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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Slutsker v Haron Investments Ltd & Anor [2013] EWCA Civ 430 (01 May 2013) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2013/430.html Cite as: [2013] EWCA Civ 430

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE UNDERHILL

[2012] EWHC 2539 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		1 May 2013

Lord Justice Lloyd:

Introduction and summary

1. This appeal is from an order of Mr Justice Underhill sitting as a judge of the Chancery Division. He made the order on 17 September 2012, having handed down judgment on that day: [2012] EWHC 2539 (Ch). He dismissed the Claimant's claim, but he gave permission to appeal. The dispute is about the beneficial ownership of a freehold property, 3 The Boltons, London SW10. I will call it the Property. In substance, though not in form, the dispute is between two Russian individuals, Vladimir and Olga Slutsker, who were married to each other from 1990 until their marriage was brought to an end by a divorce ordered by a court in Moscow in 2009.
2. The Property was bought in late 2000 for £6 million, with at least a further £1.5 million being spent on subsequent improvement works to it. It was bought as a family home, and was intended to be occupied primarily by Mrs Slutsker, together with the couple's son, Misha (born in 1999) and any other children they might have, of whom there is one, Anna, born in 2003. The purchase was taken in the name of the First Defendant, Haron Investments Ltd (Haron), originally as nominee for Mrs Slutsker. Before long, as had been contemplated, Mrs Slutsker caused Haron to hold the beneficial interest in the Property upon trust for the trustee of a discretionary trust, called the Misha Trust, established in the Cayman Islands, for the benefit of Mrs Slutsker, Mr Slutsker and their children. The Second Defendant (Summit) is the present trustee of that trust. Macfarlanes acted as solicitors on the purchase, Mrs Slutsker being identified as their client.
3. On the face of the documents, Haron holds the whole of the beneficial interest in the Property on trust for Summit, which holds it on the trusts of the Misha Trust. Mr Slutsker contends that this is not the true position, and that a half share of the beneficial interest in the Property is held on trust for him absolutely. The judge rejected this claim.
4. As mentioned, the parties' matrimonial proceedings took place in Russia, and I understand that the dispute about financial provision consequent on the divorce is still under way there. At the time of the breakdown of the marriage the trustee of the Misha Trust exercised a discretionary power under the trust to exclude Mr Slutsker as a beneficiary of the trust. He seeks to challenge that operation, by proceedings in the Cayman Islands. The issue before us is only whether he can establish his asserted right to a half share in the Property under English law.
5. The judge heard expert evidence as to Russian law, and decided issues as to the effect of that law, some of which are challenged by Mr Slutsker. He also heard submissions about English conflict of law rules; some of those issues are also live on the appeal, by virtue of a Respondent's Notice.
6. As before the judge, Mr Slutsker was represented by Mr David Brownbill Q.C. leading Mr Adam Cloherty, and Haron and Summit by Mr Gilead Cooper Q.C. leading Mr Richard Wilson. I am grateful to Counsel and those instructing them for the careful preparation of the papers for the appeal and for the written and oral submissions made to us on the appeal. The judge had to deal with more issues than we have had to for the purposes of the appeal. His clear treatment of the facts and the issues makes it possible to deal relatively briefly with some of the material necessary for this judgment.
7. For reasons which I will set out below, I agree with the judge that Mr Slutsker's claim fails. I would therefore dismiss the appeal.

The rival contentions

8. Haron and Summit contend that the declaration of the Misha Trust is effective in respect of the Property and the entire beneficial interest in it. As a result, following the exclusion of Mr Slutsker as a beneficiary of the trust, it is said that Mr Slutsker has no interest of any kind in the Property.
9. Mr Slutsker contends that, during the marriage, all of the property of Mr and Mrs Slutsker was subject to the matrimonial property regime of the law of the Russian Federation, and was therefore the property of both parties jointly, that this included the money used to buy the Property, and that in order to give effect to this joint ownership in relation to an asset in England, the money used for the purchase must itself be regarded as belonging to the two of them in equal shares. That being so, it is argued that the purchase of the Property is to be regarded as having been effected using money belonging to the two of them in equal shares, that therefore, on a conventional resulting trust basis, Mr Slutsker should be treated as owning half of the beneficial interest in the Property, and that nothing has happened since then which could result in his ceasing to own it. He therefore claims that the beneficial interest in the Property is held as to half for him absolutely, and the Misha Trust is only entitled to the other half. I will refer to this contention as the resulting trust argument.
10. In opposition to this argument it is said that it is not correct to translate the joint ownership under Russian law into a beneficial tenancy in common under English law at the stage when the money was held in Macfarlanes' client account before being paid to the vendor, because this would change the nature of the ownership interest. Instead, Russian law, it is said, continues to apply to the money, and to what happened when it was spent in the acquisition of the Property. Mr Slutsker might have had the right to challenge the disposition by Mrs Slutsker of the money in the client account by causing it to be applied to the purchase of the Property, and then having the Property subjected to the Misha Trust, but that would have depended on him, first, not consenting to the disposition and, secondly, asserting his claim within a time specified under Russian law, whereas, the Respondents say, he did give his consent and, even if he had not done so, he did not take action within the stipulated time.
11. In order to address these arguments it is necessary to set out some of the facts in more detail, and also to examine relevant propositions of Russian law, as explored in the expert evidence, and principles of English conflict of laws.

