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In this case, Madison Ingram, a Trainee Solicitor in the technology & media team at CMS, comments on the Supreme Court decision in Potanina v Potanin [2024] UKSC 3, which was handed down on 31 January 2024.

The Supreme Court decided, by a 3-2 majority, to overturn the decision of the Court of Appeal, and allow the appeal sought. In doing so, the court made rather impactful comments of which essentially alter the practice which has been followed in the process of setting aside leave under section 13 of Part III of the Matrimonial and Family Proceedings Act 1984 (“the 1984 Act”).

Background

Natalia Potanina (“Wife”) and Vladimir Potanin (“Husband”) are two Russian nationals who were married from 1983 to 2014. They spent their entire marriage living in Russia.

Husband claims that the couple began to live separate lives from 2007, whereas Wife claims they did not separate until 2013 when Husband told her that he wanted a divorce.

Throughout their marriage, Husband accrued substantial wealth, becoming a multi billionaire. In 2007, Husband transferred assets to Wife of approximately USD$76 million. This is acknowledged as being a small portion of Husband’s wealth – of which is mostly located in shares in companies or other business entities which were not registered in his name, but instead were held in trusts or corporate vehicles.

Upon the granting of their divorce in early 2014, Wife commenced a wave of litigation in Russia, the USA and Cyprus to obtain further financial relief from Husband’s assets. She was unsuccessful in all claims. She then decided to bring a claim for financial relief under English law on the basis that she had purchased a property in England in 2014 and, since 2017, had been living in England permanently. This was done by way of a without notice application for leave under rule 8.25 of the Family Procedure Rules 2010 (“the 2010 Rules”).

Lower Courts

On 25 January 2019, Wife was granted leave to apply for financial relief pursuant to Part III of the 1984 Act at an ex parte hearing.

Husband then applied under rule 18.11 of the 2010 Rules to set aside Wife’s application for financial relief on the basis that the judge had been misled as to the facts of the case, the issues of Russian law and the applicable principles of English law. His application was heard in the High Court in October 2019.

The High Court granted Husband’s application to set aside Wife’s application for financial relief on the basis that she did not meet the requirements under the 1984 Act. Cohen J (who was also the judge at the first hearing) made an order on 8 November 2019 to set aside the leave on the grounds that he had been misled at the ex parte hearing, on the basis that he had not been presented with such extensive material at the original hearing.

Court of Appeal

Wife then appealed to the Court of Appeal which set aside the High Court’s decision and allowed Wife’s appeal in January 2021.

The Court of Appeal referred to Traversa v Freddi [2011] EWCA Civ 81, the case in which it was established that a court ought to defer an application to set aside to be heard alongside the substantive application, unless the respondent can produce a “knock-out blow” (as originally commented obiter in Agbaje v Agbaje [2010] UKSC 13). The Court of Appeal explained that where a court has been misled and the leave should be set aside, that is often a sign that the issue should be considered at trial as there is not an obvious “knock-out blow”. The Court of Appeal criticised the High Court’s diversion from this approach.

The Court of Appeal was therefore of the opinion that a hearing with oral evidence should have instead been conducted, and that the judge had indeed not been misled and that the issues which he identified were in fact not material enough to justify setting aside the application for leave.

Husband appealed the decision to the Supreme Court.

Decision of the Supreme Court

The Supreme Court allowed Husband’s appeal by a 3-2 majority. Lord Leggatt, Lord Lloyd-Jones and Lady Rose made the majority decision.

The Supreme Court stated that, where a respondent is served with an order of which leave has been granted on an application made without notice under rule 8.25 of the 2010 Rules; rule 18.11 of the 2010 Rules provides the respondent with a complete unrestricted right to apply to have the order set aside purely on the ground that the test for leave is not met. There is no mention of the requirement for a ‘compelling reason’ or a ‘knock-out blow’ to be demonstrated.

The Supreme Court noted that, in the High Court Agbaje proceedings, Justice Munby made reference to Jordan v Jordan [1999] EWHC Admin 666 in which Lord Justice Thorpe criticised rule 3.17 of the Family Proceedings Rules 1991 (the relevant legislation prior to the 2010 Rules) which provided for an exparte application where leave is sought under Part III of the 1984 Act. Lord Justice Thorpe believed that conducting an inter partes rather than an ex partes hearing would be a more productive approach.

