|Court of Appeal Applies Russian Law in Dispute over Beneficial Ownership of London Property|
Russian businessman fails in claim for half-share in family home
The Court of Appeal has dismissed an appeal by Valdimir Slutsker against an order in the Chancery Division which denied him a beneficial interest in a London property purchased as a family home for himself, his former wife, Olga Slutsker, and their children.
In Slutsker v Haron Investments Ltd & Anor  EWCA Civ 430, the Court heard that the property had been purchased by the first defendant, Haron Investments Limited, as nominee for Mrs. Slutsker. An offshore trust was then created, for which the second defendant, Summit Trustees (Cayman) Limited, was appointed trustee; this held the beneficial interest on a discretionary basis for Mr. and Mrs. Slutsker, their children and others.
When the marriage failed, the trustee exercised a discretionary power to exclude Mr. Slutsker as a beneficiary. He challenged this, asserting that half the beneficial interest was held on trust for him absolutely.
Mr. Slutsker claimed a half share in the beneficial interest under English law.
He contended that he should be regarded as owning half the property asserting that (under Russian matrimonial property law) the purchase money had been joint in origin and was therefore divisible in equal shares, thus giving rise to ownership of half on a resulting trust basis. As he had not done anything to divest himself of his share of the money, once it was used to buy the property, he was entitled (on ordinary English law principles) to a share. He relied on Russian law to establish his right to the purchase money, but English law to establish rights to the property it had been used to purchase.
He asserted that under Russian law, he had not had sufficient knowledge of the transaction and did not give the consent necessary for disposition of the funds/purchase of the property.
The defendants argued that joint ownership of funds under Russian law could not be translated into a beneficial tenancy in common under English law; that Russian law should be applicable throughout and that Mr. Slutsker did have sufficient knowledge had consented and had not challenged the disposition within the specified timeframe.
The Court of Appeal considered the detailed history of the transaction(s), the relevant propositions of Russian law and the principles of English conflict of laws. The Court determined that under English conflict of law rules, the law of matrimonial domicile (that of the Russian Federation) should be applied to at all stages of the dispute.
In terms of the state of knowledge required, the court endorsed the trial judge's finding that Mr. Slutsker was aware of the "critical factor" of the use of a trust and that the fact that he may not have known of the power of the trustee to exclude beneficiaries was a point of "degree, not kind".
As to consent, the court accepted that Mr. Slutsker could not show he did not consent.
Accordingly, it was held that the resulting trust argument was wrong as it was based on an impermissible reference to English law on a point to be determined (under English choice of law rules) by Russian law. In addition, by reference to Russian law, consent had been given to the transaction as a whole. Alternatively, the claim must fail through being time barred under the Russian Family and Civil codes.
David Brownbill QC and Adam Cloherty, both of XXIV Old Buildings (instructed by Taylor Wessing LLP), acted for Mr Slutsker. Gilead Cooper QC and Richard Wilson, both of 3 Stone Buildings (instructed by Berwin Leighton Paisner LLP), acted for the first and second defendants.
In 2011, the former matrimonial home was remortgaged. Following the refurbishment of the property, the mortgage advance was greater than the old mortgage had been. The surplus was paid into the husband's sole account (which became a joint account shortly afterwards).
The judge concluded that the payments were gifts by the father. It was clear from his evidence that he wanted his children to be comfortable during his lifetime, rather than after his death. The evidence and demeanor of both the husband and the father also made it clear that the husband had enormous respect for the father and would not have abused his rights. Further, the father did not ever express anger or challenge the husband, as would be expected if his rights had been breached.
The husband had produced four documents, dated 3 December 2008, some of which appeared to show that the father was the beneficial owner of the shares in IUL. It was accepted that it was possible for metadata to be falsified. The judge concluded that:
"It must follow that inevitably the husband's case is that either he had been practicing a deception on his own father and the lender institutions, the latter because they would never have lent to someone who had no beneficial interest in the property, or that the husband was not being dishonest with the lending institutions and other, but is, with the father's involvement, seeking to mislead this court as to the true ownership, so as to stop the wife having a claim on the property, either directly or through him."
The judge concluded that the father had no beneficial interest in the former matrimonial home:
"Stepping back, I have asked myself many questions, but including these:
(i) If, as I find, the father paid nothing to the purchase price, as opposed to the refurbishment of the FMH, why should it have been agreed that he would have any, let alone 100 per cent, of the beneficial interest of the property?
(ii) What is in it for the father? He is an enormously rich man. Why should he want an interest in his son's property? After all, at the time of these transactions, his upset at the marriage had long since vanished.
(iii) If, as I find, he had no interest in COG, the first property holding company, why should things change for the second company, IUL?"
The judge, therefore, moved to consider whether the ownership of the former matrimonial home was vested in IUL, the husband or in the husband and the wife. On the facts, the judge held that the beneficial interest was not vested in IUL for the following reasons:
"In this case, I draw particular attention to:
(i) The absence of any clear tax advantage in the scheme. The rationale of the decision in Ben Hashem is not established in this case.
(ii) The personal liabilities taken out by the husband and the wife in respect of the mortgage in 2009, when the legal interest was transferred.
(iii) The money that they put in by way of loan from [the husband's brother].
(iv) The absence of any consideration for any transfer of the beneficial interest.
(v) My finding that the property was initially going to be bought in the names of the husband of the wife, and the husband's assertions to the wife that it would make no difference whether it was in their name or in a company name.
(vi) The absence of any genuine third party involvement."
Whilst the redistributive powers under the Matrimonial Causes Act 1979 meant it did not make a difference whether the beneficial interest was held by the husband alone or the husband and wife jointly, "in light of the matters I have set out immediately above about the liabilities they took on, what was said between them by way of initial intention, and the contribution of monies, it seems to me that it follows that I should answer the question that the property is beneficially owned by the husband and the wife."
The husband was ordered to pay the wife's costs of the proceedings on an indemnity basis:
"I have found as a fact that, on the critical issues, the husband and the father set out to mislead the court and the wife, and at all times their case was based on a falsehood, namely that the beneficial ownership of the property was with the father. They have relied on documents that I have found to be a sham, and that in itself is sufficient for me to come to the conclusion that the defense, therefore, has been conducted in a way that is underhand and deceitful. Therefore, in the circumstances, it seems to me appropriate that I should make an order for indemnity costs."
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on May 14, 2013