Court of Appeal decides jurisdiction to deal with £20bn Russian divorce

The Court of Appeal recently delivered its judgement in the high-profile case of Potanina v Potanin, a decision which has been eagerly awaited to set a precedent on whether a spouse could make a financial claim in England following a Russian divorce.

Our co-founder and managing director, James Maguire, featured in Solicitors Journal, sharing his thoughts on the implications of the judgement.

The court case

The parties are both Russian and have been married for around 30 years. With an estimated fortune of £20bn, the husband is described as one of the wealthiest men in Russia. The Russian court divided the marital property equally between the parties, but it transpired that the majority of the wealth was held by the husband’s companies in which he had a beneficial interest. As such, the wife received less than 1%, which still amounted to c.£200m.

Ms Potanina appealed, and it was for the Court of Appeal to decide whether she should be permitted to bring a financial claim in England.

The judgement

London has long been heralded as the ‘divorce capital of the world’ and many anticipated the appeal judges would adopt a strict approach, particularly in relation to the wife’s lack of connections to England.

A Part III application allows a party to make another financial claim after an overseas divorce. However, they need to obtain the court’s permission and satisfy the judge that:

• There is a connection to England
• There is a real prospect of success with the main financial claim

The previous High Court judge took the view that the husband and wife had no real connection to England, the wife had already received a large award in Russia and that the case was little more than an attempt to seek a ‘top up’. Her application was therefore dismissed.

However, in September, the Court of Appeal granted permission, with the appeal judges citing the following factors:

• The wife was a resident in England when she brought the case to court
• She has a strong connection to this country, holding a UK investor visa and owning a property here
• Her connection to Russia was ‘increasingly tenuous’
• She had substantial and solid grounds for making this financial claim after an overseas divorce

What are the legal implications?

Crucially, the Court of Appeal felt there was a missing piece with the Russian law as it cannot consider an asset which is legally owned by a third party, but where one of the spouses still retains a beneficial interest in it. Even though the wife was awarded £200m, she enjoyed a lavish lifestyle, and her financial needs would not be met by the Russian award.

For now, London retains its crown and no doubt in the future, the very wealthy may still attempt to choose England to divorce, if it suits their case financially, or try again here if things go wrong overseas. However, there are thresholds and legal risks associated with this, with courts considering a number of factors.

There is also an argument to say that the English court shouldn’t interfere in a foreign court’s decision if the correct laws and procedures are applied; just because England might award more does not necessarily mean the other jurisdiction is wrong. There is also a wider issue in terms of respecting the laws of other nations.

However, in this case, the financial outcomes between the parties were quite stark, with the husband receiving 99% of the assets and the wife 1%. It is perhaps no surprise that she felt this was unfair after a 30-year marriage and in England, a judge can look behind ownership of assets to see who really ‘owns’ it, with a view to considering all the circumstances of the case.

For now, Ms Potanina has been granted permission to pursue a financial claim. The case has been returned to the High Court to determine her financial settlement, and it remains to be seen what she will ultimately receive.