The facts in detail

12. Mr Slutsker is a very wealthy businessman, having owned a successful investment company in Russia called Finvest. From January 2002 for some years he was a Senator in the Duma. Mrs Slutsker was initially a sportswoman, but after her marriage she set up a successful chain of fitness clubs in Russia called World Class Fitness Clubs, which she eventually sold in 2006.
13. The parties had a house in Moscow but after the birth of their son in 1999 Mrs Slutsker wished to establish a family home in London and to send Misha to school in London. Mr Slutsker agreed to this. He would continue to be based in Moscow, but would visit London frequently.
14. The Property was identified as suitable for this purpose. On 28 November 2000 Mrs Slutsker entered into a contract to buy it for £6 million. Completion was due on 20 December 2000. By that date Mr and Mrs Slutsker had not decided in whose name the Property should be held, so although the purchase price was paid, and possession was no doubt taken, and a transfer was executed at that time, it was not submitted for registration for the time being and the Property remained in the name of the vendor.
15. The money required to pay the deposit and the balance of the purchase money was transferred from an account with a Swiss bank, referred to as Clariden, into Macfarlanes' client account, and thence to the vendor's solicitors. The judge described the evidence about Clariden at his paragraph 42. For present purposes it is sufficient to say that the Swiss bank account was an account of Mrs Slutsker, but that the judge held that the money in it was joint family property under the Russian matrimonial property regime, and this is not challenged. He considered such evidence as had been put before him as to the source of the money in the Swiss account, and said that, because of the unsatisfactory nature of the evidence about this, he was unwilling to determine it unless he had to, which he did not. Thus, the money was in Mrs Slutsker's name (she being the customer of the bank) but it was joint family property under Russian law.
16. Mr Slutsker was involved to some extent in the discussions with Macfarlanes about the purchase. The judge set out the relevant sequence at paragraphs 17 to 34 of his judgment, to which reference may be made. I will set out only the most important stages.
17. The first contact between Macfarlanes and either Mr or Mrs Slutsker was a telephone call from Mr Andrew Jackson, a property partner, to Mrs Slutsker, then in Moscow, on 15 November 2000. She said she would provide 30% of the price with 70% being raised on mortgage. The attendance note records that they discussed whether she should be the named client alone or together with Mr Slutsker, and that Mr Jackson suggested that the file should be opened in her name since it was mainly her money that was to be used for the purchase. Consistently with this, Mrs Slutsker was Macfarlanes' client, but Mr Slutsker was involved in the discussions from time to time.
18. A telephone conference took place on 22 November involving Mrs Slutsker, Mr Jackson and a tax partner, Mr Rhodes. Advice was given as to how the Property might be held. Three options were identified: (i) purchase in the name of Mrs Slutsker, alone or jointly with Mr Slutsker; (ii) purchase in the name of a new trust; (iii) purchase in the name of a new company set up by a new trust. The recommended course was the use of a trust, of which Mrs Slutsker should be the first income beneficiary. Mr Rhodes sent his attendance note of the conference to Mrs Slutsker, asked that Mr and Mrs Slutsker should come to London for meetings on 28 and 29 November, and invited Mrs Slutsker to review the attendance note with Mr Slutsker in advance of the meetings, with a view to a decision being taken at the meetings as to how to proceed. The judge held that she had received the attendance note and had shown it to Mr Slutsker who had read it.
19. On 27 November Mr Jackson and Mr Harrison of Macfarlanes spoke to Mr Slutsker by telephone. The attendance note shows, in the judge's words, "that it was understood between Macfarlanes and Mr Slutsker that Mrs Slutsker alone would be the purchaser pending implementation of a trust structure". Mr Slutsker said in evidence that he could not recall the conversation.
20. Exchange took place on 28 November, although no offer of mortgage finance had been obtained. The deposit was paid with money paid into Macfarlanes' client account by transfer from Clariden. Mrs Slutsker was the purchaser under the contract.
21. Mr and Mrs Slutsker attended a meeting at Macfarlanes' offices on 29 November with Mr Jackson, Mr Harrison and another. The attendance note records discussion of how the purchase should be taken and, in particular, whether a trust or a corporate vehicle should be used. Macfarlanes repeated their advice in favour of a non-UK trust in which Mrs Slutsker would have a life interest. The note records that Mrs Slutsker agreed that this was the best way forward. Mr Slutsker said nothing inconsistent with that, and did not suggest in evidence that he had done so. The judge concluded that he had acquiesced in Macfarlanes' recommendation as to the way to proceed.
22. Haron was in place as a possible purchaser before the date for completion, but the idea of a mortgage loan had not been abandoned by then, and it was thought that a lender might have a view as to who should be the borrower or mortgagor, and therefore in what name the purchase should be taken. In fact the whole purchase money came from the money transferred from Switzerland, and the idea of a mortgage advance was pursued but did not come to fruition.
23. Macfarlanes then approached Close Brothers (Close) with a view to setting up the offshore trust. On 31 January 2001 Mrs Slutsker attended meetings at Macfarlanes' offices, including one with Mrs Mitchell-Voisin on behalf of Close. Earlier in the day Mr Slutsker rang Mr Rhodes from Moscow, asking a question about a possible source of an introduction to a mortgage lender. Mr Rhodes' record of the conversation includes the statement that Mr Slutsker "agrees that the property should be held through Haron by non-UK res trust". That was the last contact between Mr Slutsker and Macfarlanes. The judge noted that on that date the decision was taken not to pursue further the idea of a bank loan, and that accordingly it was decided that the Property should be registered in the name of Haron, but that the beneficial interest should be held by a trust to be set up by Macfarlanes and Close.
24. The judge said this at his paragraph 34:

"Throughout the various contacts summarised above, Macfarlanes' primary and most frequent contacts were with Mrs Slutsker rather than her husband. As already noted, at an early stage it was decided to treat her as their sole client, because they understood that most of the purchase money for [the Property] was to come from her. Accordingly both in Mr Rhodes's note dated 23 November and in the note of the meeting of 29 November it was explicitly assumed that Mrs Slutsker would be the settlor and first life tenant: see paragraphs 20 and 26 above. But it is equally clear that Macfarlanes regarded Mr and Mrs Slutsker as acting together, with no question of any conflict between them. They understood themselves to be advising both of them as regards the tax implications of the purchase and referred to the possibility that Mr Slutsker would also have in due course to become their client. From time to time they described themselves to third parties as acting for both."

