Potanina v Potanin [2024] UKSC 3: Barriers to obtaining financial relief after an overseas divorce – the respondent’s right to be heard to replace the “knockout blow” test?
In a 3:2 split, the UK Supreme Court has handed down judgment in Potanina v Potanin [2024] UKSC 3 significantly altering the rules governing permission to apply for financial relief in the England and Wales following an overseas divorce. The Court’s analysis, including the exchange of views between the majority and dissenting judges, of due process in such applications is highly relevant to interpreting the equivalent Hong Kong regime, which may become increasingly utilised with the rise of cross-border divorces in Hong Kong. In preferring an interpretation that less hindered a former spouse from disputing an order made in his/her absence, Lord Leggatt (delivering the judgment of the majority)[1] memorably stated [30]:
“Is this how the law stands?
… If this is indeed how the law presently stands, then I would feel bound to say that, in the eloquent words of Mr Bumble, “the law is an ass.” That rebuke would be justified …”
Leave required to apply for financial provision in Hong Kong after an overseas divorce
Divorcing parties often choose their jurisdiction of divorce based on their perception of which governing laws might offer them an advantage on the outcome of financial provision (or non-provision). A homemaker may prefer a jurisdiction adopting the principle of “yardstick of equality” for the equal recognition it gives to the breadwinner and the homemaker, whilst a party holding vast assets generated outside of the marriage may be looking to principles that allow treatment of certain assets as non-matrimonial.
If the two sides file for divorce in different jurisdictions hoping that their respective choices will prevail, the disagreement is often played out as a jurisdictional challenge or may culminate in a grab for anti-suit injunctions.
However, the door for financial relief in Hong Kong is not entirely shut against those who have divorced elsewhere. Under Part IIA of the Matrimonial Proceedings and Property Ordinance (Cap. 192) (“Part IIA”), those who have divorced outside of Hong Kong[2] are able to apply for financial relief here against their former spouse.
The relief is exceptional in nature: the Hong Kong Courts will not lightly take up the role of determining financial provision between former spouses when they did not divorce locally.
Leave of the Court is required to proceed with such an application. This is done ex parte. The applicant must demonstrate there is “substantial ground” for the application for relief,[3] and must meet jurisdictional requirements.[4] The leave requirement filters out claims that lack proper grounds, preventing Part IIA from simply being used by disgruntled ex-spouses as a vexatious tool to exert improper pressure for financial settlements.
Given the ex parte nature of the process, the respondent might then, without having been heard, become the recipient of a court order requiring him or her to participate in yet another litigation on matrimonial finance, but this time in a new jurisdiction with a new set of costs. The difficult question for Potanina v Potanin was: how should the Court ensure that both parties have a fair and proportionate opportunity to present their case on what could effectively be a re-opening of ancillary relief disputes after they had already been determined elsewhere?
Setting Aside the Leave Order
A respondent may wish to set aside the order for leave, rather than wait to contest substantively. Nipping the application in the bud saves time and costs, if successful.
Following the UK Supreme Court decision in Agbaje v Agbaje [2010] UKSC 5, it had been generally accepted that the respondent must present a “knockout blow” (a relatively high standard, achieved for example by setting out a compelling reason and showing that the Court was materially misled or that a decisive authority was overlooked) to convince the Court that the order for leave should be set aside.
After Potanina v Potanin, the respondent’s right to contest takes a more central place. The respondents will no longer be subject to the stringent Agbaje test, and it is the applicant who bears the burden of proving, once again, but this time on an inter partes basis, that there are substantial grounds for the application for financial relief.
The decision in Potanina v Potanin
The case concerned a Russian wife who was married to Russian oligarch Mr. Potanin, sometimes described as one of Russia’s richest men. The couple had married, lived, and divorced in Russia. After their 30-year marriage ended, she sought a share of the husband’s estimated $20 billion fortune. However, in the Russian proceedings, Mr. Potanin’s corporate and trust interests were not considered, resulting in her receiving only a “tiny fraction”[5] of the wealth. The wife had no connection with the UK during her marriage, and she relocated to the UK only after her divorce.
The judge at first instance was persuaded to grant the application for leave. The husband successfully applied to set aside the order for leave.
On appeal, the Court of Appeal found that the husband had not delivered a “knockout blow” that would justify setting aside the order. As a result, the original order granting leave was reinstated. The husband Mr. Potanin appealed to the Supreme Court.
