Two sides of the story: Potanina v Potanin

This judgment represents only the second time that the Supreme Court has considered applications under Part III of the Matrimonial and Family Proceedings Act  (MFPA) 1984  for financial provision following an overseas divorce.

The first case considered by the Supreme Court, Agbaje [2010] UKSC 13, provided important guidance for practitioners including in relation to the crucial requirement to obtain leave prior to proceeding with an application.

Applications are typically made where there was either inadequate or no financial provision made as part of a divorce. The application for leave must meet a high threshold, and typically such applications for leave are made without notice.

Potanina v Potanin [2024] UKSC 3 centres a respondent’s right of reply to an applicant’s without notice application for leave under the Act, and is of crucial importance as to how the leave stage of such applications will now be approached.

Background

The couple, Natalia Potanina and Vladimir Potanin are both Russian citizens. They met and married in Russia and spent the majority of their 30-year marriage there. Their marriage was dissolved by a Russian Court on 25 February 2014. In 2017 the wife became based in London while the husband continues to reside in Russia.

The financial side of the parties’ divorce resulted in significant litigation in Russia. The Russian court’s approach was to divide marital property equally. However, only assets legally owned by the husband were included, which means that the majority of his wealth was excluded. Much of the husband’s wealth, estimated at circa $20bn was held by trusts or companies. The wife sought and still seeks to share all of the assets the husband was beneficially entitled to.

Application for leave

On 8 October 2018 the wife issued an application under s13 MFPA 1984 for leave without notice to the husband. Her application for leave was successful.

Cohen J was content to grant leave on the basis of W’s application and was satisfied that he did not need to hear from H, having considered rule 8.25 of the Family Procedure Rules 2020 which states: “(3) The court may direct that the application be determined on notice to the respondent if the court considers that to be appropriate”.

H applied to set aside the without notice granting of leave and asserted that W had misled the court. Upon hearing H’s application, Cohen J set aside his initial order and dismissed W’s application for leave. Cohen J concluded that the court had been misled but he did not determine that this was necessarily intentional.

Court of Appeal

W appealed to the Court of Appeal. King LJ commented at para 35 of her judgment that as the original order granting leave had been made without notice to H, then the court could not give H a chance to object to the grant of leave unless “there is some compelling reason to do so” such as “a decisive authority is overlooked or the court has been misled” and unless the applicant can demonstrate a “compelling reason” by a “knock-out blow”.

King LJ felt that no “knock-out blow” had been delivered, so the judge should have adjourned H’s application to set aside the granting of leave made without notice to be heard with W’s substantial application (para 41). King LJ also determined that Cohen J had not been misled at the without notice hearing in a way which was “sufficiently material to the issues which had informed the grant of leave” (para 87). The appeal court therefore restored the original granting of leave despite Cohen J’s order subsequently setting aside his original decision.

Supreme Court

H appealed to the Supreme Court which granted the appeal by a majority of three to two. Lord Leggatt gave the leading judgment and Lord Lloyd-Jones and Lady Rose agreed.

Applications for leave

An applicant must carefully consider the MFPA 1984  prior to proceeding with an application for leave. To succeed in the application the guidance from Lord Collins in Agbaje was that “the threshold is not high, but is higher than ‘serious issue to be tried’ or ‘good arguable case’…. In this context, ‘substantial’ means ‘solid’” (para 33).

Lord Leggatt goes further in this judgment and clarifies that the threshold “is higher than merely satisfying the court that the claim is not totally without merit or abusive”, and he went on to compare the test to the familiar “real prospect of success” test (para 89) in civil proceedings.

This judgment therefore sees a tightening up of the guidance provided in Agbaje and provides greater clarity for practitioners when discussing the prospects of a claim with potential applicants. An application must have a “real prospect of success” to meet the threshold at the leave application stage.

Applications to set aside leave

The majority’s concerns with the Court of Appeal’s approach to set aside applications is neatly summarised in para 1: “Rule one for any judge dealing with a case is that, before you make an order requested by one party, you must give the other party a chance to object”.

Lord Leggatt said that the Court of Appeal’s interpretation of the law relating to a respondent’s right to set aside an application was “patently unfair” (para 31) and “foolish” as judges “make better decisions if they hear arguments from both sides” (para 32).

The court found that under FPR r8.25 a person served with an order granting leave on an application made without notice under s13 has the “right” to apply to set aside or vary the order (as per rule 18.10(3) (see para 34). The court confirms that this “right” is not conditional and there is no need to demonstrate a “compelling reason” or a “knock-out blow” (para 35).

Further, such an application under FPR rule 18.11 would require the court to hear from both sides and for such an application to set aside to be successful, it would need to be based on the fact that the test for the granting of leave had not been met.

Does this mean as Lord Briggs – who provides the dissenting judgment with which Lord Stephens agrees – fears, that this could be a return to “ex parte on notice” applications (see para 111) or “on notice” leave applications? Lord Leggatt perhaps anticipates this as he talks of the need to increase the length of hearing for applications for leave within his judgment.

Lord Briggs’s dissenting judgment is worth a read. He expresses concern with the majority’s findings and said that their conclusions would mean that “the same threshold test should be applied on the without notice hearing of an application for leave, on an application for leave directed to be heard on notice, and on any application to set aside leave granted without notice” (para 109).

At paragraph 111 Lord Briggs sets out numerous reasons for his dissent and he assesses that the majority’s approach will bring “a radical change” in how Part III cases are dealt with. Lord Briggs summarised at paragraph 144 that he would dismiss the appeal and said he would leave it to the Family Procedure Rules Committee to determine whether reform was required.

Conclusion

As a result of this decision, the ongoing litigation in respect of this particular case will continue and practitioners will await the judgment of the Court of Appeal in due course.

This case will now be remitted to the Court of Appeal to address the wife’s two further and alternative grounds of appeal:

• that even if Cohen J was entitled to set aside the leave granted without notice, he should not have done so because after hearing from both parties he should still have been satisfied that the test for the granting of leave had been satisfied, and
• the wife’s application should not have been dismissed as the court had jurisdiction under the Maintenance Regulation (Council Regulation (EC) No 4/2009. This was based on MFPA 1984 s16(3)  and was applicable as the application was made prior to Brexit on 31 December 2020.

The case provides clearer guidance on the threshold test required to obtain leave. It also suggests that longer listings may be required to facilitate such applications and the fact that more now may be held “on notice” on the respondent.

In the meantime, it remains to be seen whether the Family Procedure Rules Committee will consider the issues raised by Lord Briggs in light of this judgment. Separately, the Law Commission isn’t expected to deal with Part III cases as part of its forthcoming review.

This judgment may increase the number of set aside applications made following the granting of leave following a without notice application. However, there will still need to be sufficient evidence that the test for the granting of leave had not been met, which will be a case-specific consideration.

amy.harris@brabners.com