Application for financial proceedings after an overseas divorce

Supreme Court Decision of Potanina v Potanin

The Supreme Court rules on when an ex parte order granting leave to bring proceedings for financial relief after an overseas divorce can be set aside.

The Supreme Court’s recent decision in the case of Potanina v Potanin [2024] UKSC 3 ended an ex-wife’s quest to use the English court to improve on the multi-million-pound divorce settlement she had been awarded ten years earlier by the Russian court. It also ended a long-standing misunderstanding as to when a judge at first instance can set aside an ex parte order granting leave to bring proceedings for financial relief after an overseas divorce. A stringent test for setting aside such an order had become widely accepted practice but on examination it ran contrary to fairness and common sense, as well as being an incorrect interpretation of the law.

Background

The Supreme Court was given the opportunity to consider the purported test when Mr Justic Cohen granted Mrs Potanina leave to pursue an application for financial relief after an overseas divorce under Part III of the Matrimonial and Family Proceedings Act 1984.

At the end of their 30 year marriage, Mrs Potanina had been awarded half of hers and Mr Potanin’s personal assets. As Russia’s second richest oligarch, Mr Potanin’s personal assets were significant, unless viewed in the context of his overall wealth including business and trust assets. Mrs Potanina had no connection with the UK during her marriage but after her divorce she purchased property in London and started spending time in the UK. She hoped that the English court would assist her pursuit of a better settlement having exhausted avenues for appeal in Russia and having also brought proceedings in the U.S.

Applications under Part III of the Matrimonial and Family Proceedings Act 1984

An application for leave in cases under Part III has to be sought ex parte (i.e. the application is to be made to the court without notifying the other party). At the first hearing, the judge has a number of choices:

1. to grant leave for the application based on the evidence the applicant has provided;
2. to refuse leave to bring the application based on the evidence the applicant has provided; or
3. adjourn the hearing and re-list it after the respondent has been served with the application and had the opportunity to make their own representations to the court as to whether leave should be granted.

On the facts presented by Mrs Potanina, Mr Justic Cohen was wavering towards option three, but was ultimately persuaded to grant the application for leave.

It is standard, for an order made having only heard from one party, to include a direction that within a specified time limit the other party can apply to the court to set aside or vary that order if they do not accept it should have been made. Mr Potanin did just that and, on hearing his evidence, Mr Justice Cohen concluded that he should reverse his earlier decision by setting aside the order granting leave. Mrs Potanina’s request for leave was dismissed.

Application to set aside an order granting leave

Mrs Potanina appealed to the Court of Appeal arguing that Mr Justice Cohen should not have set aside the order for leave as the test for setting it aside was not met. Her legal team argued that the correct test to set aside the order granting leave required:

1. a compelling reason to set aside the original order such as a decisive authority being overlooked or the court having been misled; and
2. the reason needed to be tantamount to a ‘knockout blow’ to the application for leave. For anything less than a ‘knockout blow’ the application to set aside should be adjourned to be heard at the same time as the final hearing.

The validity of this test was not challenged by Mr Potanin’s legal team.

On the Court of Appeal’s analysis, Mrs Potanina’s evidence did not materially mislead the court, nor had any case law been overlooked. There was no ‘knock out blow’ delivered by Mr Potanin of the kind that enabled Mr Justice Cohen to set aside the order and re-hear the application for leave. The original order granting leave was reinstated.

Supreme Court decision

Mr Potanin appealed to the Supreme Court. Lord Faulks KC argued that the test used to determine whether such an application for leave can be set side was wrong. The Supreme Court agreed.
If the test were correct, it would mean that:

1. anyone adversely affected by an order would be denied the right to argue why it was unfair;
2. whereas judges make better decisions if they hear from both parties – the test effectively prohibits the judge revisiting their decision save on the narrowest of criteria; and
3. the test enflames already bitterly contentious matters with its focus on needing to argue the applicant materially misled the court, coupled with the high bar for succeeding in setting aside the granting of leave which is extremely expensive in terms of cost to the parties and valuable court time.

The Supreme Court examined the rules under Part 18 of the Family Procedure Rules and found there was nothing to require the court to go beyond revisiting, in light of the respondent’s evidence, whether the criteria set out in set out in section 16(2) for leave to be granted had been met. The court held that Mr Justic Cohen had been entitled to set aside his original order and dismiss the application for leave.

What to think

It took a serendipitous set of circumstances, significant wealth, inexhaustible litigation stamina and a judge being persuaded away from their gut reaction to list an inter partes hearing, for the Supreme Court to examine an established ‘test’ and question its legitimacy.

It is anticipated that as a result of this judgment, the court will be far more inclined to decide an application for leave under Part III having heard from both parties. However, based on the perception that homemakers get more favourable settlements before the courts of England and Wales than in other jurisdictions, there will inevitably be applications where judges dismiss requests for leave without the need to trouble the respondent at all.