25. The Misha Trust was then set up, by a declaration of trust dated 10 April 2001. The first trustee was a company in the Close group. In 2009 this was replaced by the present trustee, Summit. Nothing turns on that change.
26. Mrs Slutsker was the settlor of the trust. The class of beneficiaries was defined as Mrs Slutsker, Mr Slutsker, her present and future children, her mother and father, his mother and father, and "charity", as defined. Clause 3.1 gave the trustees a general discretionary power of appointment between the beneficiaries as regards capital and income. Subject to any such appointment, the income was held on trust for Mrs Slutsker for her life and after her death for Mr Slutsker for life. Subject to their life interests, the trust fund was held on trust for the children of Mrs Slutsker, with an ultimate default trust for charity. There was power for Mrs Slutsker, and after her death Mr Slutsker, to appoint a Protector of the trust, but this power was not exercised. Clause 5 gave the trustee a power to declare that any person or class of persons should cease to be included in the class of beneficiaries. It was under that power, together with ancillary provisions in clause 11, that the trustee excluded Mr Slutsker as a beneficiary in 2009.
27. Haron became the registered proprietor of the Property on 15 May 2001. The Misha Trust had been created with an initial cash fund of nominal amount. Later, the shares in Haron were transferred to the trustee. On 29 August 2001, at Mrs Slutsker's direction, Haron declared that it held the Property on trust for her as nominee. On the next day Haron and the trustee declared that Haron held the property on trust for the trustee.
28. Mr Slutsker had not been involved in the setting up of the Misha Trust. At first he denied knowing even that a trust was envisaged or intended to be used. The judge rejected that on the evidence. From the meeting held on 29 November 2000, he knew that the recommendation was that the Property be bought in the name of a company but using a trust as well. At paragraph 64 the judge said:

"… he must, and in any event should, have appreciated that Mrs Slutsker, who was with his full agreement taking the lead in dealing with the purchase, would proceed on the basis of the recommendation; and accordingly he must have appreciated that in due course the trust proposal had been implemented."

29. The judge also held that, from the conversation on 31 January 2001, Mr Slutsker knew that title to the Property would not be registered in the name of either himself or his wife. He went on in paragraph 66, a passage on which Mr Brownbill placed some reliance, to say this:

"Mr Slutsker's unsustainable protestations that he was ignorant of matters of which he was in fact perfectly well aware mask a more legitimate point, namely that he did not know, still less agree to, the terms in which the Trust was eventually set up: more specifically, he did not understand, still less agree, that he would have a different and lesser interest under those arrangements than his wife, and an interest that could be extinguished altogether if the Trustee, who would take into account the wishes of his wife as settlor, so decided."

30. The judge then referred to the denial in the Reply that Mr Slutsker knew or agreed that his interest in the Property would be disposed of irrevocably on trusts such as those of the Misha Trust, or under which Mr Slutsker had only a limited interest, that interest being defeasible under discretionary powers by the trustee in relation to which it would be guided only by the wishes of Mrs Slutsker. Mr Brownbill submitted that this passage shows the judge accepting Mr Slutsker's evidence and contention in this respect. I do not agree. To say that the point is "more legitimate" is not to accept it as correct. It is no more than a comparison, in terms of plausibility, with the "unsustainable" position to which the judge had just referred. The judge pointed out that the discussion at the meeting on 29 November 2000 proceeded on the basis that Mrs Slutsker would be the settlor and the first life tenant. He said that Mr Slutsker appreciated that the affairs of the trust would be in his wife's hands and not in his own. He was content to leave that to her.
31. In his evidence, he accepted that he knew that the purchase was in the name of a company, and that an offshore trust was involved. He also said that the trust was to be "a guarantor for our children's rights". His evidence, including these passages, led the judge to say this at paragraph 70:

"The most important point to emerge from that evidence (despite some equivocations) is that Mr Slutsker accepted that his wife told him that she was establishing a trust, the Misha Trust, in order to safeguard the position of the children. … It was, as I have found, always part of Mrs Slutsker's conception that [the Property] would be in one way or another safeguarded as an asset for the children. I see no reason why she should not have shared that thinking with her husband (indeed, as we have seen, it underlay some of the discussion at the meeting of 29 November 2000); and I am sure that it will have been clear to him that title to [the Property] was in one form or another vested in the Misha Trust. Although on a literal reading Mr Slutsker appears to deny knowing that the trust was "offshore", I understand him in fact to be accepting that whatever service was being provided was being provided from Switzerland; but in any event I am confident that he will have well understood, both as a matter of common knowledge as a sophisticated businessman and more particularly from his contacts with Macfarlanes, that the contemplated trust fell outside the scope of Russian law. It follows that he knew that a structure had been created which was necessarily inconsistent with straightforward joint family property under the Russian Family Code. I accept that he may well not have understood the details of the structure; but, as he acknowledges, that was because he did not ask. I do not find his lack of involvement particularly surprising. The London project was Mrs Slutsker's project: it was she who would be mainly living in [the Property] and it was she who was particularly concerned to make it a safe asset for the long-term future of the children."

32. The judge rejected in terms Mr Slutsker's evidence that Mrs Slutsker told him expressly that he was an equal owner, or that his rights were guaranteed. He did, however, accept that Mr Slutsker did not appreciate that his interest, whatever it was, could be extinguished by the trustee in accordance with the wishes of Mrs Slutsker as settlor. Likewise he found that Mrs Slutsker was not aware of this possibility.
33. On behalf of the Respondents it was argued that one reason why Mr Slutsker was content that the Property be bought using a structure and why he chose not to be involved in the trust was that he was active in politics in Russia, was then hoping to become a Senator in the Duma, as he later became in 2002 and, in that position, he would be obliged to declare assets held by himself, but would not have to disclose any interest under a trust such as the Misha Trust. Mr Slutsker accepted that the fact that the Property was held in this way meant that he did not have to disclose it. The judge concluded that at least one reason for Mr Slutsker's non-involvement with the arrangements for the trust was that he did not want to have any paper trail linking him with the Property, because of his political ambitions. However, he said that what was more important was that, for whatever reasons, Mr Slutsker had the opportunity to be involved in the arrangements as regards the trust but he did not take it.

