“Injustice anywhere is a threat to justice everywhere”

Potanina (Respondent) v Potanin (Appellant) [2024] UKSC 3 (appeal from [2021] EWCA Civ 702).

Justices: Lord Lloyd-Jone Lord Brigg Lord Leggatt, Lord Stephens and Lady Rose considered whether the Court should grant the Wife permission to apply for financial relief under Part III of the Matrimonial and Family Proceedings Act 1984.

Background to the Appeal

Courts in England and Wales may grant financial remedies after an overseas divorce under Part III of the Matrimonial and Family Proceedings Act 1984 (“1984 Act”). Before granting such a remedy, the court must consider whether it would be appropriate for a court in England and Wales to do so having regard to factors which include the connections of the parties with England and Wale with the country in which they were divorced and with any other country. Section 13 of the 1984 Act requires court permission before making an application under Part III. The court may only grant permission if there is a “substantial ground” for the application.

Facts of the case

Both parties are Russian citizens. Until the wife moved to London after the divorce, they had lived entirely in Russia, where the husband still resides. They were born in 1961, married in 1983, and divorced in 2014 by order of a Russian court. Initially they were not well off but, since the 1990’s the husband has built vast wealth. Their divorce was followed by extensive litigation in the Russian courts about the division of assets. The final outcome of this litigation was that the wife received half the value of the assets owned by the husband. But the award left out of account most of the wealth accumulated by the husband, which is held by various trusts and companies. Such assets were not regarded by the Russian courts as marital assets.

Immediately after the couple were divorced in 2014 the wife obtained a UK investor visa and bought a flat in London. Since 2017, she has been habitually resident in England. In 2018 she applied for permission to seek a financial remedy under Part III of the 1984 Act.

High Court Proceedings

Under Family Division rules, a Part III permission application is normally made without notifying the other party, unless the court orders otherwise. If permission is granted without notice, the other party can later apply to have the order set aside or varied.

The wife applied without notice to the husband. The judge granted permission. After receiving the order, the husband applied to set it aside. At a subsequent hearing where both parties were represented, the judge found that he had been materially misled in the first hearing. Reconsidering the matter, he ruled that the Section 13 test was not met, mainly because the parties’ connections with Russia outweighed those with England and Wales. He set aside his earlier order and refused the wife permission to apply.

Court of Appeal Decision

The wife appealed against this decision to the Court of Appeal. The Court of Appeal took the law to be that the power to set aside may only be exercised where there is some “compelling reason” to do so and in practice only where the court has been misled. Furthermore, the Court of Appeal held that it must be possible to demonstrate such a compelling reason by a “knockout blow”. The Court of Appeal concluded that the judge had not been materially misled in the initial hearing. Therefore, he could not set aside the original order, and it restored that order. The husband then appealed to the Supreme Court.

Judgment

By a majority of three to two, the Supreme Court allows the appeal. Lord Leggatt gives the leading judgment, with which Lord Lloyd-Jones and Lady Rose agree. Lord Briggs gives a dissenting judgment, with which Lord Stephens agrees.

Reasons for the Supreme Court Judgment

Fundamental rule of procedural fairness other party has chance to object 

The Court confirmed that procedural fairness requires giving the other party a chance to object before making an order. If that is not possible, the court must provide an opportunity to challenge the order afterwards. It is always unfair to make a final order—only reversible on appeal—after hearing only from one side (para [1]).

The Court found that the Court of Appeal’s “knockout blow” test produced unfair results. Because the husband could not meet that test, the judge was prevented from hearing his arguments. As a result, the original permission order was reinstated, even though the judge, after hearing both parties, concluded the Section 13 test was not met (paras [4], [28])

No requirement under s13 to show a “compelling reason” or to show that the Court was materially misled or to deliver a “knock-out blow”

The law does not require this approach, which is inconsistent with the relevant rules of court. The rules give a party served with an order made without notice to him the right to apply to have the order set aside on the ground that the test for granting permission under Section 13 is not met. There is no requirement to show a “compelling reason” or to show that the court was materially misled or to deliver a “knock-out blow” see para  [34]–[39]. The source of these supposed requirements is some guidance given by the Supreme Court in a case in 2010, which the Court of Appeal subsequently endorsed.

However, this guidance was not binding as the test and procedure for dealing with applications for permission under Section 13 was not in issue in those cases and the court heard no argument on the point. Furthermore, the guidance was based on a misunderstanding of a suggestion previously made by several judges and on a false analogy with the procedure for dealing with applications for permission to appeal to the Court of Appeal see para [49]–[75]. The practice currently being followed on the basis of this guidance is unlawful as it is contrary to the applicable rules of court and to a fundamental principle of procedural justice see para [85].

 Respondent’s “unfettered right to apply to have without notice order to set aside”

The correct position therefore is that, if a court makes an order granting permission under Section 13 after hearing from the applicant alone and without notice to the other party, the other party has an absolute unfettered right to apply to have the order set aside. At the hearing of such an application to set aside, the onus remains on the party requiring permission under Section 13 to show a “substantial ground” for making the application for a financial remedy in England and Wales. In this context the word “substantial” means “solid”. Although it is not necessary or advantageous to draw analogies with tests applied in other procedural context the closest analogy is with the test applied in deciding whether a claim should be summarily dismissed, which is whether the claim has a “real prospect of success” see para  [87]–[93].

Further issues raised remitted to Court of Appeal

Because of its (erroneous) conclusion that the judge had not been entitled to reconsider his original decision, the Court of Appeal did not decide certain grounds of appeal raised by the wife. As the Supreme Court has allowed the husband’s appeal, the issues raised by those grounds need to be decided and the case will be remitted to the Court of Appeal for this purpose see para [98], [107], [108].

Dissenting judgement: Lord Briggs would have dismissed appeal

Lord Briggs dissents and would dismiss the appeal. In his view, the Supreme Court should leave the “knockout blow” test in place. That test was established by the unanimou if nonbinding, guidance of the Supreme Court, which was subsequently endorsed by the Court of Appeal see para [112]– [114]. Since then, it has been applied consistently and without criticism or dissent by family law judges see para [115]–[117], and the rules of court governing applications under Section 13 of the 1984 Act were adopted on the assumption that the “knockout blow” test applied see para [118]– [124].

Departing from that settled practice would, he consider undermine both the default rule that Section 13 applications are brought without notice to respondents and judges’ discretion as to whether it is necessary to hear from respondents see para [125]–[129]. Lord Briggs further recalls that the Supreme Court usually leaves questions of procedure to the Court of Appeal and the appropriate Rules Committee.

In his view, the previous approach to Section 13 applications raised no fundamental issue of justice, equity or fairness that would justify the Supreme Court in requiring a change from that practice, on the basis of the exceptional facts of this case. This is because, unlike a typical order made without notice (such as a freezing order), the grant of permission under Section 13 has no immediate effect on the parties’ legal right and merely postpones until a later date the occasion when the respondent may advance reasons why permission should not have been given see para [130]–[143].

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