Court of Appeal confirms unrecognised foreign judgment cannot form the basis of an English bankruptcy petition

The Court of Appeal has unanimously upheld an appeal from a decision of the High Court, setting aside a bankruptcy order founded on an unrecognised foreign judgment. The facts of this case, and the High Court’s earlier decision, were reported on by us previously and can be seen here.

Bankruptcy order

At first instance, Insolvency and Companies Court Judge Burton agreed with Servis Terminal LLC’s (ST) position that sums due to it pursuant to a judgment of the Russian courts (the Judgment) against Mr Drelle, which had not been registered here, constituted a “debt” sufficient to found a bankruptcy petition in England. A bankruptcy order (the Order) was made against Mr Drelle in March 2023.

Section 267 Insolvency Act 1986

Section 267 of the Insolvency Act 1986 (the Act) sets out the types of claim that may found the presentation of a bankruptcy petition. Section 267(2)(b) provides that:

“…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, 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…”

High Court decision

On appeal, the High Court agreed with ICC Judge Burton and upheld the Order. The High Court’s view was that, despite the lack of recognition by the English courts, the Judgment was final and conclusive and required payment of a liquidated sum by Mr Drelle to ST that was not subject to any contingency. On this basis, the High Court considered that sums due pursuant to the Judgment fell within the definition of “debt” for the purposes of section 267 of the Act and could therefore be used to form the basis of a bankruptcy petition. 

Appeal

Mr Drelle appealed against the High Court’s decision to uphold the Order. In doing so, he argued that an unrecognised foreign judgment could not be used as a “sword” to effectively instigate new proceedings in England, including through the presentation of a bankruptcy petition. Mr Drelle also asserted that an unrecognised foreign judgment does not give rise to a “debt” for the purposes of section 267(2)(b) of the Act and therefore the Judgment was not capable of legal enforcement in England without recognition. 

Decision

Reversing the decision of the High Court, the Court of Appeal unanimously held that the Judgment could not be used to found the basis of a bankruptcy petition in England unless and until it was formally recognised. The court set aside the Order and the bankruptcy petition against Mr Drelle was dismissed.

In his leading judgment, Newey LJ considered that while a foreign judgment can be determinative on a point even in the absence of formal recognition or registration in England, this relates to circumstances where the foreign judgment is being used defensively as a “shield”, rather than as a “sword” to form the basis for other proceedings – including the presentation of a bankruptcy petition. The general principle that a foreign judgment has no direct operation in England reflects the law’s aversion to enforcing what is effectively a foreign exercise of sovereign power.

Further, the court held that in the absence of a specific statutory provision to the contrary, a bankruptcy petition cannot be presented in respect of a foreign judgment which has not been the subject of recognition proceedings. This is because an obligation to make a payment imposed by a foreign judgment is not – in the absence of formal recognition – enforceable in this jurisdiction and therefore cannot constitute a “debt” that has become payable for the purposes of section 267 of the Act.

Concurring with the leading judgment, Snowden LJ noted that:

“…in the same way as a person who relies upon a foreign judgment cannot invoke the individual enforcement mechanisms of the English court for his own benefit unless and until he obtains an English judgment, or registers the foreign judgment or has some other basis under a statute or treaty that permits its enforcement, so also such a person should not be able to invoke the collective enforcement mechanisms of bankruptcy or winding up proceedings in the English courts unless and until he obtains an English judgment, or registers the judgment or has some other basis under a statute or treaty permitting such enforcement of the foreign judgment”.

Tim Carter, head of the restructuring and insolvency team at Stevens & Bolton LLP, comments:

“The Court of Appeal’s decision in this case definitively confirms that an unrecognised foreign judgment cannot be directly enforced in the English courts without formal recognition.

Creditors wishing to enforce foreign judgments in England – which the Court of Appeal has now confirmed includes issuing bankruptcy proceedings based on such a judgment – will therefore need to ensure that they take the preliminary step of obtaining recognition in the English courts. It remains to be seen whether the related cost, time and complexity associated with obtaining recognition may in fact deter creditors with foreign judgments from pursuing English bankruptcy proceedings at all”.

Catherine Penny, partner in the dispute resolution team at Stevens & Bolton LLP, notes:

“The Court of Appeal’s decision is a reminder that recognition proceedings remain necessary when seeking to enforce a foreign judgment. The UK’s ratification of the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters 2019 (which we discussed last year: The UK finally joins the "Hague 2019" club- but is it enough?) takes effect from 1 July 2025. After that date, enforcing qualifying judgments here made by courts in other participating states is expected to be easier, but it isn’t the whole picture. Moreover, Hague 2019 is unlikely to have direct impact for the parties in this case since whilst the Russian Federation has signed up to Hague 2019, it has not yet ratified it”.