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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Servis-Terminal LLC v Drelle [2025] EWCA Civ 62 (31 January 2025) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2025/62.html Cite as: [2025] WLR(D) 74, [2026] Ch 1, [2025] 3 WLR 35, [2025] EWCA Civ 62 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Mr Justice Richards
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE POPPLEWELL
and
LORD JUSTICE SNOWDEN
____________________
| SERVIS-TERMINAL LLC |
Petitioner/ Respondent to the appeal |
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| - and - |
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VALERIY ERNESTOVICH DRELLE | Respondent to the petition/ Appellant |
____________________
Mark Phillips KC and Clara Johnson (instructed by Latham & Watkins LLP) for the Respondent to the appeal
Hearing dates: 11 & 12 December 2024
____________________
Crown Copyright ©
Lord Justice Newey:
Basic facts
Drelle,
was formerly the chief executive officer of the respondent to the appeal, Servis-Terminal LLC ("the Company"), which is incorporated in Russia. The Company having been declared bankrupt, its trustee in bankruptcy brought proceedings against Mr
Drelle
in relation to a loan of RUB 2 billion which the Company had made in December 2011 to another Russian company, Fort Steiton LLC ("Fort Steiton"), with the benefit of a personal guarantee from Fort Steiton's owner, Mr Motylev. Another company controlled by Mr Motylev, Intercom Capital LLC ("Intercom"), succeeded to the obligations of Fort Steiton in respect of the loan on 5 November 2014. Intercom having failed to repay the loan, the Company obtained judgments against both Intercom and Mr Motylev. However, it did not succeed in recovering all that it was owed.
Drelle
were founded on article 53(3) of the Civil Code of the Russian Federation. It was alleged by the Company that Mr
Drelle
had failed to act in good faith or reasonably when, as a director of the Company, he had procured it to make the loan to Fort Steiton. The Company claimed that Mr
Drelle
was in consequence liable to compensate it for the losses it had suffered on the loan.
Drelle
had not acted in good faith or reasonably in that he had failed to verify the financial position of either Fort Steiton or Mr Motylev. The Court therefore ruled that there should be recovered from Mr
Drelle
damages in the amount of RUB 2 billion. It further directed that a writ of execution should be issued.
Drelle
appealed, but without success. The Second Arbitrazh Court of Appeal upheld the Judgment on 6 August 2019. Mr
Drelle
then brought a cassation appeal to the Arbitrazh Court of Volgo-Vyatsky District, but he was again unsuccessful and, on 17 February 2020, he was refused permission to appeal to the Russian Supreme Court.
Drelle,
who was by now resident in London, a statutory demand under section 268(1)(a) of the Insolvency Act 1986 ("the 1986 Act") in which it claimed to be owed RUB 2 billion on the strength of the Judgment and the dismissal of the appeals against it. On 14 October 2020, the Company presented a bankruptcy petition against Mr
Drelle
on the footing that he was indebted to it in the sum of RUB 2 billion (equivalent to £19,845,309.40 on 7 October 2020) "based on an unpaid judgment debt in favour of [the Company] based on the order of Arbitrazh Court of Yaroslavl Region, granted on 25 May 2019 … which fell due for payment on 6 August 2019".
Drelle.
Drelle
appealed, but the appeal was dismissed by Richards J on 11 March 2024. Richards J held that the fact that the Judgment had not been the subject of recognition proceedings in this jurisdiction did not prevent it from being the basis of a bankruptcy petition. He further declined to interfere with ICC Judge Burton's conclusion that the alleged debt was not otherwise subject to a substantial dispute.
Drelle
now challenges Richards J's decision in this Court. Four grounds of appeal have been advanced. The first is to the effect that, not having been recognised in this jurisdiction, the Judgment could not found a bankruptcy petition. The remainder relate to whether the conclusion that the alleged debt was not the subject of substantial dispute can be impugned for other reasons.
Was the Judgment capable of providing the basis for a bankruptcy petition?
