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The case concerned a claim by a wife against her husband for financial relief under Part III of the Matrimonial and Family Proceedings Act 1984. However, proceedings were complicated by an alleged loan agreement which stated that the wife owed £2 million to Hinaly, a company the husband set up. Mr Justice Holman had to determine two questions. First, did the wife owe Hinaly £2 million? Second, did the wife have a claim under Part III? Holman J found that the loan agreement was a sham and Hinaly had no claim against the wife. He also awarded the wife £5 million (30% of the husband’s estimated wealth) under Part III. Finally, he made an order for costs against both Hinaly and the husband.

Facts

The husband (56) and the wife (47) were both Russian, married in Russia in in 1991. The parties had three children, although at time of the final hearing only one was under the age of 18. The wife moved to England in 2011 to allow their youngest child to go to school as a day boy. During the marriage the husband became very wealthy [19] – although as he did not engage with proceedings the extent of his wealth was not known (estimated very conservatively at £22 million [78]).

The husband set up “Hinaly” to manage his wealth in 2006 [21]. He was initially the sole shareholder and sole director; although by 2014 he was neither and the company was owned by a trust (of which the parties’ children were beneficiaries). That said, there was evidence of him controlling Hinlay’s money as late as 2016 [26].

The marriage broke down in 2013 and in 2016 the parties obtained a divorce in Russia. The husband pressured the wife into agreeing the terms of the divorce, namely that the wife retained the family’s house in England and her own assets – but nothing else. The wife received no legal advice, did not know what she was signing and was “set up and ensnared by the husband” [34]. Thereafter the husband remained in Russia with the parties’ youngest child, and the wife in England.

Neither the husband nor Hinaly were represented at the final hearing (although Hinaly had been represented at previous hearings) and only the wife gave evidence.

The Hinaly Loan

In 2013 the parties purchased a property in England. The wife’s case was that this was purchased by the husband as a gift for her and the children [46].

However, in early 2013 the wife signed a loan agreement stating that she owed Hinaly £2 million [25]. In October 2013 the wife signed another document confirming the loan agreement but amending the repayment date [49]. At this point, the husband was the director of Hinaly. While the wife accepted she signed the agreements, her position was that the husband told her: the agreement was for tax purposes; the house was a gift; and she would never be asked to repay the £2 million [46].

Holman J found that both loan agreements were a sham and the £2 million was a gift [55]. First, he found that signing the second agreement (October 2013) did not impose an additional burden of proof on the wife as the two agreements were to be considered together [50]. Second, he assumed that Hinaly did provide the money for the purchase, although there was no direct evidence of this [51].

However, crucially, Holman J accepted the wife’s account of the husband’s representations to her about the loan – that it was a gift. Next, he found that the husband, as director, “had the capacity to make collateral statements and representations” [52]. Further, he found (citing National Westminster Bank Plc v Jones and others [2001] 1 BCLC) that Hinaly, via the husband, had no intention of enjoying their rights and enforcing the loan: it was, therefore, a gift. Finally, as the wife relied on this representation, she shared this intention [54]. 

Consequently, (citing Snook v London and West Riding Investments Limited [1967] 2 QB 786) Holman J found that [55]:

“on the basis of the husband’s representations and statements, the agreement was intended to give to third parties, such as HMRC, the appearance of creating between the parties legal rights and obligations - viz a repayable loan - different from the actual legal rights and obligations (if any) which the parties intended to create”

Holman J then found that Hinaly was properly a party in front of the court (despite not being represented, which he pointed out was their own fault [58]). He made a declaration that the loan agreements were a sham and that the wife was not indebted to Hinaly [59], in order to prevent Hinaly from bringing any claim against the wife in the future (as they had threatened to do) [58].

Part III Proceedings

Holman J was satisfied under s16(2) of the Matrimonial and Family Proceedings Act 1984 that it was appropriate to make an order for financial relief [71]. In particular, he noted that the wife would not receive any money from Russian proceedings [65], but would have received substantive financial relief had proceedings been carried out properly [67]. He also stated that although enforcement would be difficult and must be considered under s16(h), to dismiss an application on such a basis [69]:

“would be to give in to a form of blackmail, and would serve as an invitation to many overseas respondents simply not to participate in proceedings under Part III but to raise the spectre of the difficulty of enforcement.”

In deciding the size of the award Holman J addressed the s25 factors [74 – 87]. He found that the husband’s lack of disclosure meant he could not properly assess his wealth [76], but estimated it “very conservatively” at £22 million [78]. He found the wife’s net assets to be £1,643,00 [74]. He also found that the wife’s housing needs were already met and her income needs would be met by a Duxbury fund of £1.1 million [81].

He then reviewed the law under Part III as set out in Hammoud v Al Zawawi [2019] EWHC 839 (Fam) and noted that: first, a claimant is not limited to a minimum amount required to overcome injustice; second, she should not receive more than she would have under English proceedings; third, where connections to England are “very strong” the application could be treated as if it were in English proceedings [89].

Holman J therefore determined that the award should be somewhere between the £10 million she would have received under the sharing principle in English proceedings (as there is an element of sharing in Part III proceedings [91]), and the minimum £1.1 million [90]. He concluded that £5 million, or 30%, would be appropriate [93]. 

Finally, he made an order than Hinaly and the husband were jointly and severally liable for £170,000, or 70%, of the wife’s cost [99].

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