The Most Interesting Financial Remedy Case in the Last 12 Months!

Xanthopoulos v Rakshina [2023] EWFC 50

In this article, Director David Allison of Family Law in Partnership and Ekaterina Tyagay of Pen & Paper explain why Xanthopoulos v Rakshina is such a landmark judgement.

In May 2023 Resolution, the UK-based organisation representing family justice professionals, held its annual conference in Brighton, England. The delegates were asked to vote for the most interesting divorce money case in the last 12 months. Over 73% voted for Xanthopoulos v Rakshina [2023] EWFC 50. This note seeks to explain why this judgement was the “most interesting.”

Introduction:

Xanthopoulos v Rakshina [2023] EWFC 50 was the last judgement in a long running English/Russian case that has resulted in numerous reported decisions that will have a lasting impact on English law. This judgement, and several preceding it, concerned the former husband’s application for financial relief following an overseas divorce (a “Part III Application”). The full decision of the English court on the Part III Application can be found here.

The former wife’s English legal team was headed by FLiP Director and IAFL Fellow, David Allison who worked closely with the Russian team headed by Partner and Head of the Sensitive Matters Practice at Pen & Paper, and IAFL Fellow, Ekaterina Tyagay. The English team also included IAFL Fellows Alexis Campbell KC of 29 Bedford Row and Lucy Stone KC of Queen Elizabeth Building.

The English and Russian legal teams worked closely together throughout the proceedings to ensure that the steps taken in each jurisdiction supported our client’s case in the other jurisdiction. This meant that both teams were involved in the strategic decisions made in both jurisdictions. It worked well.

Various proceedings took place in both jurisdictions in parallel: the divorce was pronounced in Russia after a forum dispute in the English court; the Russian court established the children’s place of residence with their mother, and defined the father’s contact with the children before the final hearing in the English court at which jurisdiction for the children issues was determined and, after a number of hearings, reported in anonymised judgements. Notably, despite the Part III Application in England, no financial proceedings were issued in Russia where all the marital property matters had been resolved by the Russian Post-Nuptial Agreement. Understanding the approach of the Russian court and the importance given to that Agreement in Russia was a key part of the way the English and Russian legal teams worked together. “The parties have had, – Sir Jonathan Cohen notes – well in excess of 60 hearings in Russia and England”.

The first 3 paragraphs of the judgement set the scene. Sir Jonathan Cohen said:

1. “I am dealing with the husband’s application for financial remedy orders pursuant to leave given under Part III of the Matrimonial Family Proceedings Act 1984. The parties’ marriage was brought to an end by a decree of divorce granted in Russia on 11 March 2021 and permission to apply under Part III was given on 15 June 2021.

1. This case has a depressingly lengthy history. It began when H laid a trap for W by issuing but not serving a petition for divorce in England on 21 September 2020, obtaining a without notice freezing order on 2 October 2020, and then serving his divorce petition and order late that night, a few days after W’s return to London from Russia.
2. In the 2½ years since then the parties have been engaged in some of the most costly and destructive litigation imaginable. The total costs of their litigation about jurisdiction, children and money are now approaching £9m. Every penny of this has been funded by the wife. There are a series of cost orders made against the husband to which I will refer later which present particular difficulties in this case”.

Key developments from Xanthopoulos v Rakshina [2023] EWFC 50 relevant to English law:

• The impact of a Russian Post-Nuptial Agreement;
• Legal Services Payment Orders for costs during the litigation; and

• The impact of the former husband’s litigation conduct.

The impact of a Russian Post-Nuptial Agreement

Pre and Post-Nuptial Agreements are not enforceable in England & Wales.  However, it is clear law that: “The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement.”  Radmacher v Granatino [2010] UKSC 42.

The parties in this case had executed a Post-Nuptial Agreement in Russia entirely in accordance with Russian law and procedure. All Russian nuptial agreements are drafted and read out loud by the notary in the presence of both parties in order to guarantee transparency and a full understanding of the consequences of entering into such an agreement. The agreements are concluded in a strict notarized form and the notary bears responsibility for each notarial agreement. Under Russian law a nuptial agreement is considered valid unless its validity has been challenged in court. Specific grounds provided for by Russian legislation for invalidation of a nuptial agreement were absent in this case. Notwithstanding the former husband’s attempts to argue in the English proceedings that the Post-Nuptial Agreement was not valid, no legal actions aimed at challenging the Agreement had been taken by either of the parties in Russia.

The Post-Nuptial Agreement was, therefore, found to have been freely entered into by the parties entirely voluntarily and with knowledge of the financial situation. Sir Jonathan Cohen stated that: “it is not for the English court lightly to overrule what the former husband chose” and in this case the Post-Nuptial Agreement was a decisive factor.

Legal Services Payment Orders

These are orders that enable a party who does not have the resources to meet his/her own lawyers’ fees, to secure an order requiring the wealthier spouse to pay those fees during the case without prejudice to any order for costs that may be relevant at the conclusion of the case.

In this case the former husband made 11 applications for Legal Services Payment Orders. Notwithstanding the provision made under Legal Services Payment Orders, he nonetheless had outstanding liabilities of £900,000 with various firms of solicitors who overshot the sums granted by the orders. In Xanthopoulos v Rakshina [2023] EWFC 50, Sir Jonathan Cohen declined to make an order to provide these solicitors with their overspent costs and the judge made clear that it is the solicitors’ duty to apply to the court for a further order if they run out of funds. Following this judgement, solicitors must advise litigants making such applications cautiously, and overspend at their own and their lawyers’ risk.