The position of foreign judgments in this jurisdiction
"A judgment of a court of a foreign country … has no direct operation in England but may
(1) be enforceable by claim or counterclaim at common law or under statute, or
(2) be recognised as a defence to a claim or as conclusive of an issue in a claim."
"The first rule of foreign judgments is that judgments of foreign courts have, as such, no legal effect in England, for foreign judges have no authority in England. Except where Parliament has provided otherwise, foreign judgments cannot be enforced in England by execution, and no person is in contempt of court, or otherwise in peril in England, if she fails to do what she has been ordered to do by a foreign judge. As judicial adjudication is an exercise of state sovereignty, this is obvious: state sovereignty ends at the border of the state, and while international comity may certainly require that respect be given to exercises of that power within the sovereign's own territory, that is where the conventional obligations of comity end."
"The first method of enforcement here of a foreign judgment was by an action upon the judgment. The foreign judgment, in the absence of statute, could have no direct operation in England and Wales because of the principle of the territoriality of a court's jurisdiction. At first, the basis for enforcing the foreign judgment by action in this country was thought to be the doctrine of comity but that was later replaced by the doctrine of obligation, namely, that the judgment of a court having competent jurisdiction over the defendant imposed on him an obligation to pay the sum for which judgment had been given: see Russell v. Smyth (1842) 9 M. & W. 810, 819; Schibsby v. Westenholz (1870) LR 6 QB 155 and the cases cited in Dicey & Morris, The Conflict of Laws, 11th ed. (1987), vol. 1, p. 420. It followed that anything which may properly be held to negative that obligation was a defence to the action upon the judgment. It is pointed out by the editors of Dicey & Morris, The Conflict of Laws, at p. 421, that the right, which the plaintiff seeks to enforce in such proceedings, is a right created and defined by English law and not by foreign law. Thus, in order for the foreign judgment to be enforced in this country, it is essential that the foreign court should have had jurisdiction over the defendant, not in the sense of the foreign law but according to the rules of our law: see Adams v. Cape Industries Plc. [1990] Ch. 433, 513H; and the defences which may be pleaded by the defendant in an action upon a foreign judgment, such as that the judgment was obtained by fraud, are themselves creatures exclusively of English law."
"(1) A person, being a judgment creditor under a judgment to which this Part of this Act applies, may apply to the High Court at any time within six years after the date of the judgment, or, where there have been proceedings by way of appeal against the judgment, after the date of the last judgment given in those proceedings, to have the judgment registered in the High Court, and on any such application the court shall, subject to proof of the prescribed matters and to the other provisions of this Act, order the judgment to be registered:
Provided that a judgment shall not be registered if at the date of the application—
(a) it has been wholly satisfied; or
(b) it could not be enforced by execution in the country of the original court.
(2) Subject to the provisions of this Act with respect to the setting aside of registration—
(a) a registered judgment shall, for the purposes of execution, be of the same force and effect; and
(b) proceedings may be taken on a registered judgment; and
(c) the sum for which a judgment is registered shall carry interest; and
(d) the registering court shall have the same control over the execution of a registered judgment;
as if the judgment had been a judgment originally given in the registering court and entered on the date of registration …."
Section 6 of the 1933 Act is in these terms:
"No proceedings for the recovery of a sum payable under a foreign judgment, being a judgment to which this Part of this Act applies, other than proceedings by way of registration of the judgment, shall be entertained by any court in the United Kingdom."
"A foreign judgment which is final and conclusive on the merits and not impeachable under any of Rules 52 to 55 is conclusive as to any matter thereby adjudicated upon, and cannot be impeached for any error either
(1) of fact; or
(2) of law."
"in order to create an estoppel of that kind, three requirements have to be satisfied. The first requirement is that the judgment in the earlier action relied on as creating an estoppel must be (a) of a court of competent jurisdiction, (b) final and conclusive and (c) on the merits. The second requirement is that the parties (or privies) in the earlier action relied on as creating an estoppel, and those in the later action in which that estoppel is raised as a bar, must be the same. The third requirement is that the issue in the later action, in which the estoppel is raised as a bar, must be the same issue as that decided by the judgment in the earlier action."