Choice of law

34. The judge held that the appropriate choice of law rules to be considered were those relating to property rights. For the Respondents Mr Cooper raised an alternative case by way of a Respondent's Notice, which the judge had rejected. Because of the conclusion I have reached on the appeal I do not need to consider the Respondent's Notice.
35. As regards rights to movable property, the position is clear. The judge quoted rule 165 from Dicey, Morris & Collins, The Conflict of Laws (15th ed.) as follows:

"In the absence of a contract or settlement, the rights obtained by the husband and wife in each other's movable property as a result of the marriage, whether that property is possessed at the time of the marriage or acquired afterwards, are determined by the law of the matrimonial domicile. Where, at the time of the marriage, both parties are domiciled in the same country, the matrimonial domicile is (in the absence of special circumstances) that country."

36. It is not in dispute that the law of the matrimonial domicile was that of the Russian Federation.
37. As regards property rights relating to immovable property, the position is not clear, as between the law of the matrimonial domicile and the lex situs. This is discussed in Dicey Morris & Collins at paragraphs 28-021 to 28-030 and by the judge at paragraphs 97 to 111. The judge held that the law of the matrimonial domicile should be applied, at any rate as regards a dispute between the spouses or parties claiming under them and not for value, such as the Respondents. In this he followed the decision of Kekewich J in Re De Nicols (No. 2) [1900] 2 Ch 410, and the recommendation of Dicey Morris & Collins at paragraph 28-028. Mr Brownbill submitted that this is correct. Mr Cooper argued that, even on this basis, Mr Slutsker's appeal should not succeed. He also contended, as a fallback, that the lex situs should apply. I am content in the circumstances to decide the case on the same basis as the judge did. I leave open for decision, in a case in which it matters, the debate as between the law of the matrimonial domicile and the lex situs.

The Russian law as to family property

38. The judge heard evidence from two experts on Russian law: Professor William Butler for the Appellant and Professor Boris Karabelnikov for the Respondents. He described their evidence at paragraphs 114 to 120. Later, at paragraphs 146 to 150, he explained that on balance he preferred the evidence of Professor Karabelnikov, and gave his reasons for doing so.
39. The most relevant provisions of the Family Code of the Russian Federation are as follows. Article 33 specifies, as the "default-by-law" regime of the property of spouses, "the regime of joint ownership". This applies unless a marriage contract provides otherwise. There was no such contract in the present case. Article 34 (in Professor Butler's translation) is as follows:

"Article 34. Joint Ownership of Spouses

1. The property acquired by spouses during marriage shall be their joint ownership.

2. To property acquired by spouses during marriage (common property of spouses) shall be relegated the revenues of each of the spouses from labor activity, entrepreneurial activity and the results of intellectual activity, pensions and benefits received by them, and also other monetary payments not having a special special-purpose designation (amounts of material assistance, amounts paid in compensation of damage in connection with the loss of labor capacity as a consequence of mutilation or other impairment of health, and others). Moveable and immoveable things, securities, shares, contributions, participatory shares in capital deposited in credit institutions, or in other commercial organisations also acquired at the expense of common revenues of the spouses, and any other property acquired by spouses in the period of the marriage, irrespective of in the name of which spouse it is acquired or in the name of which of the spouses monetary means have been deposited, also shall be the common property of spouses.

3. The right to common property of spouses shall also belong to the spouse who in the period of the marriage who effectuated the conducting of the household, care for the children or for other justifiable reasons had no autonomous revenue."

40. It is common ground that the joint family property regime applies to money in bank accounts and to property outside Russia. On that basis, the money used for the purchase of the Property was within the joint family property regime both before its transfer from Switzerland and while it was held in Macfarlanes' client account.
41. Article 35 is as follows:

"Article 35. Possession, Use, and Disposition of the Joint Property of Spouses

1. Possession, use, and disposition of joint property of spouses is performed on the basis of mutual consent of the spouses.

2. When one of the spouses executes a transaction concerning disposition of the joint property of the spouses it should be presumed that he [or she] acts on the basis of consent of the other spouse.

A transaction concerning disposition of the joint property of the spouses executed by one of the spouses may be declared invalid by court for the reason of absence of consent of the other spouse only as per that spouse's claim and only if it can be proven that the other party to the transaction knew or certainly ought to have known about the other spouse's disagreement with execution of the particular transaction.

3. For execution by one of the spouses a transaction concerning the disposition of immovable property and a transaction which requires a notarial certification and/or registration in accordance with a procedure established by law, it is necessary to obtain the consent of the other spouse certified by a notary.

A spouse whose consent certified by a notary, for execution of this transaction was not obtained is entitled to claim a declaration of invalidity of this transaction by court within a year from the date when he [or she] knew or ought to have known about execution of the particular transaction."

42. I have used Professor Karabelnikov's translation, except that at the end of each of articles 35.2 and 35.3 the words "the particular transaction" are those preferred by Professor Butler, which the judge accepted.
43. This article is central to the debate about the effect of Russian law. The judge described articles 36, 38 and 39 at paragraphs 131 and 132 of the judgment. Article 38 gives the Russian court power to divide joint family property during the currency of the marriage or on its dissolution. Article 39 provides (absent contrary agreement) that the shares for such division will be equal but that the court can depart from that basis for good cause. He also cited two provisions from the Russian Civil Code as regards limitation. Article 196 prescribes a general time period of limitation of three years. Article 200 deals with the start of that period, as follows:

"Start of the Running of the Time Period of Limitation of Actions

1. The running of the time period of limitation of actions starts from the day when a person knew or should have known of the violation of his right. Exceptions from this rule are established by the present Code and other statutes.

2. On obligations with a defined period for performance, the running of limitation of actions starts at the end of the time period for performance.

For obligations for which the time period of performance is not defined or is defined as the time of demand, the running of the limitation of actions starts from the time when the right to make a demand for performance of the obligation arises for the creditor and, if the debtor is given a grace time period for the performance of such."

