English justice cannot override foreign divorce court settlements fairly reached: Zimin
Global economic uncertainty encourages investors to buy property in central locations. Although this mantra is beginning to wear thin, homes in central London remain almost invariably for the very rich (Savills – residential-research UK housing market updates: http://www.savills.co.uk/research/uk/residential-research/housing-market-updates.aspx.) The boom in London property prices has been partly fed by wealth available to non-UK nationals, who want to establish a base in London. The media reports another attraction of living in London (at least for high-profile claimant wives): London is known as the “divorce capital of the world”. This soubriquet has been well-earned when we consider some of the court judgements which deal with eye-watering figures.
Two pieces of legislation enable judges to order what other jurisdictions perceive to be generous pay-outs to claimants (we will refer to them as wives but they can equally be husbands; there is no gender discrimination). The first is the wide scope of discretion available under s 25 of the Matrimonial Causes Act 1973. The judges look at meeting the needs of the parties, then at sharing the excess. There may be special factors, such as the existence of non-matrimonial assets to take into account. Under this Act, anyone who divorces in England or Wales can make a financial claim to sort out their finances, so long as they have not remarried.
The second piece of legislation is in Part III of the Matrimonial and Family Proceedings Act 1984 (“MFPA”). This law is not for “domestic divorces” as the Part is headed “Financial Relief in England and Wales after Overseas Divorce etc”. The claimant has to prove that either:
• They or the payer is domiciled in England and Wales or was so when the foreign divorce was obtained;
• That either of them was habitually resident here;
• That at least one of them had a beneficial interest in a property which had been a family home.
Having qualified under one of these limbs, the claimant then has to get permission to go ahead and the court has to agree that England and Wales is the appropriate venue. This depends on a number of criteria including what provision may have been made on the jurisdiction where the foreign divorce took place (s.16 and s.18 of MFPA). “Hardship” and “injustice” are relevant factors to take into account (Agbaje v Agbaje  1 AC 628).
That is the background against which a Russian national Mrs Z approached the London courts in July 2014. After marrying in Russia, the parties soon after moved to London where they lived in a Kensington house owned by a company in turn owned by a Bermudan trust set up by Mr Z’s father who had created all the wealth in the family. The parties separated in September 2008 and Mr Z filed for divorce in Moscow in November 2008. A financial settlement was agreed in August 2009, under which Mrs Z received approximately US$10m, which was about 90% of the then matrimonial assets. She kept her Moscow apartment and her other assets, and could live in their Kensington home during the children’s minority with Mr Z paying the rent. She had advice from both English and Russian lawyers. In London Mrs Z told the court that certain aspects of a potential claim under English law had not been settled (principally relating to maintenance and to the question of nuptial trusts). Mr Z disagreed, not least as he relied on the fairness of the settlement agreement and its ratification by the Russian court.
Mr Z objected to any application being granted, stating that the agreement in 2009 had been fairly reached and had been ratified by the Russian court and anyway the wife had delayed for too long before this objection to its terms. A further complication was that much of the wealth was created by Mr Z’s father and held in trust until his death. Mrs Z pointed to her precarious living conditions: she had a lease of the London property that would expire and leave her potentially homeless and her lifestyle in no way equated to that of Mr Z, whose lavish spending went on increasing (mention was made of yachts and helicopters). The High Court judgment in which Roberts J narrowly allowed the claim to proceed to the quantification stage was reported as Z and Z and Others  EWHC 011 (Fam).
In the stage 2 hearing, the judge awarded Mrs Z an additional £1.14m and provision for the children (Z v Z and Others  EWHC 1720 [Fam]). She based this award on Mrs Z and the children needing the money and used Duxbury as a guide to calculation. Not unexpectedly, Mr Z appealed to the Court of Appeal, where the judgment revealed the names of the parties as Mr Zimin and Mrs Zimina ([EWCA] Civ 429). He did not object to the amount of money but the principle. The Court identified 3 main issues (paras 49 – 97):
a) What did “financial benefit” mean (s.16 MFPA)? As Russian courts do not deal with trusts, and did not make any orders for maintenance for Mrs Zimina or for the children or for housing, Mrs Zimina claimed that English law would order a “top-up”. In contrast, Mr Zimin kept to his argument that the Russian settlement was complete and provided for a clean break.
b) Did the English court have to consider a change in financial circumstances between the date of Roberts J’s order and the current date? Mr Zimin went on getting richer. There were new trusts, his position within the trusts improved and he had been given an additional US$37m out of trust funds. He wanted to rely on the law holding parties to their fairly reached agreement, which had been confirmed in Radmacher (formerly Granatino) v Granatino [UKSC] 42 (a case on prenuptial agreements). If Mrs Zimina could include changes since the first hearing, then that would put claimants in a better position. The court had been very clear in the case of Agbaje (above) that it was not appropriate to make a different order just because it was an English court not a Russian court making it.
c) Mrs Zimina had delayed for five years between the Russian court order and the filing of her application in London. This had worked to her advantage not only because Mr Zimin was wealthier but because her own financial position had deteriorated. Was it fair for her to take advantage if she had been deliberately delaying?
The Court of Appeal was typically robust in its decision with Lady Justice King giving the leading judgment judgement. She found that there was a very broad scope in the term “financial benefit”, the central issues were about the adequacy of the Russian agreement in providing for Mrs Zimina and the children and the importance of the fact that a Russian court had ratified the agreement and turned it into an order. The Court of Appeal looked at the old case of Edgar v Edgar  1 WLR 1410 decided in July 1980 and decided that what family lawyers call “the Edgar test” is still good law. Parties should be held to agreements fairly reached, with financial disclosure and legal advice. It was not possible to impugn the agreement reached on any of these counts. Additionally, the change in Mr Zimin’s finances was not a Barder event, where the court changes an earlier decision.
Finally, whilst understanding the reasons for splitting the final hearing in the High Court into stage 1 and stage 2, Lady Justice Black said that process contributed to a confusion about the importance of the delay factor (see Vince v Wyatt  UKSC 14 ). In reality, Mrs Zimina’s financial position had been fine but she had now incurred £1m of costs that put her in deficit which was no fault of the original Russian settlement.
Will this decision call a halt, or even a break in the inexorable march, to the perception of over-generosity to claimants in London? The answer is: probably not. If you can afford £1m on your own legal fees then why not give it a go? What might make a difference is the changing political and economic landscape. Whilst respect for the rule of law makes the UK an attractive trading base for many businesses there is a strong pull from cities such as Frankfurt and Paris. Claimants may be shocked at how much less a court in either of those countries would award on divorce, so they may be well advised to keep a foothold in London where possible. Not all Part III cases involve such marginal decisions as Zimin. Many Part III claims involve an application by a former spouse for whom manifestly inadequate financial provision has been made in a foreign jurisdiction. In such cases Part III acts as a much needed safety net.
Hazel Wright and Richard Kershaw
Partners at Hunters Solicitors
This article was originally published in Family Law journal’s December issue.