"Now if a foreign adjudication and judgment is understood as being an act of state sovereignty, the common law draws two conclusions: it is regarded as completely effective within the territory of the sovereign, and as completely unenforceable outside it. The fundamental rule of the English common law has always been that an English court has no jurisdiction to enforce a foreign penal, revenue, or what is sometimes described as an 'other public' law. There is now general agreement that Dicey's Rule 3 [now rule 20] is a particular manifestation of a more fundamental rule, that an assertion or exercise of the sovereign right of a foreign state will not be enforced by an English court. It follows that in the absence of legislation, a foreign judgment cannot be enforced in England."
"The theory is illustrated by the practice. A successful litigant with a foreign judgment in his favour cannot enforce that judgment in England. No measures of execution may be taken on the strength of it. The claimant must instead bring original proceedings before the English court, in order to obtain, speedily or eventually, an original English judgment, which alone is the judgment which can be enforced. The nature of these English proceedings will depend on the nature of the anterior foreign judgment. If the foreign judgment took the form of a final order to pay a sum of money, the claimant may sue to recover that sum as a debt due and owing: the issue of a claim form followed by an application for summary judgment will in many cases produce an enforceable English judgment in short order. If the foreign judgment is otherwise, no debt action will lie, with the result that the claimant must fall back and sue on the underlying cause of action. However, if the foreign judgment was entitled to recognition, the usual course of proceedings from issue of process to English judgment will be to use the foreign judgment as a short-cut, allowing and requiring the issue of substance to be treated as res judicata; after which the English court will be able to give judgment. Its order may not be in precisely the same terms as that made by the foreign court, but in most cases, the English order will be close to the one the foreign court made. Either course results in a judgment of the English court and it is this which is enforceable in England.
As Dicey said in his first edition: 'A foreign judgment has no direct operation in England', and nothing material has changed."
"Though they can use it for the purpose of a statutory demand leading to a bankruptcy application, if the liability is contested by the defendant, the entitlement of the judgment creditor to enforce the judgment will need to be established in English proceedings. What is then enforced is the English decision to admit the claim to prove in the bankruptcy."
A footnote in comparable terms is to be found in Dicey, Morris & Collins. That states in paragraph 14-012 that a "judgment creditor seeking to enforce a foreign judgment in England at common law cannot do so by direct execution of the judgment" but "must bring an action on the foreign judgment". This, however, is added by way of footnote:
"The judgment creditor may serve a statutory demand in terms of the foreign judgment, just as with any other unpaid debt. But if the validity of the debt is contested, the issue will have to be resolved as in an ordinary action to establish the enforceability of the judgment and hence the existence, as a matter of English law, of the debt."
The significance to be attached to each of these footnotes was the subject of argument before us.
"No proceedings may be brought by a person in England and Wales or Northern Ireland on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court in another part of the United Kingdom or in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in England and Wales or, as the case may be, in Northern Ireland."
The 1986 Act
"(1) A creditor's petition must be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed.
(2) Subject to the next three sections, a creditor's petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented—
(a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level,
(b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured,
(c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay, and
(d) there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts."
"For the purposes of section 267(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either—
(a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as 'the statutory demand') in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules, or
(b) execution or other process issued in respect of the debt on a judgment or order of any court in favour of the petitioning creditor, or one or more of the petitioning creditors to whom the debt is owed, has been returned unsatisfied in whole or in part."
"any of the following—
(a) any debt or liability to which he is subject at the commencement of the bankruptcy,
(b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy …."
Section 382(3) states:
"For the purposes of references in this Group of Parts [which comprises sections 251A to 385] to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in this Group of Parts to owing a debt are to be read accordingly."
