The Supreme Court held that a creditor may present a bankruptcy petition on a foreign money judgment which has not been recognised in the United Kingdom and cannot be registered under a reciprocal enforcement statute. At common law that judgment creates an immediate obligation to pay, and that obligation is a “debt” under section 267 of the Insolvency Act 1986. Whether the Russian judgment against Mr Drelle was disputed on bona fide and substantial grounds was left for the Court of Appeal.
Servis-Terminal LLC, a Russian company in liquidation acting by its trustee in bankruptcy, petitioned to bankrupt its former director general, Mr Valeriy Drelle, who had settled in London. The petition relied on a judgment of the Arbitrazh Court of the Yaroslavl Region dated 24 May 2019, ordering him to pay RUB 2 billion. That was the amount of a loan Servis-Terminal had made in December 2011 to Fort-Steiton LLC. The claim was that, by causing the loan to be advanced, Mr Drelle had acted unreasonably and in bad faith and had caused loss. His appeals were dismissed by the Second Arbitrazh Appeal Court, the cassation court and, on 17 February 2020, the Supreme Court of the Russian Federation. The judgment had not been recognised in England. No statutory registration scheme, such as the Foreign Judgments (Reciprocal Enforcement) Act 1933, applied to it.
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On 9 October 2020 Servis-Terminal served a statutory demand. On 13 October 2020 it presented a bankruptcy petition. Mr Drelle said that the Russian judgments had been improperly obtained, were biased or contrary to natural justice and English public policy, and had been obtained by fraud or collusion. ICC Judge Burton held that the debt was not disputed on bona fide and substantial grounds, and a bankruptcy order was made on 31 March 2023. Richards J dismissed the appeal. He treated the unrecognised judgment as conclusive and the need for recognition as a barrier to enforcement no different in kind from that facing a creditor with an unpaid English trade debt but no judgment.
The Court of Appeal allowed the appeal on a point first raised before Richards J: an unrecognised foreign judgment is not a debt within section 267(2)(b), so it cannot found a bankruptcy petition. Newey LJ gave the leading judgment; Snowden LJ delivered a concurring judgment, and Popplewell LJ agreed with both. The Court of Appeal left undecided Mr Drelle’s challenge to the finding that the debt was not substantially disputed, so as not to prejudice any recognition proceedings.
The obligation created by the judgment
Lords Briggs and Hamblen, with whom Lord Sales, Lord Stephens and Lord Doherty agreed, treated three matters as not in issue on this appeal: the Russian court had jurisdiction, the judgment was final and conclusive, and, as matters stood and as ICC Judge Burton had held, it was not impeachable. The challenge to that last conclusion remained live elsewhere.
The Court held that a foreign judgment for a debt or definite sum itself creates an obligation to pay the sum adjudged. The obligation arises when the final and conclusive judgment is given and does not depend on recognition. An action can be brought on that obligation, described in the 1932 Greer report as a cause of action “as for a debt”. The principle derives from decisions of Parke B in the 1840s and was endorsed by Blackburn J in 1870. The Court treated Adams v Cape Industries plc, Owens Bank v Bracco and Rubin v Eurofinance SA as confirming that this remains the basis of enforcement.
Dicey’s statement that a foreign judgment has no “direct operation” in England means that it has no status as a judgment here. Processes of execution available for an English judgment, such as a third party debt order, charging order or receivership, cannot be used on it. It does not mean that the judgment has no legal effect. Suing on the obligation is an indirect use of it; execution becomes available only if an English judgment is obtained. The Court of Appeal was wrong to treat the judgment as usable only as a shield. An action on a money judgment uses it to support a claim, and the rule that a final foreign judgment is conclusive draws no distinction between claim and defence.
The revenue rule was a false analogy. English courts will not enforce a foreign penal, revenue or other public law, and a foreign tax is not a petition debt. That rule concerns a state asserting a sovereign right. Servis-Terminal was asserting a private right to a sum of money, involving no act of a sovereign character. Separately, the 1933 Act does not change the common law applicable to judgments which that Act does not cover.
A petition debt under section 267
A creditor’s petition must concern a debt owed to the petitioner. Section 267 additionally requires, among other things, a liquidated sum payable immediately or at a certain future time, and an unsecured debt. The Russian judgment was unsecured and well above the bankruptcy level of £5,000. No suggestion had been made that Mr Drelle could pay it, and the statutory demand had not been satisfied. The question was whether it created a debt payable immediately or at a certain future time.
“Debt” is not defined for section 267. The wider definition of “bankruptcy debt” in section 382 concerns proof in a bankruptcy, not who may petition. The 1986 Act was read as a new statute. Under the Bankruptcy Act 1914, a relevant act of bankruptcy could be failure to pay a judgment debt, meaning an English judgment or later a registered foreign judgment, because an unrecognised foreign judgment could not be executed here. That scheme had gone. Under the 1986 Act, inability to pay may be shown by an unanswered statutory demand, and the demand need not be based on a judgment at all.
Used without special definition, “debt” starts from its common law meaning: an obligation by one person to pay money to another. An unrecognised foreign money judgment already created such an obligation. Sections 267 and 268 identify when a debtor appears unable to pay, so that a pari passu insolvency scheme may be imposed. Inability to meet this obligation can qualify. A bankruptcy petition is not, in the relevant sense, execution or enforcement of an individual judgment. It divides assets among unsecured creditors under a moratorium. The comparison with registrable judgments did not alter that conclusion. In re A Judgment Debtor decides that the 1933 Act prevents a petition on a registrable judgment until registration, but that Act left unregistrable judgments untouched. Registration is a simpler preliminary than recognition proceedings and carries procedural advantages.
The Model Law
Servis-Terminal also relied, for the first time in the Supreme Court, on article 13 of the UNCITRAL Model Law, in force through the Cross-Border Insolvency Regulations 2006. That article gives foreign creditors the same rights to commence and participate in British insolvency proceedings as creditors in Great Britain. The argument was that “foreign” referred to the law governing the debt, so a creditor under a foreign judgment had to be treated like one under an English judgment. The Court did not need the argument and rejected it. In article 13, “foreign” describes geographical location. It does not compare a Russian judgment with an English one.
Verdict: The Supreme Court allowed Servis-Terminal’s appeal against the Court of Appeal’s decision that an unrecognised foreign judgment cannot found a bankruptcy petition. The obligation to pay under this unrecognised and unregistrable Russian judgment is a debt within section 267 of the Insolvency Act 1986. The Court remitted to the Court of Appeal Mr Drelle’s remaining grounds, on which that court had given permission but which it had not decided: whether ICC Judge Burton was wrong to hold that the debt was not disputed on bona fide and substantial grounds, and whether Richards J applied the wrong standard of review. The Supreme Court did not itself decide those grounds or make a final decision on whether the bankruptcy order should stand.