Lord Leggatt writing for the majority of the Supreme Court ruled that the Court of Appeal was incorrect to require such a high threshold for the set-aside application. The cornerstone of the Court’s reasoning is the fundamental principle that, before an order requested by one party is made, the party adversely affected must be given an opportunity to defend themselves. The practice of requiring the respondent to demonstrate a “compelling reason” or “knockout blow” would inevitably undermine the right to challenge and would cause procedural unfairness.[6] At the hearing for setting aside leave, the onus should remain on the applicant wishing to apply for financial provision, to show a substantial ground for leave to be granted.[7]
Lord Briggs delivering the dissenting judgment,[8] was of the view that the “knockout blow” test should remain. He pointed out the “well-settled” nature of the test as one which the specialist family courts had applied consistently without dissent or criticism, whereas the majority’s proposal would be a “radical change” coming “almost out of thin air”. [9] Engaging in the discourse Lord Leggatt raised on procedural fairness, Lord Briggs countered that no fundamental principles of justice, equity or fairness were engaged, given that the original rule merely postponed the time at which the respondent could present his/her case – a position no different from most civil or family proceedings which similarly do not require the court’s permission to proceed and similarly results in obliging respondents to give disclosure and prepare for trial once the proceedings are commenced.[10] He was inter alia concerned also that this would embroil the parties in contested interim skirmishes about leave rather than employing parties’ resources for a sooner final hearing. [11]
Implications
Part IIA of the MPPO is modelled on an equivalent English regime that was invoked by the wife in Potanina v Potanin.[12] Hong Kong’s Part IIA is in substance largely the same as its English counterpart. Therefore, the Supreme Court’s reasoning is likely to provide valuable guidance on Part IIA applications in Hong Kong. The case is likely also to be of particular interest to lawyers advising clients who have obtained, or are contemplating obtaining, a divorce in the PRC. The enactment of Part IIA itself came about as a result of a case involving a PRC divorce. In ML v YK (2010) 13 HKCFAR 796,[13] the husband respondent successfully struck out the Hong Kong ancillary relief proceedings after the marriage was dissolved in Shenzhen, and the Court of Final Appeal upheld the Hong Kong strike-out whilst in obiter dicta also commenting on the need for introduction of legislation enabling Hong Kong to provide, in appropriate cases, for ancillary relief in respect of marriages dissolved outside Hong Kong. This ultimately led to the enactment of Hong Kong’s Part IIA, the regime equivalent to the English regime which Potanina v Potanin ruled on.
Modern-day divorces increasingly involve cross-border factors. From a practitioner’s perspective, Potanina v Potanin is likely to have several implications:
(1) Stronger interest from respondents in making applications to set aside: Respondents may be more inclined to challenge orders granting leave to apply for financial provision under Part IIA of the MPPO based on the clarified (and less stringent) threshold for disputing leave. Respondents may be more willing to incur legal costs at an earlier stage to gain the chance of nipping the whole matter in the bud. This could lead to additional interlocutory litigation and delays in the substantive resolution of the matter.
(2) Heightened scrutiny by applicants: Applicants seeking financial relief under Part IIA will likely be more cautious in their approach. They will need to carefully assess the cost implications of shouldering the burden to prove substantial grounds twice, even before entering the substantive stage. The new approach is likely to prompt applicants to strengthen their arguments and consider robustness of the evidence before filing an application.
(3) Deterrence for borderline cases: The new rules may deter applicants with weak cases. Applicants with borderline cases on whether substantial grounds could be established may think twice before pursuing an MPPO Part IIA application.
Considerations for the future?
Potanina v Potanin drastically altered, in England and Wales, the burdens of proof in the route to obtaining financial relief in overseas divorces. This is also an interesting development in divorce law in light of Hong Kong’s unique cross-border context, a development continuing from ML v YK (2010) 13 HKCFAR 796 which laid down the law regarding Hong Kong ancillary relief for marriages dissolved outside Hong Kong by making a ruling on proceedings where the marriage had been dissolved in the mainland of the PRC.
Any respondent attempting to counter a Part IIA claim made by a former spouse in Hong Kong is likely to rely on Potanina v Potanin to increase the procedural difficulty (and legal costs) for the applicant.
On the other hand, an applicant facing this issue in Hong Kong would likely be pointing to the existence of significant dissenting views in the Supreme Court’s judgment, which may well indicate that a reasonable balancing of the procedural rights between the former spouses may not always fall in line with the result of Potanina v Potanin.