The Bankruptcy Act 1914
"(a) If in England or elsewhere he makes a conveyance or assignment of his property to a trustee or trustees for the benefit of his creditors generally;
(b) If in England or elsewhere he makes a fraudulent conveyance, gift, delivery, or transfer of his property, or of any part thereof;
(c) If in England or elsewhere he makes any conveyance or transfer of his property or any part thereof, or creates any charge thereon, which would under this or any other Act be void as a fraudulent preference if he were adjudged bankrupt;
(d) If with intent to defeat or delay his creditors he does any of the following things, namely, departs out of England, or being out of England remains out of England, or departs from his dwelling-house, or other-wise absents himself, or begins to keep house;
(e) If execution against him has been levied by seizure of his goods under process in an action in any court, or in any civil proceeding in the High Court, and the goods have been either sold or held by the sheriff for twenty-one days:
Provided that, where an interpleader summons has been taken out in regard to the goods seized, the time elapsing between the date at which such summons is taken out and the date at which the proceedings on such summons are finally disposed of, settled, or abandoned, shall not be taken into account in calculating such period of twenty-one days;
(f) If he files in the court a declaration of his inability to pay his debts or presents a bankruptcy petition against himself:
(g) If a creditor has obtained a final judgment or final order against him for any amount, and, execution thereon not having been stayed, has served on him in England or, by leave of the court, elsewhere, a bankruptcy notice under this Act, and he does not, within seven days after service of the notice, in case the service is effected in England, and in case the service is effected elsewhere, then within the time limited in that behalf by the order giving leave to effect the service, either comply with the requirements of the notice or satisfy the court that he has a counter-claim set off or cross, demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid, and which he could not set up in the action in which the judgment was obtained, or the proceedings in which the order was obtained: For the purposes of this paragraph and of sections two of this Act, any person who is for the time being, entitled to enforce a final judgment or final order, shall be deemed to be a creditor who has obtained a final judgment or final order.
(h) If the debtor gives notice to any of his creditors that he has suspended, or that he is about to suspend payment of his debts."
"(a) the debt owing by the debtor to the petitioning creditor, or, if two or more creditors join in the petition, the aggregate amount of debts owing to the several petitioning creditors, amounts to fifty pounds, and
(b) the debt is a liquidated sum, payable either immediately or at some certain future time, and
(c) the act of bankruptcy on which the petition is grounded has occurred within three months before the presentation of the petition …."
The decisions below
Drelle
(who was then represented by different solicitors and counsel) did not dispute before ICC Judge Burton that a bankruptcy petition can be presented on the strength of a foreign judgment even where that judgment has not been either recognised or registered in this jurisdiction. At that stage, Mr
Drelle's
case was solely that there was a bona fide dispute on substantial grounds as to the safety of the Judgment. He contended that there was evidence indicating that the Judgment had been obtained by fraud or collusion or pursuant to a miscarriage of justice.
Drelle's
case that, the Judgment not having been the subject of recognition proceedings, the Company was not entitled to present a bankruptcy petition on the strength of it. Richards J did not, though, accept the submission. He explained that, relying on Dicey, Morris & Collins' rule 45, Mr
Drelle
had contended that the Company could not enforce the Judgment without first taking proceedings to have it recognised and that "enforcement" in this context extended to using the Judgment as the basis of a bankruptcy petition: see paragraph 30 of Richards J's judgment. As, however, he explained in paragraph 35 of his judgment, Richards J considered that the question before him was "what 'debt' means, and not what Rule 45, or the common law that it distils, mean", since:
"In s267 of the Insolvency Act, Parliament has legislated to determine which claims can found the presentation of a bankruptcy petition. It has not left this question to the common law. Parliament's answer is that only 'debts' that satisfy the requirements of s267 can found a bankruptcy petition."
