This decision is an important clarification of the law: it allows a creditor to make use of certain foreign judgments in England as a basis for a bankruptcy (or winding up) petition without first seeking recognition of the judgment. This may be particularly useful to the creditor where recognition may be difficult or time-consuming to obtain. 

Summary of the Decision

Background

Servis-Terminal LLC (“ST”) is a Russian company in bankruptcy proceedings in Russia. ST brought proceedings against its former director and shareholder, Valeriy Ernestovich Drelle (“VED”), in the Russian courts for causing ST to advance a loan to a Russian company connected to the Russian Credit Bank, which later collapsed. The claim was successful, and VED was ordered to pay ST 2 billion RUB. VED left Russia and settled in London. 

In October 2020, ST served an English statutory demand against VED on the basis of the debt owed under the Russian judgment, but the demand was not satisfied. On the basis of the unpaid demand, ST subsequently pursued bankruptcy proceedings in England against VED, despite the fact that the Russian judgment had not been recognised (and, being a Russian judgment, was not registrable under judgment enforcement legislation in England and Wales). ST nevertheless obtained a bankruptcy order from the English courts against VED in March 2023. 

VED appealed the bankruptcy order on the basis that the Russian judgment debt was disputed on bona fide and substantial grounds, arguing that the Russian judgment was improperly obtained, biased and contrary to natural justice. He also argued that the Russian judgment did not constitute a petition “debt” required for bankruptcy proceedings, as it had not been recognised in England and Wales. The appeal was dismissed by the High Court in March 2024. 

On further appeal, the Court of Appeal held that a bankruptcy petition could not be presented on the basis of an unrecognised foreign judgment because, absent recognition, a foreign judgment has no direct operation in England and Wales. This was based on one of the well-known ‘Dicey Rules’ which govern foreign judgments and conflicts of laws. As such, the Court of Appeal held that a foreign judgment could not be used as a ‘sword’ (i.e. to advance positive claims) absent recognition. 

Issues before the Supreme Court 

On further appeal to the Supreme Court, there were two key issues: 1) what is the effect of an unrecognised foreign money judgment in England and Wales and 2) can such a judgment be relied upon as a “debt” for the purpose of bringing a bankruptcy petition under the Insolvency Act 1986?

On the first issue, ST relied on the principle that a foreign judgment gives rise to an obligation under English law to pay the judgment debt in England and Wales. This principle dates back to the 1840s and appears to contradict the Dicey rule which the Court of Appeal had based its decision on. 

In considering the conflict between this ‘obligation principle’ and the Dicey rule, the Supreme Court held that the Dicey rule was confined to the enforcement of a foreign judgment itself by execution (which a bankruptcy petition is not). As a result, the Supreme Court affirmed the long line of caselaw espousing the ‘obligation principle’. In short, an unrecognised foreign judgement does have an ‘effect’ in English law. 

On the second issue, the Supreme Court first considered that the meaning of “debt” in the (now superseded) Bankruptcy Act 1914 (which clearly did not encompass unrecognised foreign judgments) should not be “carried over” to the Insolvency Acty 1986. That Act created a “fresh start” and there was no reason to interpret the Insolvency Act 1986 so as to confine the meaning of “debt” in the way that it had been under the Bankruptcy Act 1914. Under the 1986 Act, “any debt will do” to support a statutory demand, and in turn, a bankruptcy petition. That was also consistent with the broad common law meaning of a “debt”. 

The Supreme Court also considered whether the Foreign Judgments (Reciprocal Enforcement) Act 1933, which simplifies recognition in respect of judgments from countries to which the Act applies (Russia not being one of them) had any bearing on whether an unrecognised foreign judgement is a “debt” under the 1986 Act. Under the 1933 Act, foreign judgments that qualify for registration cannot support a bankruptcy petition without first being registered. Therefore, so VED argued, why should a petitioner be better off with a foreign judgment that is both unregistrable and unrecognised? However, the Supreme Court did not accept this argument either. Amongst other things, the 1933 Act did not seek to affect unrecognised and unregistrable judgments.

As a result, the fact the Russian judgment was unrecognised did not invalidate the bankruptcy petition.[1] 

Practical effect of the Judgment

As a result of Servis-Terminal LLC, it is now clear that bankruptcy petitions against individuals (and likely also winding up petitions against companies) may be pursued on the basis of an unrecognised and unregistrable foreign judgment. It is therefore a matter of practical importance to consider whether or not a foreign judgment is registrable under the 1933 Act (or other judgment enforcement legislation), before considering whether to rely on it to support a petition.

Where a judgment is not covered by such legislation, it may be possible for a foreign judgment creditor to move relatively quickly to use a foreign judgment to seek the debtor’s bankruptcy or winding up in England and Wales, whether or not they may be able to have the judgment recognised. 

This may increase the attraction of the English courts as a venue for the ‘enforcement’ of foreign judgments (at least in circumstances where bankruptcy or liquidation is considered the best ‘enforcement’ option), although in some cases at least, the reasons why a judgment might not be recognised may also provide a basis for the debtor to have the statutory demand or petition set aside. 

Additional Contributors: Alex Jardine