The author examines a major UK divorce court case involving two Russians.

The Potanina v Potanin case (the major divorce dispute involving a Russian oligarch and his ex-wife) returned recently to London’s Court of Appeal: part of a longer legal battle between the former couple which has previously been heard by the Supreme Court. Divorce cases frequently appear in guest articles here, and for good reason, given the issues touched upon: great wealth, cross-border financial complexities, etc. 

The article here is from Philippa Dolan (pictured), partner at Collyer Bristow. The editors are pleased to share these insights; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Aside from the international element, and the fact that both families in these cases are wealthy, Standish and Potanina presented very different challenges for the Supreme Court. Although our senior courts are usually only occupied with issues that have limited relevance to most families (because, frankly, they can’t afford to gamble so much money on an outcome that is never certain), their themes can sometimes be adapted to provide guidance for more “normal” [cases of] divorcing couples, and Standish does provide some clarification. 

The case has finally been decided by the Supreme Court. Mr Standish acquired the bulk of his wealth in Australia before his relationship with Mrs Standish. He later transferred £77 million ($104.33 million) to his wife in a tax avoidance scheme, after she agreed to set up a trust for their children. She didn’t. When she began divorce proceedings shortly afterwards, she claimed the whole of that sum as hers because the funds were in her name. None of the judges who heard her case in the High Court and the Court of Appeal agreed with this position. Their conclusion was that the funds had not been “matrimonialised,” an ugly term that the Family Court has adopted in recent years. It describes assets pre-owned by one of a couple, or inherited or gifted from a third party during the marriage, that have been put to work for the benefit of the family.  

The Supreme Court accepted that Mr Standish’s “gift” to his wife was simply a tax planning device, and were unanimous in their view that the funds could be treated as non-marital. So Mr Standish has won. This does not mean that Mrs Standish is not going to receive a considerable sum (£25 million) as a result of the divorce because of the wealth acquired by the couple during the marriage.  

Potanina v Potanin is a very different case. It is still one about considerable wealth, this time accumulated over a relatively short period of time in Russia in the 1990s in circumstances that are not fully explained. The couple, both Russian, were divorced in Moscow and Mrs Potanina was awarded about £45 million although, crucially, as far as she was concerned, this amounted to a small fraction of Mr Potanin’s total wealth. The Russian Family Court awarded her 50 per cent of the wealth in his name but the assets held by him on trust or through corporate vehicles, were ringfenced. She moved to London soon after the settlement in the Russian Court and waited the statutory 12 months that gave her the opportunity to bring proceedings here to top up her award.  

Although our court is reluctant to interfere in foreign divorce settlements, Part III of the Matrimonial and Family Proceedings Act 1984 does provide a window of opportunity for overseas divorcees to bring their cases – even post-divorce – to the English court if they feel they’ve not been treated fairly. Potanina is currently all about process and the court has not even got as far as to consider fully the merits of Mrs Potanina’s application. This is because of the filtering mechanism that the legislation created to limit opportunists from simply having a second bite of the cherry and appealing to the (notoriously generous) English Family Court.

There has been a technical tussle about how the court should regard the application initially. If the applicant can’t persuade the court that they have “a real prospect of success” then their application is struck out even before the litigation gets underway. There are good reasons why the court here is reluctant to open its doors to foreign litigants. It doesn’t want to allow in yet more litigants to take up the limited resources available. And there are also political sensitivities where it does not want to trample on foreign jurisdictions.  

The Supreme Court also sided with the husband in this case and said that it was wrong to deny him the opportunity to object to the merits of his wife’s claim at the initial stage. This means that there is going to be more front-loaded litigation but the Court concluded (in a three to five majority) that it is against the whole basis of our justice system to deny representations from both sides. So far, much of the case has turned on the technical difference between a “knock out blow” and an application with “a real prospect of success.” So Potanina is still in the foothills of the litigation and will now go back to the High Court for further consideration.

These cases are but clearly very different. Standish is an attempt to provide a degree of clarity to all family lawyers (although “matrimonialisation” is still a bit of a grey area). However, it has increased the chances of divorcing litigants retaining their non-marital assets. Again, this only applies to wealthy couples because, in most cases, the need to provide a home and an income to both will outweigh the fairness of allowing someone to retain their inherited wealth.

Potanin is very much in a niche part of the forest. Applicants need to have been involved in overseas divorces, or had overseas lives, and they also need to have enough money to make it worth their while taking a gamble in London. In these two cases the husbands with the wealth prevailed and the "Have a Go" wives were not successful (although there is still more ground to cover in the case of Mrs Potanina).

Both cases are further examples of the gambling element that prevails in our Family Court. There is greater pressure coming from some parts of the legal establishment to provide more certainty as to outcomes, but there is still a very long way to go. We do value our bespoke legal system – and for good reason. What we really need to do is provide funding for other couples to get involved. Legal aid in family cases is more or less a thing of the past. Those with money – but not too much money – take themselves out of the system and go for private judge-led mediation hearings and everyone else must either settle their cases or submit to the chaotic and underfunded justice system that we provide. A world leading legal system is available for the few. The many must just read about it in the Daily Mail.