High Court Upholds Enforceability of Foreign Judgment in Bankruptcy Case Despite Lack of Recognition: Key Legal Principles Clarified

Citation: [2024] EWHC 521 (Ch)
Judgment on

Introduction

In the case of Valeriy Ernestovich Drelle v Servis-Terminal LLC, the High Court of Justice provides a detailed illustration of the legal principles surrounding the enforceability and recognition of foreign judgments in the context of bankruptcy proceedings under English law. The case explores the interpretation of “debt” as defined by the Insolvency Act 1986, the relevance of cross-border insolvency issues, and the criteria for impeaching a foreign judgment for fraud within English jurisdiction.

Key Facts

Mr. Drelle appealed against his adjudication as bankrupt based on a Russian Arbitrazh Court judgment, contending that the underlying foreign judgment had neither been registered nor recognized by an English court, and should thus not constitute a petition debt. Drelle also contested the judgment on the grounds that it was imputably tainted with fraud, a claim which hinged upon his ability to establish a “genuine and substantial dispute” over the debt’s validity.

The key legal principles invoked include:

  • The definition of “debt” under s267 of the Insolvency Act 1986, and whether a foreign judgment that hasn’t undergone recognition proceedings can underpin a bankruptcy petition in England and Wales.
  • The application of civil evidence rules, specifically addressing hearsay evidence and its cogency.
  • The standards of review on appeal, distinguishing between a review and a rehearing and the appellate court’s deference to the trial judge’s fact-finding and evaluative judgment.
  • Conflict of laws rules, discerning the “operationality” of foreign judgments in English courts, as explicated in Dicey, Morris & Collins (Rule 45 and Rule 51).
  • The threshold for alleging fraud in impeaching a foreign judgment and the relevance of unsuccessful appeals in the foreign jurisdiction to the English proceedings.

Significant cases referenced include Re A Judgment Debtor, Adams v Cape Industries, and Jet Holdings Inc v Patel, helping to clarify the conditions where a foreign judgment’s validity may be contested in England.

Outcomes

  • The appellate court upheld the High Court’s decision, affirming that an unregistered foreign judgment could constitute a “debt” for the purposes of bankruptcy proceedings under the Insolvency Act 1986.
  • The evidence proffered by Drelle, both hearsay and expert testimony, failed to meet the threshold of showing a genuine and substantial dispute regarding the debt’s credibility that would imply fraudulent conduct in the original judgment.
  • The court confirmed that recognition or registration proceedings were not prerequisites to presenting a bankruptcy petition based on a foreign judgment.
  • The court did not take an impermissible “mini-trial” route in its evaluation and did not err in its approach by considering the outcome of Drelle’s appeals in Russia.

Conclusion

The case definitively asserts that foreign judgments, while lacking direct operation in England without registration or separate recognition proceedings, may still give rise to debts enforceable through bankruptcy petitions. The court reiterated the non-necessity of a “mini-trial” in such proceedings and established the high threshold required to impeach those judgments on the ground of fraud. For UK legal practitioners, this case solidifies the conditions under which foreign judgments may be used to pursue insolvency proceedings within the jurisdiction and the rigorous evidentiary standard for claims of fraud against such judgments.