44. The judge also referred to certain articles from the Civil Code as to the incidents of ownership and common or joint ownership, at his paragraph 134. I need not quote these here.
45. Proceeding from the premise that the money used for the purchase had been joint family property under Russian law while held in Macfarlanes' client account, the Appellant advanced before the judge, and before us, what I have called the resulting trust argument (see paragraph [9] above). The starting point for this is the contention that, in English law terms, the parties' respective rights in the money would be given effect as being held on a beneficial tenancy in common. In paragraph 10 of the Particulars of Claim Mr Slutsker asserted that "as a matter of English law, if and insofar as assets are subject to the Community Property regime, they will be held by either or both parties to the marriage on trust for both parties in equal shares." Therefore, Mr Brownbill argued, the Appellant was to be treated as the beneficial owner of half of the money. Although the money no longer existed, because it had been applied in the purchase of the Property, Mr Slutsker had not done anything to divest himself of his right to a share of the money. It followed that, on ordinary English law principles, his interest could be followed into the Property, as representing the money used for its purchase. Accordingly, he argued, the Property was held on a resulting trust as to half for Mr Slutsker absolutely, and only as to the other half upon the trusts of the Misha Trust.
46. The judge rejected that argument, though he accepted that, if an issue had arisen as to the beneficial ownership of the money while it was still in Macfarlanes' client account, an English court would have given effect as best it could, in English law terms, to the parties' respective rights under Russian law. He was inclined to accept that, on this basis, Mr and Mrs Slutsker would have been treated as beneficial tenants in common of the money in equal shares: see his paragraph 139.
47. The judge's reason for rejecting this argument was that it was not legitimate to translate the parties' rights into English law rights at the stage when the money was held in Macfarlanes' client account, and then to proceed on that basis. It was necessary to apply Russian law at each stage in order to ascertain what the rights of the parties were: see his paragraph 140.
48. Having applied Russian law, as he considered it to be with the benefit of the expert evidence, the judge concluded, at paragraph 152, that the beneficial interests in the Property never became property subject to the joint family property regime, because the registered owner of the Property was Haron. On that basis the payment of the purchase price by Mrs Slutsker was a disposition of joint family property. Under article 35 of the Family Code Mr Slutsker would have had the right to apply to set aside the disposition, but subject to the terms of that article. The judge said that he would be precluded from such recovery by the fact that he consented to the use of the money in payment of the price of the Property to be taken in the name of a company.
49. Article 34 shows, first, that property acquired by spouses during the marriage is subject to the joint family property regime. Then it goes on to say more about what property is to be regarded as within the scope of that provision. No dispute arose as to that, except as to whether any interest in the Property should be treated as falling within this provision, and therefore as joint family property itself.
50. Article 35 provides, first, that the disposition of joint family property is performed on the basis of mutual consent, and, in article 35.2, that in the event of a disposition of joint family property by one spouse, the consent of the other is to be presumed. That is, I dare say, primarily a provision for the protection of the third party to whom the disposition is made. This would be supported by the aim of the following provision in the latter part of article 35.2. That allows a disposition by one spouse to be declared invalid on the ground of absence of consent by the other spouse, but only on the application of the other spouse and, more importantly, only if the third party knew or certainly ought to have known about the other spouse's disagreement with the execution of the transaction. Such a claim by the other spouse is also, as the experts agreed, subject to the limitation provision in articles 196 and 200 of the Civil Code, and is therefore barred by the lapse of time once three years have run from the time when the other spouse knew or should have known of the violation of his right.
51. Article 35.3 deals with transactions concerning the disposition of immovable property, or which require notarial certification or registration. In such a case the consent of the other spouse must be obtained and certified by a notary. The article provides a special short limitation period for a claim on the basis that this requirement has not been complied with. It is not clear to me that this article had any relevance to the facts of this case, but the judge discussed it because of the submissions made to him about it.
52. Thus, under article 35.2, if one spouse is able in practice to make a disposition of property which, as between the spouses, is joint family property, as he or she may be if the property is in his or her name, then despite its status as joint family property the disposing spouse may be able to pass a good title to the third party in three situations: first, if the other spouse does in fact consent to the disposition, secondly if, despite the absence of such consent, the other spouse fails to bring proceedings to have the transaction declared invalid within the time limit prescribed by the Civil Code, and thirdly if, although such a claim is brought within the specified time, the other spouse fails to prove that the third party knew or certainly ought to have known of the other spouse's disagreement with the transaction.
53. That situation, under Russian law, is quite different from the position as between beneficial tenants in common under English law. Leaving aside rules as to over-reaching, which transfer the rights of the beneficial owners from the property to its proceeds of sale, no disposition by one of two beneficial tenants in common can affect the interest of the other. Thus, a beneficial tenancy in common is not an exact transposition into English law of the rights enjoyed by spouses under the Russian joint family property regime. It seems reasonably clear that their rights under that regime are closer to the English concept of a beneficial joint tenancy, but without the right of survivorship. Each spouse owns the whole property, rather than each owning a half share and having no interest in the other half. Professor Butler was asked about this in cross-examination:

"Q. Is it the case that Russian law essentially views both partners, both spouses, as collectively owning the whole, as opposed to each of them owning half – a half share?

A. That would, I believe, be correct, yes.

…

A. I think I would put it this way, that the two spouses own the property jointly and they may, upon divorce or by contract, marriage contract, they may force a partition, in which case it is on a 50% basis, unless there are extenuating circumstances.

