Court of Appeal clarifies foreign judgment enforceability requirements

The decision (29 pages/ 102 KB) addresses previous uncertainty on the topic created by earlier rulings. According to these earlier decisions, an unsatisfied judgment from a foreign court could constitute a “debt”, even if the foreign judgment was unrecognised (unregistered). This interpretation has led to situations where unrecognised foreign judgments were considered sufficient grounds to file a bankruptcy petition.

However, the recent Court of Appeal judgement establishes that an obligation to make a payment imposed by an unrecognised foreign judgment is not enforceable in England and Wales. In other words, a creditor should not be able to invoke the collective enforcement mechanisms of bankruptcy or winding up proceedings in the English court unless and until they obtain an English judgment; register the foreign judgment; or have some other basis under statute or treaty permitting enforcement. The ruling effectively removes the option to circumvent the foreign judgments registration procedure.

The case revolved around a Russia company, Servis-Terminal LLC, that had been declared bankrupt. The company’s trustees initiated proceedings against its former CEO, Valeriy Drelle, concerning a loan of RUB 2 billion (US$ 20.64 million) made by the company to Fort Steiton LLC. Servis-Terminal LLC sought damages from the former CEO, asserting he was liable for losses incurred due to the loan.

In May 2019, the Russian Arbitrazh Court ruled in favour of Servis-Terminal LLC, ordering Drelle to pay RUB 2 billion and Drelle’s appeals in Russia were unsuccessful. In October 2020, Servis-Terminal LLC served Drelle, who by then was resident in England, with a statutory demand for the amount of RUB 2 billion and thereafter a bankruptcy petition. In March 2023, ICC Judge Burton held that the debt claimed was not subject to a genuine and substantial dispute and made a bankruptcy order against Drelle.  That order was upheld on first appeal.

However, Drelle contended before the Court of Appeal that this foreign judgment could not be used as the basis for a bankruptcy petition in England without first undergoing recognition proceedings. The Court of Appeal was tasked to consider whether a bankruptcy petition could be presented based on the Russian court decision that had not been recognised in England, meaning it could not be enforced directly.

The Court of Appeal found in favour of Drelle. The judges emphasised that the principle of territoriality limits the direct operation of foreign judgments in England and that recognition proceedings are necessary to establish their enforceability. While a foreign judgment may be determinative for certain purposes, until recognised it is not a “debt” under the Insolvency Act 1986. The decision addresses uncertainty arising from earlier decisions, and, subject to any appeal, clarifies the status of foreign judgments in any enforcement context.