to a boom in so-called ‘divorce tourism’ and so the result of the Supreme Court case has been hotly anticipated.

Part III of the MFPA 1984 Act provides applicants who have an overseas divorce, annulment or legal separation to proceed with a financial relief application in the UK if they can meet the necessary requirements. There is a two-stage process as an application for permission needs to be sought before the substantive application for financial relief can be considered. If successful, then the options open to the court are almost identical to the relief after a divorce in England and Wales.

Following divorce the usual procedure is for finances to be held in the same jurisdiction. This is why with international couples there can frequently be what is known as a ‘race to issue’ to ensure that the preferred jurisdiction is secured. The MFPA 1984 was designed to try to avoid the English and Welsh courts being used by overseas spouses unhappy with their domestic result and so there are significant tests that need to be applied.

An applicant who has an overseas decree for divorce, annulment or legal separation can make an application if they can prove one of the following:

To be successful in bringing an application for permission the applicant needs to show there are ‘substantial’ grounds for making the application and previous Supreme Court guidance from the landmark case of Agbaje v Agbaje [2010] UKSC 13 was that substantial means ‘solid’.

There are also a range of factors set out in the MFPA 1984 that the court must consider on permission which, amongst others, include the connection the parties have with England and Wales and the implications of the overseas divorce on the applicant and any relevant children.

The application should be issued ‘ex-parte’ or without notice to the party.  The responding party has the option to apply to set it aside. Alternatively, a judge can decide the facts of the case require the permission hearing to be held on notice to the other party.

If permission is granted, the matter then proceeds to a substantive application which usually mirrors the procedure of a full financial remedies application as if the divorce had taken place in this country, including full financial disclosure by way of Form E and follow up questions. The matter will be listed for the usual First Appointment. Financial Dispute Resolution (FDR) hearing and then final hearing if the matter does not settle by agreement before then.

When making a decision the court conducts a two-stage test in deciding firstly, whether or not to make an order and then if so in what terms. The court must consider all the circumstances of the case and this includes a consideration of the S.25 factors of the Matrimonial Causes Act 1973. As part of this the court has to consider the needs of any relevant children.

The orders available to the court is the same for financial remedies under the MCA including maintenance, lump sums, property adjustments and pension shares. The exception is when the application is under S.15(1)(c) where the jurisdiction is only based on the presence of a former matrimonial home in this jurisdiction. In those cases, the court’s role is limited to making lump sum orders (limited to value of the property) or a property adjustment order.

The latest example of the English court considering this niche area is in the recently reported case of Potanina v Potanin. The case concerned whether the court should have granted the wife permission to apply for financial relief pursuant to Part III of the Matrimonial and Family Proceedings Act 1984.

This case involves a wife who is a Russian national and married, lived and divorced in Russia. After a ‘blizzard of litigation’ in Russia by 2014 she was unsuccessful in her applications for a fair share of her husband’s estimated $20 billion fortune, as majority of the value was held in various trusts and so was not considered by the Russian court under Russian law. The wife therefore moved to the UK, securing an investor visa, and in 2018 she was able to issue her application under the MFPA, having satisfied the ground of being resident for a 12 month period before the application.

Her application for permission was issued without notice, following the required procedure, and the subsequent transcript of that hearing the judge considered listing it on notice but was persuaded this was unnecessary by the wife’s barrister.  Once the husband was served with the application in Russia, he immediately applied to set it aside and made the allegation that the wife had misled the judge. At the hearing of the  set aside application the original judge expressed regret at having granted permission based on the information now in front of them, and therefore dismissed the wife’s application.

The wife appealed to the Court of Appeal who overturned that decision. They ruled that the Supreme Court test to be applied on set aside applications was extremely high and the husband need to deal a ‘knock out blow’ to be successful. Their assessment was his allegations regarding the representations were not significant enough to reach this mark and the wife’s permission was reinstated.

The husband then appealed to the Supreme Court.  The Supreme Court has now ruled, although on a finely divided 3:2 judgment, that the Court of Appeal was incorrect to require such a high test for the set aside application. They felt this was unfair given the MFPA explicitly provides for the respondent to have a right to challenge the ex- parte grant, deciding that this higher standard of a ‘knockout blow’ undermines the right to challenge unfairly. They agreed with the husband’s team that the case law that had established this test had led to a procedural unfairness that needed addressing. The test for set aside in future will therefore be lower and the Supreme Court reminded the lower courts that there is discretion for a permission application to be held on notice in the first place.

The judgment also provides a strengthening on the guidance of the requirements on permission applications to provide a ‘substantial or ‘solid’ case. It was set out clearly that the test for permission is more than that the application is not totally without merit but that it has a ‘real prospect of success’.

However, despite this, the Supreme Court still ruled that there were two further arguments for permission the wife could seek to argue and that these were more appropriate to be heard back in the Court of Appeal. This case therefore still rumbles on.

What is helpful about the Supreme Court judgment is that it provides a clear ruling on the procedure that must be followed in permission applications and set aside applications. This clarity is always welcomed by practitioners. It is argued that the strengthening of the test of permission and the lowering of the bar for set asides will make Part III applications harder to obtain. However, given there is still not a final decision in the Potanina v Potanin case, legal experts remain divided whether these changes will be successful in limiting the so called ‘divorce tourism’ or not. Especially when, given the value of these types of cases, the rewards if successful can still be seen by some to outweigh the risks.

However, it remains that Part III provision is an important part of the broader financial remedies of the court to ensure, in cases where there is a connection with this jurisdiction, that fairness is done. For example, in our recently reported case of A v B (In the matter of the Matrimonial and Family Proceedings Act 1984) [2023] EWFC 241 (B] there was a former matrimonial home in the jurisdiction which the New Zealand jurisdiction had been unable to deal with leaving the applicant in a position of significant debt. This was eventually resolved with her receiving a significant lump sum to meet her housing needs in a way that the judge felt was fair when considering all the circumstances in the case. However, this also took over 3 years from issue of application and so it is clear the procedure for applying for permission can drag out the proceedings unnecessarily and it is hoped, in line with the Supreme Court’s comments in Potanina v Potanin that lower courts will take a streamline approach in these cases in the future.

It is vital to always receive advice at an early stage on such a complex area of law and our specialist family lawyers are experienced in dealing with such cases. If you have any questions on any of the above, contact international divorce lawyer Elinor Feeny today for an initial consultation by calling +44 (0) 207 228 0017 or by filling out the form below.