…

Q. But neither of them has, at that stage, any specific shares. They both equally own the whole?

A. Yes."

54. There was a good deal of debate before the judge, and some before us, as to whether, once the Property was legally vested in Haron, but as nominee, it, or any interest in it, was to be regarded as "property" within the ambit of the Russian joint family property regime. Professor Butler said that it was, on the basis that any right that could be alienated was regarded by Russian law as property for this purpose. In his opinion, while the Property was held by Haron as a nominee, the beneficial interest was still property for the purposes of article 34. He regarded it as remaining within the joint family property regime until the moment when Haron came to hold the Property on trust for the trustee of the Misha Trust. At that point, he said, there was a disposition by Mrs Slutsker, but being concerned with a disposition of immovable property it was within the scope of article 35.3. Because Mr Slutsker's consent had not been certified by a notary, he was entitled to have it declared invalid, subject only to the time limit under article 35.3. The judge rejected Professor Butler's position on this. Mr Brownbill submitted that he had no proper basis for doing so.
55. For my part, I find it unnecessary to enter into this interesting but rather arcane debate. I am prepared to assume for present purposes, in favour of Mr Slutsker, but without deciding the point, that while Haron held the property on trust for Mrs Slutsker absolutely, her interest and rights in relation to the Property were to be regarded as joint family property at that stage, just as the money in Macfarlanes' client account had been. On that basis, attention has to be focussed on what happened at the moment when the beneficial interest in the Property passed from her to the Misha Trust. It is agreed that, after that moment, no interest or right in relation to the Property was joint family property under the Russian Family Code regime. I can therefore simplify the process, for the purposes of this analysis, so as to disregard the intervening stage of the nomineeship for Mrs Slutsker. I can instead ask what the position would have been if, immediately upon completion of the purchase, the Property had been transferred to Haron expressly to be held on trust for the trustee of the Misha Trust, that having been created by then. Since it was intended from the moment of completion that the purchase should be in the name of a nominee company but that the beneficial interest should be held in an offshore trust, it seems somewhat artificial, in any event, to focus on the position halfway through that process. (This simplification will not do for all purposes, since in that event Mr Slutsker might have known more than he did about the details of the arrangements. My discussion of that question below, therefore, is by reference to the actual sequence of events.)
56. I have summarised Mr Brownbill's resulting trust argument on behalf of Mr Slutsker at paragraphs [9] and [45] above. On that basis, he said, Mr Slutsker had an interest in the money which Mrs Slutsker had no right or power to dispose of. His share of the money could only be alienated or divested by a disposition made by him which complied with the relevant English rules, including section 53(1)(c) of the Law of Property Act 1925. Of course he could not claim the money as such, which had passed to the vendor, but he was entitled to his share of what the money had been used to buy.
57. According to this argument, English law applied automatically to the money in the client account in order to vindicate the parties' rights under Russian law. Mr Brownbill argued that Mr Slutsker's rights in relation to the money arose under Russian law but that, in the application of those rights to property in England, English trust and property law concepts had to be applied, because no others were available or could be applied by an English court. Having had recourse to Russian law in order to establish Mr Slutsker's rights in relation to the money, he argued that thereafter Mr Slutsker could rely on English law to assert the consequences of the joint ownership, as understood and given effect in English law. He did not need to have further recourse to Russian law, nor was there anything in Russian law that could adversely affect his position so established and worked through under English law.
58. Mr Cooper, to the contrary, submitted that the rights of the parties are to be ascertained by reference to Russian law not only at the beginning of the process but at every later stage, as necessary. Otherwise, resort to English law concepts or models is likely to, and in this case would, distort the effect of Russian law, and the English court would not be applying Russian law, as it is required to do under English conflict rules, but rather would be applying a combination of Russian and English law. In his submission, Russian law applies not only to determine what the spouses' rights were as regards the money in Macfarlanes' client account, but also to decide the effect of what happened next. Under Russian law, as article 35.1 shows, one spouse can dispose of joint family property with the consent of the other, for which, apart from the case dealt with in article 35.3, no particular formality is required. If, therefore, it was open to Mrs Slutsker to dispose of the joint family property which was in Macfarlanes' client account, so long as she had Mr Slutsker's consent, it cannot be right, he said, to require that Mr Slutsker should also effect an assignment of his interest in the joint family property, something which Russian law does not require. To apply that additional requirement would be to contradict, not to apply, the relevant Russian law. It would mean that a disposition that would be effective under Russian law, if Mr Slutsker did in fact consent, would not be recognised by English law as effective, because of a failure to comply with a formal requirement imposed by English law.
59. It seems to me that the judge accepted this argument advanced by Mr Cooper at his paragraph 140.

"140. Mr Brownbill contended that once that point was reached he was home and dry: Mr Slutsker enjoyed a beneficial interest in the intended purchase moneys and that interest could, on ordinary principles, be traced into the property acquired with those moneys. That is temptingly simple, but I think it is wrong. The putative tenancy in common is not a substantive right under English law: it would be declared, if at all, only as a means of vindicating Mr Slutsker's rights under Russian law as they stood at that point. I do not believe that it can be used to create rights at a later stage, in different property, except to the extent that Russian law would do so. Mr Cooper described that as a "hybrid" approach and as illegitimate. I agree. It is in my view necessary to ask afresh at each stage what rights under Russian law Mr Slutsker would enjoy in [the Property] at that point. I proceed with the analysis on that basis."

60. I agree. The application of Russian law as that of the matrimonial domicile, under English conflict of law rules, has to be carried through to all stages of the relevant history. It is not correct to pause at the first stage and then to consider how, if it had had to, an English court would have given effect to the rights then existing as determined in accordance with Russian law. Since it is clear that, under the relevant Russian law, if Mr Slutsker did consent to the disposition effected by his wife of the money which was joint family property, that disposition was fully effective as regards the entire ownership of the relevant property, it cannot be right to superimpose an additional formal requirement which derives only from English domestic law. I therefore agree with the judge that the validity and effect of Mrs Slutsker's dealings with anything that was joint family property under the Russian regime must be determined by reference to Russian law, without adding requirements which apply as a matter of English domestic law.
61. Mr Brownbill criticised the judge's reference to a "putative trust" in his paragraph 140. I consider that in that passage the judge found, correctly, that a trust did not arise under English law at that stage because, in accordance with the English choice of law rules, Russian law continued to apply. His use of the word putative does no more than show that he was considering what might have been the position if an English court had had to translate the rights of the parties into English law terms, in order to give them effect, at that point in the process.
62. The judge held that the disposition in issue in the present case was made with Mr Slutsker's consent or, strictly, that he had not discharged the burden upon him of showing that it was not so made. Mr Slutsker challenges that conclusion and I will turn to that challenge shortly. However, the disposition can also be effective even in the absence of consent, if the other spouse fails to challenge the disposition within the time specified under Russian law, or fails to satisfy the test as to the third party's knowledge under article 35.2. I need not spend any more time on that last possibility. But the Respondents rely on the second point, arguing that Mr Slutsker failed to challenge the disposition within three years of the date when he knew or ought to have known of the violation of his right (or within one year, if article 35.3 is relevant). The violation of his right, on this premise, occurred when the Property, or the beneficial interest in it, became subject to the Misha Trust. That occurred on 30 August 2001. Mr Slutsker's challenge was not brought until well over three years after that. So the question is whether he knew or ought to have known of the violation of his right only at a much later date. Like the issue whether he gave his consent or not, that requires attention to be given to the state of his knowledge in 2001.
63. What, therefore, did Mr Slutsker know, and what did he need to know, in order either (a) for him to have consented to the disposition, or (b) for the limitation period to start running, whether under article 196 of the Civil Code for a challenge under article 35.2 of the Family Code, or under article 35.3 if the challenge is under that article?