Justice Munby, in agreement with Lord Justice Thorpe’s comments, stated that the rule has a “baleful effect” and that “something should be done to amend rule 3.17 with a view to implementing Lord Justice Thorpe’s wise proposals”.

The Supreme Court noted that it was evident, from both Lord Justice Thorpe and Justice Munby’s comments, that they were referring to the replacement of an ex parte hearing with an inter partes hearing and were clearly not challenging or conveying any worries about the right to apply to set aside leave granted ex parte. In their view, by conducting an inter partes hearing initially instead (where both parties are represented), this would reduce costs, rather than carrying out an ex partes hearing (where only the claimant is represented), followed then by an application by the respondent to have the leave set aside. In any event, however, they were not criticising the right to apply to set aside leave granted ex parte.

Despite the High Court’s comments, both the Court of Appeal and the Supreme Court in Agbaje interpreted these in a different light.

Lord Justice Ward (in the Court of Appeal) believed that Justice Munby was suggesting proceeding directly to a substantive hearing of the application for financial relief after granting leave ex parte.

Following suit, the Supreme Court then also misunderstood the High Court’s reasoning, and in doing so, quoted the following proposition:

“…the approach for setting aside leave should be the same as the approach to setting aside permission to appeal in the Civil Procedure Rules, where (by contrast with the Family Proceedings Rules) there is an express power to set aside, but which may only be exercised where there is a compelling reason to do so: CPR r 52.9(2). In practice in the Court of Appeal the power is only exercised where some decisive authority has been overlooked so that the appeal is bound to fail, or where the court has been misled…in an application under section 13, unless it is clear that the respondent can deliver a knockout blow, the court should use its case management powers to adjourn an application to set aside to be heard with the substantive application”.

This rule was then adopted in Traversa v Freddi, of which provides some key context to Agbaje and how the test ought to be applied. It has been cited consistently ever since.

The Supreme Court did recognise the arguments presented by those in favour of retaining the position in Agbaje.

The first of these is that the ‘knock-out blow’ test saves time and costs in that it only allows those who can meet the test to apply to set aside leave, therefore greatly reducing the number of applicants. The Supreme Court did not doubt that this was the case but were keen to acknowledge that “the fundamental point is that fairness is not a value which can properly be sacrificed in the interests of efficiency”. In their view, the Agbaje approach does not uphold such principles of fairness and equality in placing such restrictions on applications to set aside leave.

Second, it was claimed that since an application to grant leave does not actually deal with any substantive issues to a claim, if a respondent is not allowed the chance to object, this is not actually unfair, and the respondent is put in the same position as the majority of respondents to other claims (since leave is not often required in alternate proceedings). However, the court contested this, stating that, just because this is an uncustomary rule, this does not signify that it is extraneous. It is a central aspect of the Part III regime under the 1984 Act and is of particular relevance to foreign respondents, as they may then be subject to high legal costs to defend such proceedings, whereby the only element linking the applicant to the jurisdiction is that they have been habitually resident in England and Wales for a year prior to making the application. Moreover, the fact that this does not deal with any substantive issues is immaterial – it is a fundamental part of the justice system and is crucial to the principle of fairness.

Third, it was highlighted that the Supreme Court is not best placed to deal with procedural matters. Although recognising that this is the established position, the Supreme Court did not consider it to be relevant in this case. The Court of Appeal made comments on this area of the law which were regarded as binding following the decision of Traversa v Freddi. Therefore, it would be inappropriate for the Supreme Court to be unable to address the issue where the Court of Appeal believes that only the Supreme Court can indeed do so. Further, the 2010 Rules are coherent and do not require amendment by the Rules Committee. Rather, they must indeed be applied and not discounted. Moreover, there has been an error of law in this case since the practice to set aside leave that has been adopted is unlawful. Therefore, this is in conflict with the applicable rules of court and to a foundational principle of procedural justice, and so the Supreme Court ought to step in to resolve this issue where it is not being followed in other courts.