Part IIA applications are not the only area where “knock-out blow” thresholds have been used. Consider for example: the Crossley line of cases[14] where parties had entered into an agreement on division of assets and one party asks the court at a preliminary stage in ancillary relief proceedings to give directions in light of such agreement; the entitlement of a party to show cause why an adoption order should not be made;[15] and provision for intervention to show cause against a degree nisi being made absolute.[16] It remains to be seen whether parallels and associated concepts may be borrowed from the Part IIA jurisprudence and Potanina v Potanin for those other Hong Kong matrimonial regimes with a knock-out blow/show cause stage in the proceedings.
The case highlights the enduring significance of the fundamental principles of access to justice and procedural fairness in an increasingly globalised legal landscape of matrimonial separation. As former spouses navigate divorce laws complicated by cross-jurisdiction features, these principles remain relevant and are continually reinterpreted by the Courts in an attempt to ensure fairness in a changing world.
Article co-authored by Jeremy Chan and Isabel Tam.
[1] Lord Lloyd-Jones and Lady Rose agreeing with the judgment of Lord Leggatt
[2] Also included are those who have undergone annulment or legal separation in another jurisdiction.
[3] Under Section 29AC of Part IIA of the MPPO.
[4] Outlined in Section 29AE of the MPPO.
[5] Potanina v Potanin [17]
[6] Potanina v Potanin [1]-[2], [31] – [39], [67]-[68], [98], [108]. The Supreme Court found that the mistaken practice of imposing a high threshold originated from obiter dicta observations in the Supreme Court judgment of Agbaje v Agbaje.
[7] Potanina v Potanin [98]
[8] Lord Stephens agreeing with Lord Briggs in the dissent
[9] Potanina v Potanin [111], [113], [115], [117]
[10] Potanina v Potanin [111], [141], [143]
[11] Potanina v Potanin [111], [128]-[129]
[12] Part III of the Matrimonial and Family Proceedings Act 1984
[13] In which Jeremy Chan acted for the successful respondent husband
[14] Crossley v Crossley [2007] EWCA Civ 1491; V, RHM v V, ES [2019] HKFLR 513; L v F (Crossley Application, Preliminary Issue) [2023] 5 HKC 83; cf. CKP v SYK [2021] HKFC 14
[15] Adoption Rules (Cap 290A), r.17
[16] Matrimonial Causes Rules (Cap 179A), r.61
Jeremy Chan
Jeremy Chan has been featured in Doyle’s “Leading Family & Divorce Law Barristers” Guide for consecutive years, with the directory again featuring him as the only ‘Market Leader’ Junior Counsel in Hong Kong.
Jeremy is a leading Junior Counsel specialising in all areas of Family Law with a particular focus on the areas of Matrimonial Finance, Private Clients, Inheritance, Probate and Trusts.
Called to the Bar in 2000, Jeremy has forged a career as a “go-to Junior” for Family matters and is noted for his “tough and very thorough” advocacy, he is “one of the top three Juniors in the field” and is considered to be “one of the most prominent Counsel here” in Hong Kong.
Jeremy is particularly noted for being “very numerate” and “with a good commercial sense” which “equip him particularly well in tackling high-value or financially complex cases”. Jeremy’s flourishing career has seen him be involved in the largest family disputes in Hong Kong, and he often represents clients within the Court of Appeal, often not associated with family proceedings.
Relevant to the issues discussed in this article, Jeremy represented the husband respondent in ML v YK (2010) 13 HKCFAR 796, a case involving a PRC divorce and in which the Court of Final Appeal in obiter dicta commented on the need for introduction of legislation enabling Hong Kong to provide, in appropriate cases, for ancillary relief in respect of marriages dissolved outside Hong Kong, ultimately leading to the enactment of Part IIA of the ) Matrimonial Proceedings and Property Ordinance (Cap. 192).
More details can be found in Jeremy’s Profile.
Isabel Tam
Isabel is a Bar Scholar who graduated with a first-class LLB and with distinction in her LLM. She also has an MA in competition law with distinction in the examination component and was seconded to the Competition Commission.
Called to the Bar in 2013, Isabel practises in a wide range of areas, with an emphasis on family law, commercial/regulatory matters and public law.
Recent highlights of Isabel’s experience include NF v R [2023] 5 HKLRD 58, a breakthrough for same-sex parents, granting a declaration of “parentage at common law” to a same-sex couple, and AA v BB [2021] 2 HKLRD 1225, which has been hailed as a landmark victory for the LGBTQ community, granting rights to a separated same-sex couple who had co-parented children during their relationship. Isabel appeared for the Respondent, the non-biological mother within the same-sex relationship, and secured rights for her including guardianship and joint custody.
Visit Isabel’s profile for more details.
This article was first published on 8 August 2024.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.