"the effect of Rule 51 is that, when considering whether the Judgment gives rise to a 'debt' for the purposes of s267, it is to be taken as conclusive of any matter that it adjudicates. Accordingly, for the purposes of s267, it is to be assumed conclusively that MrDrelle
presently owes [the Company] RUB 2 billion, as determined by the Judgment. That is a strong indicator indeed that Mr
Drelle
owes a 'debt' of RUB 2 billion to [the Company]. I do not accept Mr
Drelle's
argument that Rule 51 is applicable only in cases where a claimant is relying on a foreign judgment 'defensively' rather than 'as a sword'. The text of Rule 51 itself makes no distinction and, moreover, Mr
Drelle's
submissions to this effect echo the Enforcement Point that I have already rejected."
"The 'obstacle' on which MrDrelle
relies, namely that [the Company] has only an unrecognised foreign judgment, does not prevent the Judgment constituting a 'debt'. It does not alter the conclusion that the Judgment, which is to be taken as final and conclusive for the purposes of Ground 1, requires payment of a liquidated sum that is not subject to any contingency. Rather, the 'obstacle' relied upon presents a barrier to enforcement of the Judgment in the particular jurisdiction of England and Wales that is no different in nature to the barrier to enforcement that faces a creditor who has an English trade debt, but no judgment."
The parties' cases in outline
Drelle
with Mr James Bickford Smith, emphasised Dicey, Morris & Collins' rule 45. The effect of the common law principle reflected in rule 45 is, Mr Samek argued, two-fold, in effect both sides of the same coin. In the first place, the principle prevents an unrecognised foreign judgment from being used as a "sword", including as the basis for a bankruptcy petition. Secondly, the principle has the consequence that an unrecognised foreign judgment does not give rise to a "debt" within the meaning of section 267(2)(b) of the 1986 Act since there is nothing capable of legal enforcement unless and until the foreign judgment is recognised. It may be, Mr Samek said, that an amount payable under an unrecognised foreign judgment would be provable in a bankruptcy. That, however, would be because, having regard to section 382(3) of the 1986 Act and rule 14.2(1) of the 1986 Rules, claims are provable as debts "whether they are present or future, certain or contingent, ascertained or sounding only in damages" whereas by virtue of section 267(2)(b) a debt in respect of which a petition is presented must be "for a liquidated sum payable to the petitioning creditor … either immediately or at some certain, future time". Mr Samek further argued that Richards J's conclusions were inconsistent with views expressed by this Court in Judgment Debtor. It is apparent from that decision, Mr Samek said, that a foreign judgment within the scope of the registration scheme for which the 1933 Act provides but which has not been registered cannot found either a bankruptcy petition or a winding-up petition and so that, in the context of registrable foreign judgments, "debt" in section 267(2)(b) of the 1986 Act can only refer to a "debt" arising under a registered judgment. Likewise, Mr Samek argued, a judgment which is as yet unrecognised is not to be seen as creating a "debt" within the meaning of section 267(2)(b). The 1986 Act, Mr Samek maintained, does not purport to explain comprehensively every concept that it uses and, more specifically, in enacting section 267 Parliament left it to the general law to determine when a foreign judgment should be regarded as giving rise to a "debt".
Drelle's
liability to the Company. Dicey, Morris & Collins' rule 45, Mr Phillips submitted, is not in point because presentation of a bankruptcy petition does not amount to enforcement by execution of the debt in question. In that respect, Mr Phillips cited, among other authorities, Ridgeway Motors (Isleworth) Ltd v ALTS Ltd [2005] EWCA Civ 92, [2005] 1 WLR 2871 ("Ridgeway Motors"), in which Mummery LJ explained in paragraph 29 that a winding-up petition "is neither (a) an action upon a judgment in the special sense of being designed to re-establish by legal proceedings the liability of the company to pay a judgment debt and obtain another judgment for it, nor (b) a process of execution of the judgment on which the petition is based" but is rather "sui generis, being in the nature of a wider legal proceeding available for the collective enforcement of the admitted or proved debts of the company for the benefit of the general body of creditors on a pari passu basis: see, for example, In re Lines Bros Ltd [1983] Ch 1, 20". With regard to Judgment Debtor, Mr Phillips contended that the Court of Appeal did not there decide that section 6 of the 1933 Act prohibits the holder of an unregistered foreign judgment from presenting a bankruptcy petition or, if it did, that was both obiter and wrong and, anyway, holders of registrable and non-registrable judgments are in different positions and there is nothing "bizarre" about different regimes producing different results.