As a further argument, the Supreme Court also noted that the wording of section 13 of the 1984 Act clarifies that leave under Part III of the 1984 Act can only be permitted where there is substantial ground for introducing a claim for financial relief. Accordingly, this is at odds with the fact that a substantive hearing can only be allowed where the respondent can produce a ‘knock-out blow’ to show that there is no substantial ground to introduce such a claim.

In addition, rule 8.25 of the 2010 Rules was amended in 2017 to change the default position from an application for leave usually being made on notice (and the court can permit it to be made without notice) to such application being made without notice (and the court can permit it to be heard on notice). This amendment concorded with the interpretation of the position as stated in Traversa v Freddi.

The effect of the amendment now means that the decision of whether to hear an application for leave without notice, or proceed directly to an inter partes hearing, is for the court rather than the applicant (as was formerly the case). The Supreme Court did see the reasoning behind this, such as where providing notice would be an adverse cost to the respondent in a baseless claim, or where it is troublesome or inappropriate to give notice to the respondent. However, in the circumstances of the case in question, they found that it would be “quite wrong and unfair” to take away the basic right of the respondent to oppose reasons to the court why such leave should not be granted. There is no mention of the ability to do so in the 2010 Rules, and the court noted that express and unambiguous statutory wording would be required in order to do so.

The Wife also challenged the Court of Appeal’s second order, which refused leave,  on two further and alternative grounds (known as grounds 12 and 13):

  • Notwithstanding if permitted to do so, Cohen J should not have set aside the leave granted without notice, because the test for section 13 of the 1984 Act was met after hearing reasoning from each side; and
  • Wife’s application should not have been discharged in any event to the extent that the court has jurisdiction in respect of it by way of the Maintenance Regulation (Council Regulation (EC) No 4/2009 of 18 December 2008).

The Supreme Court stated that a supplementary hearing will need to be conducted before these questions can be determined.

In light of the reasoning summarised above, the Supreme Court allowed the appeal, but remitted grounds 12 and 13 to the Court of Appeal.

Dissenting Opinion

Lord Briggs and Lord Stephens, in dissent, disagreed with the majority approach of the Supreme Court, for several reasons.

  • First, the unanimous obiter comments by the Supreme Court in Agbaje (implementing the ‘knock-out blow’ test) have been “treated as the last word” in Traversa v Freddi in what was a unanimous decision.
  • Second, the Agbaje test has been routinely implemented since its initiation, without challenge or condemnation until the case at hand.
  • Third, the 2010 Rules have been amended on the basis that Agbaje was the correct legal approach.
  • Fourth, the Supreme Court’s proposition would presumably result in the ‘ex parte on notice’ custom coming back into play, of which has been openly criticised by eminent family judges and was the basis on which the 2010 Rules were amended.
  • Fifth, the discretion of the court in deciding whether the proposed respondent’s facilitation should be required in determining whether to grant permission to the applicant would be diminished to “near meaninglessness”.
  • Sixth, the function of the Supreme Court, in their view, is not to make decisions on matters of procedure – this is best achieved by the Court of Appeal, the specialist courts and the Rules Committee of which have the correct resources to make such decisions.
  • Seventh, the case is so extraordinary that it is an “unreliable platform” to enable such drastic amendments to the legal process to applications for leave under Part III of the 1984 Act.

Lord Briggs and Lord Stephens therefore would have dismissed the appeal and, should the Family Procedure Rule Committee have been requested to do so, direct the issue to them of whether Part III of the 1984 Act requires reform.

Comment

This is an extremely interesting case, and one which has also garnered attention in the media. The decision of the Supreme Court has been particularly remarkable, considering that it has been decided on a 3-2 majority, highlighting the complicated nature of this area of the law.

Some may say that the law has simply now been clarified and restored back to what it should always have been – that being that the 2010 Rules contain no mention of the requirement for a ‘compelling reason’ or ‘knock-out blow’ to be shown. However, as advocated by those in dissent, this latter practice has been consistently applied for more than a decade and endorsed in the decisions of several high-profile judges, including in its initial roots of obiter dicta comments made in a decision of the Supreme Court itself.

It seems, however, that the majority of the Supreme Court are strong in their views, in finding that the fundamental principles of justice and fairness had been disregarded in the operation of granting applications for leave by restricting the right of the respondent to oppose said application. They believed that such a practice had to be brought to an end, and that it was their duty to do so.