In an important decision, the High Court has rejected an appeal by Mr Drelle against an order whereby he was adjudged bankrupt, following a petition based on a foreign judgment which had not been recognised in England and Wales. 

Background

In Valeriy Ernestovich Drelle v Servis-Terminal LLC [2024] EWHC 521 (Ch), the applicant ("Mr Drelle"), appealed an order by virtue of which he was adjudged bankrupt. The bankruptcy petition had been issued by a company ("ST") incorporated in the Russian Federation on the basis that a debt of RUB 2 billion (approximately £22 million) (the “Debt”) was due. The debt arose as a result of a judgment in ST's favour from a commercial court in Russia, the Russian Arbitrazh Court of Yaroslavl Oblast (which had not been overturned on appeal to superior courts in Russia). 

The appeal

One of the issues raised in Mr Drelle's appeal against the bankruptcy order was whether it was correct that ST could present a bankruptcy petition pursuant to section 267 of the Insolvency Act 1986 based on the Debt in circumstances where the underlying Russian judgment had neither been registered, nor recognised by an English court.

Enforcement of a Russian judgment under English common law

By way of background, in the absence of an applicable convention or statutory regime, the recognition and enforcement of foreign judgments in England and Wales relies upon the common law regime (a fresh claim suing on the judgment debt). This common law regime applies to Russian judgments. 

Under the English common law, where a foreign court of competent jurisdiction has determined that a certain sum is due from one person to another, a legal obligation arises on the defendant to pay that sum. The claimant may bring a claim in England to enforce that obligation as a debt.

In order to be enforceable in accordance with the principles of the common law regime, the judgment must be: 

  • a debt or a definite sum of money; 
  • unrelated to taxes, fines or penalties; 
  • final and conclusive; 
  • given by a court having jurisdiction to determine the dispute according to the English rules of the conflict of laws.

Once judgment is obtained, the usual enforcement procedures then apply.

However, in the present case, ST did not seek to initiate any Part 7 proceedings (i.e., “recognition proceedings”) in the English courts to seek an English judgment. Instead, ST relied on the Russian judgment as a debt sufficient to obtain a bankruptcy order.

The decision

The court decided that a Russian judgment debt did constitute a petition debt under section 267 of the Insolvency Act 1986 upon which a bankruptcy petition could be founded, despite ST not having instituted recognition proceedings in the English courts. The court found that Parliament had clearly legislated in section 267 that “debts” that satisfy the requirements of that section can found a bankruptcy petition. 

The court noted the previous decision in Bishopsgate Investment Management Limited v Maxwell (1993) Times, 11 February, in which it was confirmed that a “debt” for the purposes of section 267 did not need to result from a final order or judgment of the English court. Therefore, the fact that ST has an unrecognised foreign judgment does not stop it from constituting a “debt”. Indeed, a trade debt, without a judgment, could be capable of founding a bankruptcy petition. 

The court also noted a County Court decision in Sun Legend Investments Ltd v Jade Yuk Kuen Ho [2013] BPIR 533, in which the court considered whether an unrecognised Hong Kong judgment could form the basis of a bankruptcy petition. The court in Sun Legend concluded that there was a debt which satisfied the requirements of the Insolvency Act 1986 and commented that, “There is no requirement for an English judgment as a precondition to proceeding with a petition”. The court in the present case agreed with that conclusion.

The appeal was dismissed on all grounds.

Comment

This is a key decision because it confirms at High Court level that a foreign judgment can give rise to an enforceable debt and form the basis of a bankruptcy petition. 

A point arising from the decision was left open, however. This arose in the argument by Mr Drelle that foreign judgments falling under the statutory regime (in particular, the Foreign Judgments (Reciprocal Enforcement) Act 1933) would need to be registered before they can found a bankruptcy petition, whereas other foreign judgments, which did not fall within the statutory regime, would not. Mr Drelle said that this would be inconsistent and could not be correct. However, the court did not entertain this argument and declined to decide the point, leaving it open for another time.

Further, whether or not the same reasoning as applied by the court in this case in respect of bankruptcy petitions could apply to the presentation of winding up petitions was not addressed. 

It is worth noting, as set out in our previous article, that the Russian Federation has signed the 2019 Hague Convention, as has the UK and others. Once ratified, contracting states will be bound to recognise and enforce civil and commercial judgments given by a court of another contracting state, subject to certain defences, meaning that foreign judgments will be more widely enforceable in England, giving more options to parties seeking recovery. 

For information on our international asset recovery expertise, contact Fraser Mitchell.