A husband’s appeal succeeded against a lump sum order made in favour of the wife by an English court after the couple agreed a financial consent order in Russian divorce proceedings. Jenny Duggan, associate at Stewarts, examines issues that arose in Zimina v Zimin.

Original news

Zimina v Zimin [2017] EWCA Civ 1429, [2017] All ER (D) 57 (Oct)

The Court of Appeal allowed a husband’s appeal against an order made by a Family Division judge that he should pay his wife a lump sum even though a Russian court had previously made a consent order following Russian divorce proceedings in which they both had legal representation. The Court of Appeal concluded that, following an evaluation of all the relevant factors, it had not been appropriate for the Family Division to have made an order under the provisions of the Matrimonial and Family Proceedings Act 1984 (MFPA 1984) relating to financial relief after an overseas divorce, and therefore its lump sum order would be set aside.

What was the background to the case?

The couple had been divorced in Russia in 2009. A financial consent order was made in the Russian proceedings settling the wife’s worldwide claims. As a combined consequence of the implementation of the Russian order, operation of law and an agreement between the parties, the wife was granted $10m, the use of a house in Kensington during the children’s education, and child maintenance.

In 2014, the wife applied in the English court for financial relief under MFPA 1984, Pt III, arguing that she had not been provided with sufficient financial provision under the Russian order and seeking a further award of £9.8m.

The determination of the wife’s application was the subject of a split hearing in 2016—the first stage was directed to whether an order should be made at all and the second stage was directed to what order should be made. At the first stage, the judge determined ‘by the narrowest of margins’ that it was, in principle, appropriate for an order to be made on the wife’s application. At the second stage, it was ordered that the wife was to receive a lump sum of £1,148,480.

The husband appealed and argued that no relief should have been ordered in favour of the wife under MFPA 1984, Pt III.

What issues arose for the Court of Appeal’s consideration?

Under MFPA 1984, s 16(1), the court had first to consider whether in all the circumstances of the case it would be appropriate for an order for financial relief to be made by a court in England and Wales, and if it was not satisfied that it would be appropriate, it should dismiss the application.

Under MFPA 1984, s 16(2)(d), the court had to have regard to any financial benefit which the applicant had received, or was likely to receive, in consequence of the divorce, annulment or legal separation, by virtue of any agreement or the operation of the law of a country outside England and Wales.

Following Agbaje v Agbaje [2010] UKSC 13, [2010] 1 FLR 1813, the court will consider whether the financial benefit received by the applicant amounts to adequate financial provision as part of its consideration of whether, in all the circumstances of the case, it is appropriate for an order to be made by a court in England and Wales.

Therefore the main issues before the court were:

  1. Whether, under MFPA 1984, s 16(1), it was appropriate in all the circumstances of the case for the judge to have made a lump sum order in favour of the wife
  2. What financial provision should be included in the term ‘financial benefit’ under MFPA 1984, s 16(2)(d), and
  3. When and how to assess the adequacy of the foreign court’s provision

What did the court decide on the appropriateness of the lump sum order, and why?

The court found that the judge was in error in making the lump sum order. A number of important features should have collectively militated against the making of the order, ie:

  1. That the provision made by the agreement the parties had reached in Russia was not only a fair agreement, but one that was clearly not negotiated under pressure —the judge had not considered whether, in the circumstances of that agreement, it was right for the court to go behind the public policy principle that there should, if possible, be finality in litigation and that agreements freely reached should be upheld
  2. There had been no change in the wife’s circumstances in the intervening period and, therefore, she really could be regarded as a wife who was seeking a ‘second bite of the cherry’
  3. The wife’s delay in applying for financial relief had been found to have been in part tactical
  4. The wife had failed to show that her needs had been generated by her relationship with the husband
  5. It was hard, if not impossible, for the wife to pursue a case that she had or would suffer injustice or hardship if the court did not make an order, and
  6. The financial benefit provided by the husband to the wife had been adequate in 2009 and it remained so

The Court of Appeal, having evaluated all the relevant factors, reached the conclusion that it had not been appropriate to make an order under MFPA 1984, Pt III. The wife was also ordered to pay the husband’s costs of and incidental to the appeal, to be assessed if not agreed.

