Potanina (Respondent) v Potanin (Appellant) [2024] UKSC 3

The judgment was issued on the 31^st  of January 2024, with the hearing and proceedings conducted in the UK Supreme Court between the 31^st of October and the 1^st of November 2023.

Background:

This case concerns an application for financial relief on divorce under Part III of the Matrimonial and Family Proceedings Act 1984 (1984). The couple in question are Russian citizens who were married in Russia and had lived in Russia since their respective births in 1961 and 1983 until their divorce in 2014, upon the event of which the wife was granted a UK investor visa and took up habitual residence in London. Previously, the division of their assets was extensively contested through the Russian judicial system, through which the wife was granted half the assets owned by the husband, excluding wealth held in various trusts and companies that were not considered matrimonial property. Following approximately four years of residence in the UK, the wife applied for permission under section 13 of the 1984 Act to seek further financial relief through the court system of England and Wales.

Relevant law:

Part III of the 1984 Act enables courts to grant financial remedies for overseas divorces, even where prior orders in this respect have been made. Reflecting the wide scope of competence courts have to entertain any such request, section 15(1) confers jurisdiction where either of the parties has been habitually resident in England or Wales for one year prior to making an application. However, this is immediately qualified by section 16(1), which requires the court to consider whether, in all relevant circumstances, it would be appropriate for such an order to be made by a UK court. This is determined, inter alia, by the parties’ connections to England and Wales, the country in which they were divorced, previous financial provisions made under foreign law, and the availability of any property under this jurisdiction (section 16(2)). On satisfaction of these conditions, an order under section 17 to grant financial remedy may be made. Yet, some protection for respondents is granted by section 13, which prevents any application for financial relief made under Part III of the Act unless leave of the court has been obtained per its rules. Rule 8.25 of the Family Procedure Rules 2010 is the pertinent rule for applications without notice, stating that an application may be made without notice to the other party unless the court directs otherwise.

Proceedings:

In 2018, the wife sought leave to apply for financial relief without notice. The court agreed that she satisfied the condition of habitual residence in the UK for one year but spent more time deliberating over whether to proceed on this basis or direct the proceedings to be adjourned on notice to the husband under rule 8.25(3). The court opted for the former approach. Upon service of this order, the husband applied to have it set aside under rules 8.24 and 18.10(3) – the court agreed with the husband, considering that the wife’s initial application had misled the judge and that she did not have the requisite connection to the UK to trigger their jurisdiction. This decision was appealed to the Court of Appeal. The question of whether the grant of permission to the wife to apply for financial relief was procedurally fair thereby became the key legal issue in subsequent judicial consideration. Lord Justice King considered that having made an order without notice to the husband; this could not give the husband a chance to object unless two conditions were met. Setting aside the initial order can only be done where, first, there is some compelling reason to do so, and second, where the applicant can demonstrate this reason by a ‘knockout blow’. King concluded the husband had not demonstrated the latter condition, and thus, the judge was not entitled to set aside the original order granting leave, effectively restoring the wife’s permission. This decision was subsequently appealed to the Supreme Court by the husband.

Judgment:

Lord Leggatt issued the majority decision of the court, rejecting the central reasoning of the Court of Appeal judgment and ruling in favour of the husband. Leggatt first noted that a critical rule of procedural fairness in entertaining requests for an order for financial provision was granting the other party the opportunity to object or argue that the order should be set aside or varied. Unfairness would prevail if the only way to correct an order made without the other party having the chance to respond were on appeal. Leggatt then addressed the test the Court of Appeal applied, namely, whether a ‘knockout blow’ can demonstrate a compelling reason to set aside an order. This test was sourced from obiter comments from a previous Supreme Court case, Agbaje v Agbaje [2010] UKSC 13; however, it did not provide any binding statement of procedural law. Noting that the Family Procedure Rules do not require proof to such a standard, Leggatt reasoned that the Court of Appeal was mistaken in applying this test to the present case, as it is inconsistent not only with the rules of the court but also with fundamental principles of procedural justice. It was concluded that the correct legal position is that if the court makes an order for permission under Part III of the 1984 Act without notice to the other party, that party has an absolute right to apply to set aside that order.

Dissenting from Leggatt’s judgment, Lord Briggs considered that the ‘knockout blow’ test had been established by unanimous Supreme Court guidance and had thereafter been consistently applied by family courts without issue. On this basis, Briggs contended that disregarding such an established practice would undermine a judge’s discretion to decide whether it is necessary to hear from the respondents to a case. However, It must be noted that as a dissenting judgment, it will not have a meaningful impact on the present situation or future cases.

Commentary:

Considering that both the High Court and Court of Appeal in the proceedings of this case adopted significantly different approaches to determining the application for leave, this case, therefore, plays a role in promoting legal clarity. In challenging established practice, the Supreme Court has made clear that objecting to applications for permission under Part III of the 1984 Act is both a requirement of its own rules and procedural fairness and this clarification has been welcomed by practitioners.  In addition, it has been noted that courts will be more inclined to determine applications for leave to apply for financial provision under Part III of the 1984 Act, having heard from both the applicant and respondent. This makes it more likely that so-called ‘divorce tourists’ will have their applications subject to more robust examination by the courts before gaining permission for financial provision orders in England and Wales.

Written by Solomon Mayers