Analysis
Drelle
and, as a matter of Russian law, payment had fallen due by the time the petition against Mr
Drelle
was presented. While, moreover, the Judgment has not been the subject of recognition proceedings in this jurisdiction, section 267 does not state that a foreign judgment cannot be considered to give rise to a "debt" unless recognised or registered. In fact, as the Judge noted in paragraph 45 of his judgment, section 267 "requires that there be a 'debt' without expressly considering how, or in which courts, any such debt could be enforced". Further, as is recognised in rules 45 and 51 of Dicey, Morris & Collins, a foreign judgment which is not open to impeachment can be conclusive as to matters decided in it.
Drelle's
case. I have already quoted passages from Dicey, Morris & Collins and Professor Briggs. It is worth mentioning, too, Fletcher, The Law of Insolvency, 5th ed., which says this at paragraph 6-027:
"Creditors who are ineligible to petition
In certain circumstances, an otherwise eligible creditor is precluded by law from presenting a bankruptcy petition against his debtor, although he still may be able to prove his debt and receive dividend in a bankruptcy brought about through the petition of some other creditor who is qualified to initiate proceedings. One example which could formerly occur was the case, already instanced, of a husband who had been awarded damages against a co-respondent in divorce proceedings, when the destination of the damages was yet to be determined by the court. Although this particular situation cannot now arise, on account of the abolition of the particular remedy in question, the essential principle which underlay the husband's disqualification as petitioning creditor is still operative in other cases, and it may be said that, as a general rule, wherever some obstacle would preclude the creditor from taking direct action at law to enforce his claim against the debtor, he will equally be precluded from resorting to the bankruptcy court as an alternative means of enforcement. For although he may be loosely termed a 'creditor', such a claimant in reality is not yet personally owed any proper, legally enforceable 'debt' which can become the basis of the petition. This form of ineligibility to petition for bankruptcy is therefore attributable to that fundamental interdependence of the legal concepts of 'debtor', 'creditor' and 'debt' which was referred to earlier …."
"even though it speaks in general terms about the 'enforcement' of a claim, reading the passage as a whole, it is quite possible to read it as an articulation of the different circumstances of a contingent creditor (who can prove in a bankruptcy, but not present a bankruptcy petition) and a 'non-contingent' creditor who is entitled to petition for bankruptcy."
Perhaps so. However, a more obvious reading of what Professor Fletcher was saying is, I think, that wherever "an otherwise eligible creditor" would be precluded from taking direct action at law to enforce his claim against the debtor, "he will equally be precluded from resorting to the bankruptcy court as an alternative means of enforcement". That would suggest that the fact that a person in whose favour a foreign Court had given judgment could not resort to direct execution in the absence of recognition or registration would equally prevent him from "resorting to the bankruptcy court as an alternative means of enforcement".
Drelle's
case. So, similarly, might Dicey, Morris & Collins' statement that "if the validity of the debt is contested, the issue will have to be resolved as in an ordinary action to establish the enforceability of the judgment and hence the existence, as a matter of English law, of the debt". On the other hand, I find it hard to see how the service of a statutory demand in respect of an unrecognised foreign judgment could be appropriate if, as Mr
Drelle
contends, such a judgment cannot give rise to a debt capable of founding a bankruptcy petition. If the fact that the foreign judgment has not been recognised means that, in the eyes of English law, there is no debt which can be pursued, that surely means that there is no debt in respect of which a statutory demand can properly be served.