What guidance did the court give on what financial provision should be included in the term ‘financial benefit’ under MFPA 1984, s 16(2)(d)?

The wife argued that ‘financial benefit’ should be limited to that which was provided to her under the terms of the Russian order. The husband submitted that it meant all forms of financial benefit received by the claimant spouse, in whatever form. The Court of Appeal agreed with the husband. Therefore, it was appropriate to take into consideration the entire financial benefit to the wife in 2009, whether that was received pursuant to the Russian order or otherwise.

Accordingly, the wife’s financial benefit had been:

  1. Under the Russian order, her sole ownership of an unencumbered apartment in Moscow worth at least $5m (later sold for $6.2m)
  2. By operation of law, her retention of $5m in cash, received from trusts established by the husband’s father, together with the right to an annuity of $240,000 per annum if she survived the husband
  3. By operation of an agreement, child periodical payments at the rate of £20,000 per annum each, together with school fees, and
  4. By operation of an agreement, her right to occupy, rent free, the Kensington property, (a property belonging to the husband’s father’s family trust through a company), during the minority of the children, which was a period of about 14 years at the time of the agreement

How did the court approach how the adequacy of the financial provision should be assessed, either at the date of the order and/or at the date of the trial?

The Court of Appeal noted that usually an application under MFPA 1984, Pt III would be made ‘sufficiently proximate to the making of the foreign divorce in question so that an assessment of the adequacy of the provision at the date at which it was made followed by a similar assessment conducted by reference to the trial date, would lead to the same outcome’ (para [62]).

However, there are some rare cases where there is a significant delay between the divorce and the MFPA 1984, Pt III proceedings. In such cases, the court must ensure it takes into account ‘all the circumstances of the case’.

All the circumstances of this case would clearly include consideration of the adequacy of the provision to the wife as of the date on which the Russian order was made. The judge had been satisfied that it was adequate.

A consideration of all the circumstances of the case might also include an examination of the husband’s means as of the date of the hearing of the MFPA 1984, Pt III proceedings. However, in this case, the features of particular importance were thought to be not so much the husband’s present financial circumstances as the form the financial benefit took and the circumstances leading up to it, in particular whether the provision was made pursuant to:

  1. A binding agreement between the parties
  2. Any relevant change of circumstances of the wife since the making of the order, and
  3. Any delay and the reasons for it

To what extent is the judgment helpful in clarifying the law in this area? Are there still any unresolved issues practitioners need to watch out for?

The Court of Appeal reviewed the leading case of Agbaje and provided helpful further clarification of how the various circumstances of a case can militate against making an MFPA 1984, Pt III order.

Although in this case the husband’s present financial circumstances were not considered to be as important as other more magnetic features of the case, the Court of Appeal still left open the possibility that all the circumstances of the case might include an examination of the husband’s means as of the date of the hearing of the MFPA 1984, Pt III proceedings. It will be important for practitioners to consider the extent to which such a consideration interrelates with other aspects of their client’s case.

What are the implications for practitioners? What will they need to be mindful of when advising in this area?

Practitioners should be mindful of how consideration of all the circumstances of their client’s case could undermine or support their client’s MFPA 1984, Pt III application. When adequate provision has been made in accordance with an agreement reached between the parties in foreign proceedings, practitioners should be cautious before pursuing a MFPA 1984, Pt III application on their client’s behalf.

Furthermore, the substantial effect which a delay in bringing a MFPA 1984, Pt III application following a foreign divorce could have on the outcome of their client’s case should be borne in mind, together with the extent to which such a delay could be considered tactical.

Stewarts acted for the appellant in this case.

Interview by Robert Matthews. This article was first published in LexisPSL on 23 October 2017 (Original).