Love and money: how billionaires are going through a divorce

The arrest of the Russian court of the yacht Luna of Russian billionaire Farhad Akhmedov on the suit of his former spouse raises the question of the effectiveness of Britain as a center for "divorce tourism". Is it possible to avoid the execution of the judgment of the English court?
23.05.2018
Forbes
Origin source
In Russia, there are very few examples of the division of large spouses. Formally, Russian law gives divorcing spouses no less guarantees than most countries. All acquired in marriage (except for inheritances and gifts) is recognized as the common property of the spouses and is divided equally. However, there are very few examples of the division of large states during divorces in Russian courts. Courts are ready to share real estate, cars and other similar property, but not business (you can recall the stories of Vladimir and Natalia Potanin, Alexei and Elena Mordashov, Anna and Danil Khachaturov).

The plaintiffs are successful either in the event of concluding a settlement agreement (as, for example, Roman and Irina Abramovichi), or if the case is considered by foreign courts (the example of Boris Berezovsky and Galina Besharova, Dmitry and Elena Rybolovlev). This is partly due to the fact that Russian entrepreneurs rarely own expensive assets and businesses directly: foreign companies, trusts and nominal shareholders are used.
 

Although formally Russian courts have the right to demand information about the structure of ownership of assets from abroad and to divide the property of spouses "belonging to third parties" (including nominal owners and trust managers), they rarely do so. Even if such decisions are made, they are difficult to execute in countries where holdings are usually created (Cyprus, British Virgin Islands, other classical offshore jurisdictions).

Than attractive English courts

Much more often you can hear about the award of large sums for disputes between spouses in the courts of Great Britain. One of the reasons for the popularity of this country is a rather low "entrance ticket" for the right to file an action: it's enough to live there for a year. In English law, property relations between spouses are decided not by sharing common property, as in Russia, but by providing "financial relief", which gives the court more flexibility.

The claim can be filed even if the spouses are already divorced and even if earlier in another country the court has already resolved the issue of sharing their common property. Moreover, the marriage contract does not have absolute strength - the court takes into account it, but has the right to depart from its terms. The key principle of resolving property disputes between spouses is the same as in Russia - the division of property in equal shares, regardless of who made money in the family and who was engaged in housekeeping.

It is noteworthy that key judicial precedents for such cases are formed with the active participation of our compatriots. This, for example, the cases of the two Farhad F 69 and Tatyana Akhmedovs - the main dispute over the provision of financial security, in which the court assigned the duty to pay money in favor of the wife, including the Panamanian company controlled by her husband, and the subsequent case of arresting the yacht Luna, which was imposed, despite its transfer to Dubai and several transactions already completed during the trial for its resale.

In other words, the willingness of English courts to understand complex asset ownership structures, to take into account all the circumstances of the case and to assess the condition of the couple in essence, and not formally, to a large extent makes the UK a popular jurisdiction for the divorce of wealthy spouses. Another component of popularity is the ability to enforce the decision of the English court in many countries of the world.

Judgments for export

Decisions of English courts are automatically executed in the countries of the European Union by virtue of the Regulation on the collection of content and the Lugano Convention of 2007, which also applies to Denmark, Iceland, Norway and Switzerland. Although automatic execution is only possible for decisions to pay "maintenance" (often translated as "alimony"), English courts widely interpret this term. Thus, in the Akhmedov case, "maintenance" is £ 224 million out of the total amount to be recovered (£ 350 million).


Although after Brexit both the Regulations and the Lugano Convention cease to operate, the Brussels Convention of 1968, which also gives grounds for the enforcement of the decisions of English courts in the EU, will remain in force for Great Britain. In addition, the likelihood of signing the Lugano Convention by Great Britain as an independent party or the conclusion of a new agreement is great. English judgments can also be enforced under the Hague Convention on the International Recovery of Alimony in 2007 (covering Belarus, Brazil, Kazakhstan, Norway, the United States, Ukraine, but not Russia) on the basis of bilateral international treaties, and also on the basis of reciprocity.

