The Russian Wife who played Divorce Court Roulette & Won

Earlier this year Family High Court Judge Mrs Justice King awarded a former wife a whopping £53m, thought to be the largest award in contested proceedings in the UK, in the case of M v M and others [2013] EWCH 2534.  As the written judgment has just been published, I thought it well worth a look at how this latest decision sits with the Family Courts’ general approach to so-called ‘big money’ cases.

In M v M the parties were Russians who had lived in the UK since 2005.  The marriage had lasted 17 years and there were two children of the family.   It is fair to say that, from humble beginnings as factory workers, the couple were now mega-wealthy; at the time of the final hearing assets totalling at least £107m were under consideration by the court (more of which to follow).

After separating, although W could have petitioned for divorce in the UK, she chose Russia without first seeking legal advice in England on the most favourable jurisdiction in which to issue proceedings.  W was awarded no financial provision by the Russian courts, and after getting into debt to the tune of £5m after the divorce, she was finally advised to apply financial relief in England, under Part III of the Matrimonial and Family Proceedings 1984 (MFPA 1984).  This statute provides remedies for those who have divorced overseas, but where the courts in England & Wales have jurisdiction to adjudicate on the financial aspect of the divorce.

As is so often the case, H was less than forthcoming about the extent of his financial interests and W had her work cut out in uncovering the extent of the ‘pot’, and then clarifying who exactly owned the various assets.  Whilst the couple’s London home was owned in joint names, W’s legal costs rocketed in attempting to trace the other assets which H had refused to disclose fully, the ultimate ownership of which was eventually found to be vested in a number of off-shore companies, established by H and registered in tax-havens such as the British Virgin Islands.  W’s legal bill for this part of the work alone cost a cool £1.4m.

Keen followers of financial remedy cases will immediately be reminded of that other recent high-profile decision of Prest v Petrodel Resources Ltd and others [2013] UKSC 34.  In both cases, the key question for the court was whether assets owned by a company could correctly be attributed to the financially dominant spouse, for the purpose of dividing the family wealth on divorce.

In Prest v Petrodel the Supreme Court had ruled that it would be unlawful for the family courts simply to ignore the fact that the properties were owned not by the husband but by various companies (which are of course separate legal entities) and make orders directly against those assets (referred to as ‘piercing the corporate veil’).   However the court found a solution by proceeding on the basis that the companies held their assets on trust for the husband, enabling orders to be made in relation to those assets arising from his beneficial ownership of them.

In her judgment in M v M, King J applied that cornerstone of financial disputes in family law: the Sharing Principle, which was established by the seminal case of White v White [2000] UKHL 54.  Accordingly King J awarded W half the assets, which included the properties owned by various companies, having found as a fact that those assets were  in reality being held on trust for H, despite the companies having argued that tax planning schemes required them to own not only the legal title but also the underlying beneficial interest.  King J ruled that the companies had failed to rebut the presumption of a resulting trust.

Further, due to H’s lack of proper disclosure and cooperation, King J was prepared to increase the lump sum which she would otherwise have awarded W, because of  H’s gross ‘litigation misconduct’ in failing to make proper financial disclosure.  This is becoming a frequent feature of ‘big-money’ cases.

As ever, in such cases the initial decision is just the first step in what may well prove to be a very long road before W sees the cash which has been awarded to her.  Although King J ordered the transfer of all the UK based property to W, the main part of her award will have to be enforced overseas, which prospect brings with it fresh challenges and no doubt substantial, further legal costs.