High Court navigates complex legal issues in bankruptcy dispute over valuable Italian property stake amid allegations of champerty and sanctions involvement

Citation: [2024] EWHC 552 (Ch)
Judgment on

Introduction

In the case of Lyubov Andreevna Kireeva (As Trustee and Bankruptcy Manager of Georgy Ivanovich Bedzhamov) v Alina Zolotova & Anor [2024] EWHC 552 (Ch), the High Court adjudicated on several interrelated legal issues concerning an application to strike out certain paragraphs of a Defence and a summary judgment application. The dispute centres on the bankruptcy proceedings of Mr. Georgy Bedzhamov, with particular focus on the ownership of a share in a valuable Italian property. The Trustee, Ms. Kireeva, is tasked with recovering assets for Bedzhamov’s bankruptcy estate and faces opposition from Ms. Zolotova, his long-term partner. The judgment grapples with intricate principles of maintenance and champerty, asset transfers under insolvency, and the application of sanctions regulations within the milieu of third-party litigation funding.

Key Facts

Ms. Kireeva, representing the Russian Trustee and Bankruptcy Manager for Mr. Georgy Bedzhamov, initiated proceedings to challenge Ms. Zolotova’s claim to the Share in Basel Properties Ltd. The Trustee argues that this share rightfully belongs to Mr. Bedzhamov’s bankruptcy estate. Ms. Zolotova denies that the Share was held on trust for Mr. Bedzhamov and asserts her ownership.

The defence raises multiple points:

  1. Doubt over the automatic vesting of Mr. Bedzhamov’s movable property in the Trustee by virtue of the Recognition Order.
  2. Questioning the ongoing recognition of the Trustee given that the founding bankruptcy debt is being discharged.
  3. Allegations of maintenance and champerty in the funding arrangements between the Trustee and A1, a litigation financier.
  4. Suspicion that the funder, A1, may be controlled by individuals who are sanctioned under the Russia (Sanctions) (EU Exit) Regulations 2019, potentially tainting the legal process.
  5. An argument that the proceedings have a collateral purpose, purportedly to limit Mr. Bedzhamov’s access to assets for legal expenses in related matters.

Several legal principles emanate from this judgment:

  • Automatic Vesting of Movable Property: Recognised under common law, movable property situated in England automatically vests in the foreign trustee from the date of the foreign bankruptcy order, provided the foreign law confers extraterritorial effect.
  • Recognition of Foreign Trustees: The English court may recognise foreign bankruptcy and trustees, but such recognition can be challenged directly in relation to the recognition order itself, rather than collateral attacks in other proceedings.
  • Maintenance and Champerty: The illegality of maintenance or champerty hinges on public policy. A funding arrangement may constitute an abuse of process, particularly if it tempts legal impropriety due to a party’s personal gain.
  • Application of Sanctions Regulations: The English court must navigate the intersection of legal judgments and sanctions regulations, ensuring compliance and considering the implications of funding arrangements potentially connected with designated persons.

Outcomes

The Trustee’s application before the High Court succeeded in part and failed in part:

  • Recognition Defence: The Defence questioning the ongoing recognition of the Trustee was struck out as the Recognition Order stands valid and effective until legally challenged.
  • Collateral Purpose Plea: The Defence alleging an improper collateral purpose was struck out due to the legitimate pursuit of recovering assets for the bankruptcy estate.
  • Movables Defence: The Defence relating to the non-vesting of movable property was allowed to stand, highlighting the need for a trial to determine the Trustee’s rights.
  • Sanctions Plea: The Trustee’s application was dismissed regarding the Sanctions Plea, underscoring the uncertainty over the funder A1’s control by sanctioned individuals and necessitating a full trial to resolve the issue.
  • Maintenance and Champerty Plea: Similar to the Sanctions Plea, this Defence was not summarily dismissed due to the lack of transparency in the funding agreement and the potential for the proceedings to constitute an abuse of process.

Conclusion

The case exemplifies the multifaceted nature of international insolvency and the role of litigation funding in cross-jurisdictional disputes. It illustrates the English courts’ meticulous approach to upholding legal principles that safeguard the sanctity of judicial process, including the prohibition of maintenance and champerty, the importance of clear property rights under insolvency, and the vital adherence to sanctions regulations. These judgments reinforce the UK judiciary’s commitment to a principled legal framework that accommodates the evolving landscape of public policy and international finance law.