Mr Slutsker's knowledge: what did he know and what did he need to know?

64. I summarise here, for convenience of reference, what the judge found as regards Mr Slutsker's knowledge, in passages to which I have referred above. He found that Mr Slutsker did appreciate, or at least should have appreciated, that Mrs Slutsker would proceed with the purchase of the Property on the basis of Macfarlanes' recommendation that a trust would be used, and that, in due course, "the trust proposal had been implemented": see paragraph 64 quoted at paragraph [28] above. He also knew that the purchase would be taken in the name, not of himself or his wife, but of a company: paragraph 65. He knew, from what his wife told him, that she was establishing the Misha Trust in order to safeguard the position of the children, and that this trust would be used for the trust which Macfarlanes had proposed for the acquisition of the Property: see paragraph 70, quoted at paragraph [31] above. He knew that a structure had been created which was inconsistent with straightforward joint family property under the Russian Family Code. He did not know the details of the structure, but that was because he did not ask: paragraph 70. He did not realise that his interest under the trust could be extinguished at the discretion of the Trustee, in accordance with the wishes of Mrs Slutsker as settlor: paragraph 72.
65. The judge referred at paragraph 127 to "a potential question" under Russian law "as to how much knowledge a spouse has to have about a disposition before he or she can be said to consent to it". This was not touched on in either expert's report, and though raised in cross-examination of Professor Karabelnikov, he said that the point "got lost in a misunderstanding". However, there was evidence from the experts as to the degree of knowledge required for time to start running.
66. If the burden of proof is relevant, article 35.2 puts it on the party alleging absence of consent. There was some debate, which the judge found it unnecessary to resolve, as to the significance of the requirement that the third party "knew or certainly ought to have known". I do not need to go into that question.
67. The judge came to deal with the issue as to what Russian law required Mr Slutsker to know, if time was to start running, at paragraph 161. The rival contentions were that either Mr Slutsker had to know the actual terms of the trust (which Mr Slutsker said he did not know until after the commencement of these proceedings) or that it was sufficient for him to know that the Property had been put into a trust whose terms were inconsistent with his rights under the joint family property regime. Professor Karabelnikov said that, on the basis that Mr Slutsker knew in 2001 that Mrs Slutsker was to purchase the property in the name of Haron or the trustees, it was unreasonable of him not to make enquiries as to the nature of the arrangements, and that therefore he should have known of the actual arrangements, by a date during 2001. Professor Butler observed that a spouse was only put on enquiry when he has reason to believe that his spouse has purported to conclude a transaction in breach of the family code. He may have put it more narrowly in oral evidence, but that may have been due to a misunderstanding and, even if it was not, the judge was not able to accept it: see paragraph 164.
68. At this point the judge was addressing the position under article 35.3, but later he said that he would apply the same test if article 35.2 were applicable: paragraph 170. It was not suggested to us that the test should be different under one article or the other.
69. The judge set out his conclusion on this issue starting at paragraph 166. However, since in that paragraph he referred back to his paragraph 156, it is convenient to set that out first as follows:

"156. It is in my judgment clear that certainly Mrs Slutsker, but in fact Mr Slutsker too, intended that the interests in [the Property] would be held in a way which differed from the effect of the Family Code not only in form but in substance. Even if both may have intended that, so far as their own interests were concerned, those should be equal (though that is in fact debatable), the crucial point is that under the intended trust, the broad nature of which was known to Mr Slutsker as well as Mrs Slutsker as far back as November 2000, they would not be the only persons with an interest in the property: most obviously, Misha and any other children were intended to be beneficiaries (though so also were Mr and Mrs Slutsker's respective parents). That being so, the position was fundamentally different from that obtaining under the Code: they could not dispose of [the Property] for their own benefit, even by agreement or in equal shares. It is also the case that if [the Property] was not joint family property covered by the Code neither could invoke the powers of the Russian court to sever in anything other than equal shares. The fact is that they had chosen, for reasons that seemed good to them, to employ structures which took them outside the regime of the Family Code, and it is unsurprising that the effect of that regime cannot now be replicated in the manner for which Mr Slutsker contends."

70. That sets the scene for his paragraph 166:

"166. From whichever angle I approach it, the underlying question is whether prior to October 2009 Mr Slutsker knew enough, on my assessment of the circumstances of the case, to make a decision about whether to object to the vesting of [the Property] in a trust. In my judgment he did. My essential reasoning is similar to that in paragraph 156 above. Mr Slutsker knew from 2001 that [the Property] was being held under arrangements which afforded him different rights than he would have enjoyed if it had been held as joint family property. I do not believe that it was necessary that he should know more than that. He may not have understood the details or worked through the implications, but in my view it should have been clear to him at that stage that he could not expect his rights to be the same, even in substance, as they were under the Family Code. In Professor Butler's words … he was aware that Mrs Slutsker "had purported to conclude a transaction in breach of the Code"; and he had to decide whether to accept it or not, making such further enquiries as to the implications as he saw fit."

