From Russia with litigation: AG v VD  EWFC 9
18th February 2021
Cohen J considered a claim made under Part III of the Matrimonial and Family Proceedings Act 1984 following a divorce in Russia.
AG (“W”) made an application pursuant to Part III of the Matrimonial and Family Proceedings Act 1984 for financial relief following the breakdown of her marriage to VD (“H”) and a divorce in Russia.
W was 51, and H was 56. W had a daughter, S, aged 17, and H had four children by previous relationships. The parties met in 2008 and co-habited from 2009. They married in Russia in 2010. They then moved to London (having bought a flat in NW8) after W obtained a Tier 1 investor visa, having been loaned £1m by H. W and S had lived in London since that time, although H’s business interests mainly kept him in Russia and to a significant extent the marriage was spent apart. In early 2014, H fell out with the Russian government and had to leave Russia at short notice.
H said the marriage came to an end in 2014, but W said it did not come to an end until 2017. Cohen J found that the marriage did not come to an end, and was not perceived to have come to an end by either party, until 2017. Among other things, from 2014-17, they had shared a bedroom on many occasions, went on holiday together, and celebrated birthdays together. It was clear to Cohen J that ‘the parties still saw themselves as a couple’ .
W claimed the marital assets were £29m, of which H owned £26.5m and W £2.5m. H claimed the total assets were only £7.6m, of which he owned £2.9m and W £4.6m, but that after repayment of sums he had borrowed from a foundation in which he had placed the majority of his assets, he was worth -£6m.
Cohen J stated that ‘[t]he parties have lost all perspective of what this case is really about…They have sought to argue every point available to them and have thus between them expended some £2.1m on costs’ .
In November 2010, H entered into a Principal Party Agreement with a trust company, U, giving U control over 16 of H’s companies. In July 2011, U established a private foundation in Curacao (“the Foundation”), and it acted as director of the Foundation. In February 2012, H entered into the first of a series of loan agreements with a BVI company whereby funds held within the Foundation were made available to H by way of loan. H said he had borrowed a little over £13.5m in various tranches against a loan facility of £15m. H accepted it was highly unlikely that any of the loans would be called in during his lifetime.
Loans were used to purchase:
· A property in Cyprus in 2012, in the name of a Foundation company.
· A property in Majorca in 2012, in the name of another Foundation company.
· A second property in London in 2013, on The Bishops Avenue in Hampstead (purchased by way of loans apart from the last £1.7m). (The first matrimonial home in NW8 was sold at the end of 2014.)
H said that he understood that in 2015 he had transferred the beneficial interest in the entities within the trust to his son, ND, but this was not supported by the only document from that time which H could produce. There had never been any document which H could produce which actually vested the interest H had in the entities in any other person.
H said there had been no distributions from the Foundation to him, only loans, but Cohen J did not accept this. Three houses had been purchased with the use of funds from the Foundation (the properties in Majorca, London and Cyprus), the matrimonial home on The Bishops Avenue was funded by way of loan (save for £1.7m) but was placed in the names of the parties, and all three properties and/or the loans used for their purchase appeared on the books of the Foundation as assets held by it.
Cohen J rejected the contention that H had gifted the majority of his wealth to ND. He was of the view that H remained the beneficial owner and the controller of the funds and assets within the Foundation, and had ‘no doubt that they are available to him as and when he wishes to call upon them’ .
In January 2013 the shares in one of the Foundation companies were transferred to W so she could set up a medical beautician business called LMS off Harley Street. H invested heavily in the business, including loaning W £200k.
In early 2015, W incorporated MM, a high-end fashion retailer. H invested €100k into the project.
In December 2017, H issued his divorce petition in Russia. W had attempted to serve an English divorce petition on H and claimed he evaded service, but she eventually accepted defeat and her English petition was dismissed by consent. In September 2018, H issued his application for financial relief in the Russian courts.
Cohen J found that in an attempt to remove from the distributive powers of the Russian court the assets held by W outside England, W had:
· In October 2018, gifted to her mother a small flat in St Petersburg which S’s father had bought for W.
· In December 2018, sold the Majorca property for €3.53m net, which she transferred in tranches to her own private account.
· In March 2019, purported to sell the MM shop to an employee for €49k inclusive of stock. The purchaser had not paid the price, and although H suggested the sale was a sham, Cohen J found that W’s business acumen was very limited, that the project was a financial disaster and that W no longer had an interest in it.
The effect of the Russian proceedings, heard in July 2019, was as follows:
· The London matrimonial home and the shares in the Majorcan company which held the Majorcan property were to be divided 50/50. (Although by that point a significant part of the Majorca proceeds of sale had been spent.)
· H’s claim on the flat in St Petersburg and for the return of the investor visa loan of £1m, plus interest of over £280k, was dismissed.
· Some other minor assets were to be divided equally.
· No form of continuing provision, whether by way of maintenance or otherwise, was provided for W or S.
No account was taken of assets held in entities not owned by the parties, so that H’s business activities and all his funds which had been transferred into the Foundation did not enter the equation.
H calculated that the effect of the order was to leave W with about £4m, being half the value of the London home and half the Majorca home, on the false assumption that the proceeds of the Majorca property had been preserved.
H had obtained permission to appeal the order dismissing the application for the return of the investor visa money by way of a retrial. If he were to succeed, the value of W’s award from the Russian court would reduce by £1.3m, plus penalties accruing at 0.1% per day.
W’s response to the Russian order was to apply for permission under Part III.
Was England the appropriate venue for the application?
Cohen J considered that there was a substantial connection with England, and that it was appropriate for an order to be made by the English court. This was for a number of reasons, including that:
· The parties decided to leave Russia for England in 2010, and had had their main home here since then.