"But, if the argument for the [debtor] were correct, it would produce this startling result, that it would not be open for the holder of a foreign judgment registrable under the Act ever to enforce that judgment in bankruptcy, and for this reason, that he cannot sue on it - s. 6 prevents him doing so - and the only thing he could do would be to register it; and then s. 2, sub-s. 2, according to the [debtor's] argument, prohibits him from taking or does not enable him to take bankruptcy proceedings on the basis of the registered judgment. The result, therefore, would be that this Act would have placed the holders of foreign judgments, for the purpose of enforcing those judgments in bankruptcy, in a much worse position than they were in before."
"The requirement that a bankruptcy notice could only be served after final judgment or order had been obtained has not survived the changes made in 1985. There is no longer a need for an act of bankruptcy in the old sense. The requirement under Section 267 of the Insolvency Act 1986 is that the debt is a debt which the debtor appears to be unable to pay. (See Section 267(2)(c)). Section 268 defines the circumstances in which that condition will be satisfied. They include failure to comply with a statutory demand. There is no requirement that the debt in respect of which a statutory demand is served should be a judgment debt. A fortiori, no requirement that it should be a debt resulting from a final order or judgment. I can see no justification for re-introducing the old requirements governing the service of a bankruptcy notice into the scheme which is now based on the service of a statutory demand. It is clear that the legislature did intend to change the law in this respect."
Drelle
is not founded on anything other than a judgment, albeit a foreign one: not only has the Company not attempted to argue that the claims which gave rise to the Judgment provide an independent justification for its petition but section 34 of the Civil Jurisdiction and Judgments Act 1982 bars proceedings on a cause of action in respect of which a foreign Court has given judgment in the claimant's favour unless (which is not suggested by the Company here) "that judgment is not enforceable or entitled to recognition in England and Wales". The question in the present case is not whether a bankruptcy petition can be presented on the strength of a debt other than a judgment debt but whether a foreign judgment which has not been recognised or registered is to be regarded as creating a "debt". Chadwick J was not concerned with such an issue, and his judgment sheds no light on it.
The other grounds of appeal
Drelle
advanced. It may well be that the Company will now bring proceedings to have the Judgment recognised. A Judge hearing such a claim would not be bound either by what has been said in these proceedings by ICC Judge Burton and Richards J or by any comments which I might make, which would necessarily be obiter. Further, the evidence adduced in any such proceedings could potentially differ significantly from that which has been before the Courts in these proceedings, and the submissions could diverge as well. In all the circumstances, I do not think it would be helpful for me to comment on the arguments which the parties have presented as to whether there is a genuine and substantial dispute in respect of the debt alleged to arise from the Judgment. The Judge hearing any recognition claim will need to consider matters afresh, and obiter observations from me on the basis of different evidence and contentions would be more likely to hinder than to assist.
Conclusion
Lord Justice Popplewell:
Lord Justice Snowden:
Drelle
on the basis of an unsatisfied judgment of the Arbitrazh Court of Yaroslavl Oblast ordering Mr
Drelle
to pay damages of RUB 2 billion for breach of his duties as a director of the Company. Quite apart from the issues that arise in relation to foreign judgments, a claim for unliquidated damages for breach of duty will not found a bankruptcy petition: see section 267(2)(b) of the 1986 Act. Accordingly, it is clear that Mr
Drelle's only obligation to pay a liquidated sum upon which the Company can rely arises from the fact that he has been ordered to do so by the Arbitrazh Court.
"4. The purpose of bankruptcy proceedings … is not to determine or establish the existence of rights, but to provide a mechanism of collective execution against the property of the debtor by creditors whose rights are admitted or established. That mechanism may vary in its details. For example, in personal bankruptcy in England, the assets of the bankrupt are vested in a trustee for realisation and distribution to creditors. So the mechanism operates by divesting the bankrupt of his property. In corporate insolvency, on the other hand, the insolvent company continues to be owner of its property but holds it in trust for the creditors in accordance with the provisions of the Insolvency Act 1986: see Ayerst v C&K (Construction) Ltd [1976] AC 167. In the case of personal bankruptcy, the bankrupt may afterwards be discharged from liability for his pre-bankruptcy debts. In the case of corporate insolvency, there is no provision for discharge. The company remains liable but when all its assets have been distributed, there is nothing more against which the liability can be enforced: see Wight v Eckhardt Marine GmbH [2004] 1 AC 147, 155–156. At that point, the company is usually dissolved.
