Michael Wells-Greco, partner with Maitland in Geneva, explains why a recent UK Court of Appeal judgement is likely to drive an uptick in the number of cases relating to community of property and trusts.

Michael Wells-Greco, partner with Maitland in Geneva, explains why a recent UK Court of Appeal judgement is likely to drive an uptick in the number of cases relating to community of property and trusts.

The Court of Appeal of England and Wales handed down judgement on 1 May 2013 in the matter of Slutsker v Haron Investments Ltd & Anor [2013] EWCA Civ 430. Following this judgement, we are likely to see an increase in the number of court cases relating to community of property and trusts.

Vladimir Slutsker, a former Russian Senator, claimed a 50 per cent share in a London property on the basis that it had been purchased during his marriage to his ex-wife, Olga. The domicile of the marriage was Russia, and under Russian law the money used to purchase the property was regarded as joint family property. Mr Slutsker argued that he had not consented to the property being held on the terms of a Cayman law trust, under which he had limited and defeasible interests. However, last year Underhill J rejected Mr Slutsker’s claim, and the Court of Appeal has now upheld that decision.

The Court of Appeal held that the claimant had no beneficial interest in property purchased by his wife and transferred to the first defendant company. The claimant had not been entitled to rely on Russian law as that of the matrimonial domicile to establish an interest in money used to purchase the property and then seek to apply English domestic law to follow that interest through to the purchased property. The application of Russian law as that of the matrimonial domicile, under English conflict of law rules, had to be carried through to all stages of the relevant history, and, on the application of Russian law, the claim had to fail.

Carrying through

In the leading judgment Lloyd LJ said that the matrimonial law of Russia, as the jurisdiction where the couple married and divorced, took precedent over English law. “The application of Russian law as that of the matrimonial domicile, under English conflict of law rules, has to be carried through to all stages of the relevant history,” he said, discussing the chain of events which saw the property ownership transferred to the trust. “It is not correct to pause at the first stage and then to consider how, if it had had to, an English court would have given effect to the rights then existing as determined in accordance with Russian law. […] I therefore agree with the judge that the validity and effect of Mrs Slutsker’s dealings with anything that was joint family property under the Russian regime must be determined by reference to Russian law, without adding requirements which apply as a matter of English domestic law”, Lloyd LJ added.

This case:

·         Shows how the English courts will approach civil law concepts such as “community property” where there is no exact equivalent in English law. This is probably not going to be the only dispute of this nature (particularly as here the husband was found to have acquiesced). Such cases are likely to become increasingly common given the number of trusts settled by people from civil law jurisdictions.

·         Acts as a reminder of the importance of identifying what property falls in or outside of a property regime before trusts (or other vehicles) are settled and ensuring the consent of those interested in the property is recorded before assets are settled.