· W had not visited Russia since 2015, and W and S had lived nowhere apart from London in the last decade.
· W had long severed her links with Russia and the entirety of the parties’ married life was spent in England.
· They bought their own property in London and took out British citizenship.
· The Russian order did not lead to any redistribution of the family assets, and had not been complied with in any way of which Cohen J had been told.
· The effect of the Russian order was to leave W with just £1m to house herself and S and to live off (it would give her c. £2.5m, of which she would be expected to repay one half of the proceeds of sale of the Majorcan villa, i.e. £1.5m). If H’s appeal to recover £1.3m plus penalties were to succeed, W and S would be left with nothing. The Russian order did not provide adequately for the needs of W and S.
H’s business activities
W had spent a large amount of time and money attempting to show that there had been a significant marital acquest through H’s business activities. However, Cohen J said that ‘[u]nless W’s share of that acquest exceeds a needs-based award she will not receive a sharing award’ .
Ultimately, Cohen J was not satisfied that sufficient had been earned or preserved during the marriage to entitle W to the making of a sharing award. He was satisfied that H did earn income and make profits during the marriage, but a large amount was spent by the parties on properties in London, Majorca and Cyprus, big sums were put into what turned out to be failed investments, and a very high standard of living was maintained. That expenditure had only reduced what might otherwise have been an acquest. Cohen J concluded that ‘the bedrock for any conclusion of a significant acquest is absent’ .
W’s use of resources
H (Cohen J thought rightly) pointed out that W had run through an enormous amount of money during the marriage, including £757k which W had received following the sale of the parties’ first London home, £779k received on the redemption of government bonds, £3.18m from the proceeds of sale of the Majorca property, and very substantial transfers made by H to W’s account.
However, Cohen J commented that it was ‘a little difficult for H to make complaint about the use of resources by W which he provided himself’, which covered most of the payments, especially given that H was ‘happy to indulge her’ . With regard to W’s failed business ventures, H himself had invested in both of them.
H asked Cohen J to add back a significant element of the money that W had received and spent. Although Cohen J regarded some of W’s expenditure as irresponsible, it was not wanton dissipation of assets. Additionally, Cohen J noted that bad investment decisions had been taken by both parties, e.g. H had invested £2.6m in a Russian restaurant in London.
The parties’ assets
The matrimonial home on The Bishops Avenue had a net value of circa £5.14m (£2.57m each). W had a surplus of other assets over liabilities after paying her outstanding costs of £95k, giving her assets of £2.66m. No fixed value was attributed to W’s jewellery or handbag collection, or the household chattels, since although they were realisable assets, Cohen J stated that ‘in a case of this nature, I do not regard it as reasonable to say that W’s needs should be met in that way’ .
H had his share of the matrimonial home of £2.57m, and Cohen J included the Cyprus property as an asset available to H (although it had been placed in H’s son’s name), which had a net value of £687k. H owed his solicitors £170k, leaving him with assets exclusive of the Foundation and business assets of £3.087m.
Cohen J found that H was the beneficial owner of the Foundation and had access to its assets, and that he had an interest in German and Russian business ventures and companies in a sum that could not be determined.
Cohen J was not satisfied that he could or should infer that H’s business interests and access to assets which he had not disclosed were ‘so significant or that H is so wealthy that W’s case as to her needs should be assessed at the upper end of the bracket as I am asked to do’ .
W sought a transfer of the matrimonial home, and a lump sum of £3.8m (to provide her with £174k pa on a Duxbury basis).
H offered to forego all repayments due to him, but only if his offer of W retaining her half of the home, and nothing more, was accepted.
Cohen J did not regard W staying in the matrimonial home as being reasonable in terms of meeting her needs ‘against the background of what is not a long marriage and when within a fairly short time her daughter will be taking steps towards independence’ .
W proposed properties on the market at well in excess of £4m, and H proposed properties at under £1.5m. Cohen J accepted that it would be reasonable for W to live in a purpose-built apartment building in a good and safe area of Hampstead/Highgate, and that she would need three bedrooms, but he did not accept that W required a swimming pool or gym within the development. He concluded that a proper sum for W’s housing was £3m, plus expenses of purchase, moving, setting up and SDLT, which was calculated at a total of £3.4m.
Both H and W put forward budgets for themselves at around £250k pa (although W had originally sought over £860k pa). Cohen J bore in mind that this was not a long marriage and that W did not bring money in to the marriage, and that although the standard of living was very high, this could not ‘be allowed to predominate over other factors’ . However, in his view, W did not have a significant earning capacity, and would not easily find a job in England.
Cohen J stated that his award ‘must be sufficient to meet what I deem her reasonable needs to be on a lifelong basis without making the assumption that she can so contribute’ to her own outgoings . He concluded that W needed £100k pa, which produced a capital sum on the Duxbury tables of £2.06m. W would therefore need a lump sum of £320k, in addition to the transfer of the matrimonial home. Cohen J was satisfied that this order did not impinge upon H’s ability to meet his own needs.
H was further required to pay the service charge and, if separate, the buildings insurance on the matrimonial home until 1 September 2022 or earlier sale, and to pay (as he accepted he should) S’s school fees and thereafter her tuition and living expenses at university. He was also required to pay periodical payments to S in the sum of £24k pa (as he had offered), of which 50% would be paid directly to S, and the balance to W, from the time that S started at university.
Cohen J further directed, given that his award was needs-based, that H must provide an indemnity and/or pay a lump sum equal to the amount of any award against W that he obtained in Russia. It would not be appropriate for a needs-based award to be reduced by H’s pursuit of the return of the investor visa loan, nor for H to be left with the ability to claim for the monies loaned to W’s businesses.