Surprisingly, while having significant outstanding liabilities to his solicitors in England, the former husband has engaged a new lawyer in the Russian children proceedings without disclosing the source of funds.

The impact of the former husband’s litigation conduct

It is now well established under English law that litigation conduct can be relevant to the final award. In this case, the former husband changed solicitors on 7 occasions (thereby increasing costs materially); he made 11 applications for Legal Services Payment Orders (referred to above) and breached nearly every order that was made. The judge said: “The schedule prepared by counsel for W recites 35 breaches of 15 orders made, all bar one by me, at 12 different hearings.” This impacted significantly on his award. Future litigants must be advised that litigation conduct will have consequences on a final order and will reduce what the offending party receives, which may be less than their needs.

Xanthopoulos v Rakshina offers further key learnings for those involved in international financial remedy proceedings:

Open Offers

The English court encourages the parties to litigation to make open offers and the rules of court require open offers at certain stages of the proceedings. This was very much our approach throughout the proceedings. The strategy was primarily to settle the case before such significant sums were spent on legal costs, but otherwise to give our client costs protection. The latter succeeded.

We made it clear that this case should be settled, bearing in mind the clear impact of the Russian Post-Nuptial Agreement. The former wife made an open offer early in the proceedings to which the former husband never responded. The judge said: “it is obvious that husband should have accepted the offer.  At the very least he should have responded constructively to it.  What could never have been the right course was for him to do nothing.  But, no offer in reply was ever made.”  The judge went on to say that the wife’s offer: “would have provided the husband with far more than he will receive under my order.  The offers were sensibly judged by W, no doubt anticipating the horrendous haemorrhage of costs that has followed.  H has never made a single offer.  Both parties filed their Forms E (financial disclosure) in December 2021.  He should then, at the latest, have made an offer in reply.”  Later he said: “It follows from everything that I have set out that appropriate orders for costs would completely eliminate any sharing claim that H might have and leave a large deficit. This must inevitably impact upon his needs-based claim.“

In future litigants should be clear that failure to make an open offer, or to respond to an open offer made by the other party, may mean that they are awarded less than they need.

Peculiarities of English/Russian multi-jurisdictional proceedings

Potential litigants in multi-jurisdictional English/Russian family proceedings (including, but not limited to, financial claims) may learn from Xanthopoulos v Rakshina that:

• The importance of litigation conduct and the complexity of parallel proceedings in multiple jurisdictions require an end-to-end consistent approach in all processes. This can only be ensured by the constant and effective communication of the legal teams in various jurisdictions and their ongoing coordination.
• Taking into account the differences in the procedural instruments of Russia and in England & Wales, it is necessary to understand that even with the most conscientious behaviour of the parties in the proceedings in both jurisdictions and a coordinated position, much depends on the nuances of the legal systems. For example, Russian law does not use such legal instruments as interim measures in disputes over matrimonial property, and also it does not recognise the concept of consent orders. Therefore, in the presence of parallel processes, it is important, for example, to convey this to English judges who are expecting certain litigation conduct not only in the English jurisdiction, but sometimes in other jurisdictions as well.
• The existence of traditional and effective tools for resolving family matters (including property ones) in one jurisdiction does not guarantee their automatic feasibility and applicability in another jurisdiction, but they can and should be relied upon, clearly demonstrating the logic of their choice and application. So, even with the peculiarities of the perception of marriage contracts by the English courts, each time it is necessary to individually consider the circumstances of the conclusion of such contracts in Russia, their fairness and relevance for the living conditions of the family. At the same time, it is important to remember that, unlike in Russia, where a valid nuptial agreement almost always prevents any disputes about property, in England the prospect of such disputes remains even after a Russian divorce is finalized – in particular, as part of the Part III proceedings.
• Finally, it is important not to forget that the English legal system is still vulnerable to “divorce tourism” and attempts to abuse this system by spouses acting in bad faith and trying to cling to the English jurisdiction by all means. Nevertheless, it is always necessary to pay attention to the existence of a real connection of the parties to England, as well as to other jurisdictions, where both or one of the spouses have significant interests. Ultimately, it is up to international family lawyers to help not only the parties, but also the court to see the real geography of life and interests of all family members and determine appropriate instruments for the protection of such interests without prejudice to the interests of others.

Privacy of Family Proceedings in England & Wales

This was dealt with in another landmark judgement in the same case – Xanthopoulos v Rakshina [2022] EWFC 30. IAFL Fellow Simon Calhaem of 29 Bedford Row represented the former wife. The full judgement can be found here. The judgement of Sir Nicholas Mostyn in this case has severely weakened the concept of privacy in family proceedings.  The judge said:

“In my judgment, the privacy of proceedings….. is extinguished by the permitted presence of journalists or bloggers.  The permitted presence means that the proceedings are to be treated as if in open court…….In my opinion, in the absence of a specific reporting restriction order, a journalist or blogger who receives information by virtue of being present during the proceedings is fully entitled to publish that information”.

This judgement resulted in widescale reporting of the case in international and local media including both in England & Wales and in Russia.  The judgement remains controversial and untested by appeal. It is not followed by many other judges in the High Court in England & Wales with the unsatisfactory result that, whether your private financial information disclosed in court is confidential will depend on which judge your hearing happens to be listed before.

Conclusion:

We hope that we have illustrated why the Resolution delegates voted Xanthopoulos v Rakshina [2023] EWFC 50 as the most interesting divorce money case in the last 12 months.

Please feel free to contact the authors of this note if you require any further information on the matters outlined here.