15. But these are matters of detail. The important point is that bankruptcy, whether personal or corporate, is a collective proceeding to enforce rights and not to establish them. Of course, as Brightman LJ pointed out in In re Lines Bros Ltd [1983] Ch 1, 20, it may incidentally be necessary in the course of bankruptcy proceedings to establish rights which are challenged: proofs of debt may be rejected; or there may be a dispute over whether or not a particular item of property belonged to the debtor and is available for distribution. There are procedures by which these questions may be tried summarily within the bankruptcy proceedings or directed to be determined by ordinary action. But these again are incidental procedural matters and not central to the purpose of the proceedings."
"We proceed upon the assumption that there is a rule of the common law that our courts will not regard the revenue laws of other countries: it is sometimes, not happily perhaps, called a rule of private international law: it is at least a rule which is enforced with the knowledge that in foreign countries the same rule is observed, and since it is a rule which operates equally in regard to natural and artificial persons, the company, with which we are here concerned, could not on the day before its resolution to wind up became effective have been sued by the Indian Government for the recovery of tax in the courts of this country.
But it is said that from the moment that the company went into liquidation the situation changed, the old rule of law was abrogated, and our courts became the means of collecting the taxes of a foreign power. This may seem the more surprising when it is remembered that the winding up of a company, whether voluntarily or by the court, is only the machinery by which an entity, which can no longer, or at least no longer usefully, carry on its business, is brought to its statutory end. It is difficult to see why such a process should create new rights in foreign powers hitherto unknown in this or any other country.
But it is said that under section 302 of the Companies Act 1948, the "liabilities" which the liquidator in a voluntary winding up is bound to discharge include an obligation to pay tax due to a foreign State. All turns on the meaning of the word "liabilities" in this section. On the one hand it is said by the respondents that it means only those obligations which are enforceable in an English court, and on the other hand that its meaning is extended - I do not know how far - but at least so far as to cover liabilities for foreign tax in respect of which the company might have been sued in the courts of the country imposing it.
My Lords, I have no hesitation in adopting the former of these meanings. I conceive that it is the duty of the liquidator to discharge out of the assets in his hands those claims which are legally enforceable, and to hand over any surplus to the contributories. I find no words which vest in him a discretion to meet claims which are not legally enforceable. It will be remembered that, so far as is relevant for this purpose, the law is the same whether the winding up is voluntary or by the court, whether the company is solvent or insolvent, and that an additional purpose of a winding up is to secure that creditors who have enforceable claims shall be treated equally, subject only to the priorities for which the statute provides. It would be a strange result if it were found that the statute introduced a new category of creditors to compete with those who alone, apart from it, could enforce their claims."
At page 515, Lord Somervell took a similar view on the interpretation of section 302, holding that even if the word "liabilities" could include liabilities incurred abroad,
"…I would not have regarded this as sufficient to overrule the special principle that foreign states cannot directly or indirectly enforce their tax claims here."
"In principle, a demand or petition based on a foreign judgment debt will be recognised for bankruptcy purposes without the need for specific registration in the UK. A bankruptcy petition does not constitute enforcement of the foreign judgment; the bankruptcy jurisdiction under the Insolvency Act 1986 is a separate jurisdiction involving a class remedy (per DJ Musgrave in Sun Legend Investments v Ho [2013] BPIR 533 CC (Birmingham); see further Pace Europe v Durham [2012] EWHC 852 (Ch); [2012] BPIR 836 (HH Judge Purle QC sitting as a Deputy High Court Judge))."