Of particular importance is the regime of mutual recognition and enforcement of judgments between countries belonging to the Commonwealth of Nations, including such popular offshore jurisdictions as the Bahamas, Belize, Bermuda, BWO, Cayman, Mauritius, New Zealand, the Seychelles, Singapore and several others. A similar regime applies to the so-called crown lands, which include the islands of Guernsey, Jersey and Maine. In these countries, the judgment of the English court is not automatically enforced, but by a relatively quick and straightforward procedure for "registering" a judicial act, during which only the competence of the English court to examine the case is checked; in other words, the probability of failure in performance is small.

In Russia, the decisions of English courts can potentially be recognized and enforced on the basis of the principle of reciprocity. In the absence of detailed legislative regulation and explanations of the Supreme Court, it is applied at the discretion of the court. In practice, there are very few such cases, and they are usually not divorced, but commercial disputes (for example, the case of BTA Bank suits Roman Solodchenko and other defendants). In those countries where the execution of a judgment of the English court requires its recognition and enforcement on the basis of a local court's decision, it is likely that the local court will take a different position. An example is the same case of the arrest of the yacht Luna: although the Dubai court of first instance upheld the decision of the English court, the appellate instance quashed the arrest.

Although at the moment the prospects for recognizing English decisions on awarding financial security in Russia are small, the list of countries where these decisions are executed automatically covers almost all popular jurisdictions for the creation of holding companies, which means that even if the assets themselves are located in Russia, The control over structure through which the possession is made is lost.

Question price

The approach by which the defendant decides not to take part in the case at all in the hope of not complying with the English court's decision on the financial dispute of the English court, which is considered by the English court, is not uncommon, but it is important to understand what consequences it entails. First of all, non-participation in the case involves non-execution of court orders (which in such cases usually include the requirement to disclose information about all of their assets, and often also interim measures to prohibit transactions with assets), which in English law is an independent offense - disrespect for the court. It is punishable by fines at the discretion of the court and potentially incarceration. An example of the fact that English courts are ready to apply these powers in practice is the two-year prison sentence for Sergei Pugachev in a dispute with the DIA.


Another practical consequence of not participating in the case is the court's readiness to consider the arguments and circumstances, from which the defendant refutes, even if the plaintiff can not fully prove them. Finally, making a bet on the possibility of failure to comply with the English judgment, you should carefully check the list of jurisdictions with which ownership is related both in business and personal assets. It is necessary to take into account not only the countries where the assets are actually located, but also the jurisdictions of the establishment of companies that own the asset, directly or indirectly, act as lenders for intra-group debt, as well as banks and brokers that serve them.

Prevention is better than cure

Warn the situation in which the spouse will be involved in the dispute over financial security in the UK, you can in various ways. First, you can avoid the situation when the second spouse will have a permanent residence in this country. In addition to the obvious restrictions on the way of life, this option has another drawback: the spouse can move to the UK after the divorce and after one year of life in this country get the right to claim.

Secondly, English lawsuits require considerable expenses. To conduct such a case of medium complexity, the plaintiff must have a budget of about £ 500,000. Although at an early stage of the process the court can make regular payments in favor of the plaintiff as an interim collateral, and in the event of a victory a significant part of the court expenses may be recovered from the other side, if the defendant is evaded, the actual execution of all these decisions of the English court can take place only after a long time.

At the same time, underfunding of the second spouse is also not an absolute defense against the claim: cases with good potential can be financed by specialized organizations in return for a share of the recovered amount.

A certain level of protection may be given by the marriage contract if its conditions and the circumstances of its conclusion do not point to the obviously unfair and unilateral nature of the agreements fixed therein, if each party was aware of the actual financial position of the other party, had the opportunity to study and understand the contents of the treaty, and there was no compulsion. Although, as noted above, the English courts have the right to depart from the terms of the marriage contract, when implementing these recommendations, it is likely to be accounted for by the courts.

If the claim is already filed, then before making a decision to refuse to participate in the English legal process, it is recommended to assess those restrictions that this decision will impose on asset ownership.

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