Slutsker v Haron Investments Ltd & Anor

Where English conflict rules select the law of the matrimonial domicile to determine spouses’ property rights, that law must be applied at every relevant stage of the transaction. An English court must not translate the parties’ rights into English trust concepts at an intermediate stage and then apply domestic rules to the later disposition.

Under the Family Code of the Russian Federation, joint family ownership does not create separate half shares equivalent to an English beneficial tenancy in common. A disposition may nevertheless be effective through consent, limitation, or failure to prove the relevant third party’s knowledge. Knowledge that a trust structure materially differs from the matrimonial regime may suffice; knowledge of its precise terms is unnecessary.

The claimant appealed against the dismissal of his claim to a half beneficial interest in an English freehold property acquired during his marriage. The property was registered through a company and subsequently held for an offshore discretionary trust. The claimant relied on the Russian matrimonial property regime and argued that his interest in joint family money followed into the property on a resulting trust.

Mr Justice Underhill rejected the claim and granted permission to appeal in [2012] EWHC 2539 (Ch). The central issues were whether Russian law governed the transaction throughout, whether English trust principles could be introduced at an intermediate stage, and whether the claimant had consented to, or was time-barred from challenging, the disposition.

The appeal was dismissed. Lloyd LJ delivered the judgment, with Patten LJ and Black LJ agreeing.

1. Choice of law. The court accepted the approach adopted below and applied the law of the matrimonial domicile to the spouses’ rights. This was consistent with the approach in Re De Nicols (No. 2) [1900] 2 Ch 410. The court left open the wider debate between the law of the matrimonial domicile and the lex situs.
2. No hybrid resulting-trust analysis. Russian law had to be applied through every relevant stage. It was impermissible to treat the parties as beneficial tenants in common under English law while the money was in the solicitors’ client account, and then use English trust law to determine the effect of its later application. The court therefore rejected reliance on an additional English formal requirement under section 53(1)(c) of the Law of Property Act 1925.
3. Russian matrimonial property. The Russian regime treated the spouses as jointly owning the whole property, without separate half shares before partition. It was therefore not equivalent to an English beneficial tenancy in common. Under articles 35.1 and 35.2 of the Family Code of the Russian Federation, a disposition could be effective through consent, lapse of the applicable limitation period, or failure to prove that the third party knew or certainly ought to have known of the other spouse’s disagreement.
4. Knowledge and limitation. The relevant knowledge was whether the claimant knew enough to decide whether to object to the vesting of the property in a trust. He did not need to know the trust’s exact terms. Knowledge that the arrangements differed in substance from the Russian matrimonial regime was sufficient, particularly where he could make further enquiries. On the facts, the claimant knew of the company and foreign trust structure and knew that it was inconsistent with straightforward joint family property.
5. Consent and final result. The same substantially informed approach applied to consent. The claimant either had consented to the transaction as a whole or had failed to prove absence of consent. Alternatively, his challenge was out of time under the applicable provisions of the Russian Civil Code and the Family Code of the Russian Federation. The Respondents’ Notice therefore required no determination.

1. Court of Appeal (Civil Division) dismissed the appeal. [2013] EWCA Civ 430.
2. High Court of Justice, Chancery Division dismissed the claimant’s claim and granted permission to appeal. [2012] EWHC 2539 (Ch).