In the case of Servis-Terminal LLC v Drelle [2025] EWCA Civ 62 (https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWCA/Civ/2025/62.html&query=(drelle)), the Court of Appeal has allowed Mr Drelle’s appeal from the Order of Richards J which had dismissed his appeal against a bankruptcy order made by ICCJ Burton on 31 March 2023.
The appeal raised ‘a question of wider significance’ because the ‘debt’ relied on under ss. 267, 268 of the Insolvency Act 1986 to found the bankruptcy petition was a sum of 2 billion Rubles awarded to the petitioner Servis-Terminal LLC from a May 2019 judgment of the Russian Arbitrazh Court. That judgment had, however, not been the subject of recognition proceedings in England and the petitioner had simply proceeded directly to bankruptcy proceedings based on the Russian judgment.
At the heart of Mr Drelle’s successful appeal to the Court of Appeal was the common law principle, encapsulated in Dicey Rule 45, that:
“A judgment of a court of a foreign country … has no direct operation in England but may […] be enforceable by claim or counterclaim at common law or under statute…”
The juridical reason for Dicey Rule 45 was explained by Professor Briggs, in “The Conflict of Laws” (5th ed.):
“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.”
On appeal from ICC Judge Burton, Richards J had rejected Mr Drelle’s arguments that: the meaning of ‘debt’ in s. 267, 268 of the Insolvency Act 1986 was circumscribed and informed by Dicey Rule 45; that it was not an open-ended concept; that there was no ‘debt’ unless and until the Russian judgment had first been recognised by an action on the judgment at common law and a consequential English money judgment was obtained; and that the unrecognised Russian judgment could not be used as a ‘sword’ by relying on it to found the petition.
However, a strong Court of Appeal (Newey, Popplewell and Snowden LJJ) accepted Mr Drelle’s arguments, reaffirmed the primacy of Dicey Rule 45 and allowed the appeal. It held that:
Where there is no statutory provision to contrary effect, a bankruptcy petition cannot be presented in respect of a foreign judgment which has not been the subject of recognition proceedings. While an unrecognised judgment may be determinative for certain purposes, it will have “no direct operation” in this jurisdiction and so cannot be used as a “sword”, whether as regards “direct execution” or as the basis of a bankruptcy petition. An obligation to make a payment imposed by an unrecognised foreign judgment is not enforceable as such in this jurisdiction and, in the eyes of the law of England and Wales, does not constitute a “debt” for the purposes of section 267(1) or section 267(2)(b) of the 1986 Act. A foreign tax will not give rise to such a “debt”. No more will an unrecognised foreign judgment, which similarly involves an exercise of sovereign power. [55]
The Court of Appeal also rejected the Respondent’s argument based on Dicey Rule 51 (“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.”), that for the purposes of ss. 267, 268 Insolvency Act 1986, it was to be assumed conclusively that Mr Drelle that he presently owed the Respondent 2 billion Rubles, as determined by the Judgment. Instead, it held that the Dicey Rule 51 was applicable only in cases where a claimant is relying on a foreign judgment defensively rather than as a ‘sword’. As Newey LJ put it: “The fact that a foreign judgment can be deemed conclusive on points decided in it may be important where an application is made for recognition. It does not follow, however, that an unrecognised foreign judgment can provide the basis for other proceedings.”
Moreover, the Court of Appeal also made clear that whilst bankruptcy or insolvency proceedings were not a process of direct execution, nevertheless they were a process of enforcement, albeit collective enforcement. Since the Russian judgment was the sole basis for the bankruptcy proceedings against Mr Drelle, it was accordingly being used as a ‘sword’. Dicey Rule 45 was, therefore on point.
The Court of Appeal decision ends the anomalous position arising from the judgment of Richards J, which left creditors under judgments from jurisdictions with which England and Wales have no reciprocal enforcement arrangements (such as Russia) in the position of being able to enforce their judgments by petitioning directly for bankruptcy, in marked contrast to creditors under judgments from jurisdictions subject to the registration schemes of the 1920 and 1933 Acts. In that regard, the Court of Appeal made clear that the earlier Court of Appeal Re a Judgment Debtor [1939] Ch 601 was rightly decided, binding on it and that the ratio of that decision was that a bankruptcy petition might not be presented on the basis of an unregistered foreign judgment.
This Court of Appeal judgement is a decision which will have wide ranging ramifications for all common law jurisdictions, including for example, Cayman Islands and British Virgin Islands. It will now no longer be possible to proceed directly to insolvency or bankruptcy proceedings (including serving a statutory demand) based on an unregistered or unrecognised foreign judgment.
Charles Samek KC and James Bickford Smith acted for the successful appellant Mr Drelle, instructed by Sterling Law (Navdeep Gill and Nozima Rakhimjonova).