71. In the next paragraph the judge went further, referring to Mr Slutsker knowing (or that he ought to have known) that Macfarlanes were proceeding on the basis that any trust would be set up by Mrs Slutsker alone, not by the two of them together, that she would be the initial income beneficiary, and that the children would be eventual beneficiaries, the Property being intended ultimately for the benefit of the children. He therefore knew or should have known, if he had thought about it, that he was unlikely to have any guaranteed interest, and that his interest would be qualified so as to conform to the overall scheme. He would, reasonably, not have realised that the trustee would have a power to exclude him altogether but, so the judge said, "that is a difference of degree not of kind".
72. To Mr Brownbill's submission that Mr Slutsker could not reasonably have expected that the terms and effect of the structure adopted would involve any substantial departure from the position under the Russian Family Code, the judge said, at paragraph 168:

"Once Mr Slutsker knew that [the Property] was to be held under arrangements governed by a foreign system of law, he was entitled to make no assumptions."

73. Applying this approach, he held that any claim by Mr Slutsker to have the disposition of joint family property in favour of the Misha Trust set aside was time-barred from some date in 2002: see paragraph 171. That involves applying the one year period under article 35.3. If article 35.2 were applicable instead, and articles 196 and 200 of the Civil Code, then the claim would have been barred by some date in 2004. Either way Mr Slutsker's challenge was too late.
74. Mr Brownbill submitted that, at the beginning of his paragraph 166, the judge applied the wrong test. The test should have been no more and no less than when did Mr Slutsker know, or should he have known, of the violation of his rights. Moreover, the fact that he knew that the Property would be transferred into the name of a nominee company, and that in due course an offshore trust would be used, did not of itself show a violation of Mr Slutsker's rights. There would only be a violation of those rights if something was done to which Mr Slutsker had not agreed. He had agreed to the use of a nominee company, and to the use of an offshore trust under which Mrs Slutsker had a first life interest, he himself had a second life interest, and the children were entitled to the capital after the death of the two of them. He had not agreed to the use of a trust under which his whole interest could be destroyed by an act of the trustee. Accordingly, the knowledge that he had in 2001 was not sufficient to make him aware, actually or constructively, that his rights had been violated because, although the structure adopted was in fact different in these respects from what he was aware of, he did not know and had no reason to suppose that this was the case. In particular, it was not correct to speak of Mr Slutsker objecting to the vesting of the Property "in a trust". It was necessary to focus on the use of the particular trust, not just of any trust. Mr Brownbill relied, in support of this, on the words "the particular transaction" at the end of articles 35.2 and 35.3, as contended for by Professor Butler.
75. The judge had the benefit of the expert evidence as to the correct test under Russian law. He referred to this at paragraphs 162 to 164, which I have summarised at paragraph [67] above. It seems to me that it was properly open to him, on that evidence, to come to the conclusion which he set out at the beginning of paragraph 166 as to the correct test for the kind of knowledge which was sufficient to start time running, whether under article 200 of the Civil Code or under article 35.3 of the Family Code. The notion of using a trust, and what Mr Slutsker did know as to the envisaged terms of the trust, was necessarily inconsistent with his retaining any interest in the capital value of the Property. He knew that the trust was intended to provide for Mrs Slutsker's occupation of the Property and for the eventual capital benefit to go to the children of the marriage. As the judge said at the end of his judgment in paragraph 176, "he was losing no income or capital or right of occupation that he had in practice intended or expected to enjoy". In those circumstances, it seems to me that the judge was right to pose the question on the basis that the critical factor was the use of a trust, and that this is something of which Mr Slutsker was aware. I agree with the judge that the inclusion of the power to exclude beneficiaries is a point of degree, not of kind.

Did Mr Slutsker consent to the transaction?

76. The judge addressed the question whether Mr Slutsker did consent to the composite disposition by which the Property was acquired and the beneficial interest in it was made subject to the trusts of the Misha Trust at his paragraph 170, where he dealt with the position under article 35.2, in the alternative to article 35.3 which he had addressed in the previous paragraphs. In paragraph 170 he said, as I have already noted, that the same test would apply as under article 200 of the Civil Code for the start of the running of time. He also said this, about the knowledge required for consent under article 35.2:

"I would apply substantially the same approach to the question of whether he had sufficient knowledge to give an effective consent to the transaction as I have to the question of what knowledge is sufficient to start time running for the purpose of article 35.3. On that basis, for the reasons already given I would hold that Mr Slutsker could not show that he did not consent to the disposition in favour of the Trust."

77. Mr Brownbill argued that this puts the question the wrong way round, and that Haron and Summit needed to show that he had consented, rather than it being up to him to show that he had not. The judge adopted this formulation because, as he had already said, article 35.2 puts the burden of proof on the party alleging absence of consent. However, it also seems to me, from everything he had said, that if the test were the other way round, either generally or in the present case, that he could and would have found it to be proved that Mr Slutsker had given his consent to the transaction as a whole. The judge said, in substance, that he knew enough about what was proposed and what happened to give an effective consent to it for the purposes of article 35. It must follow that he did consent to what Mrs Slutsker did and caused to be done.

Conclusion

78. Thus, I agree with the judge that Mr Slutsker's case based on the resulting trust argument is wrong, because it involves an impermissible reference to English domestic law on a point which is to be determined, under English choice of law rules, by Russian law as the law of the matrimonial domicile. I also agree with him that, by reference to Russian law, Mr Slutsker did give his consent to the transaction as a whole, including the use of the Misha Trust or that, in the alternative, his claim to invalidate the transaction must fail because it was barred by the lapse of time either under articles 196 and 200 of the Russian Civil Code, if article 35.2 of the Russian Family Code is the relevant provision, or under article 35.3 of the Family Code itself.
79. It is unnecessary to address the points raised by the Respondent's Notice. For reasons already mentioned, I have assumed a number of points for the purposes of deciding this appeal, without deciding them. I leave them open for debate in a case in which they need to be decided.

Lord Justice Patten

80. I agree.

Lady Justice Black

81. I also agree.