Court of Appeal overturns High Court decision on unrecognised foreign judgments in bankruptcy petitions

The Court of Appeal has overturned a High Court judgment that had previously allowed an unrecognised foreign judgment to constitute a valid debt for the purposes of a bankruptcy petition. 

Background: The High Court decision

In our previous article, we discussed the High Court's decision in Valeriy Ernestovich Drelle v Servis-Terminal LLC [2024] EWHC 521 (Ch). At first instance, Mr Drelle did not challenge the notion that a bankruptcy petition could be presented on the strength of a foreign judgment which had not first been registered or recognised domestically. Instead, he objected to the petition on the (narrow) basis that the underlying debt was disputed on substantial grounds.

Mr Drelle failed and the court upheld a bankruptcy order against him. As a consequence, the High Court ruled that an unrecognised Russian judgment could indeed form the basis of a bankruptcy petition under section 267 of the Insolvency Act 1986. The court reasoned that Parliament had legislated in section 267 that "debts" satisfying the requirements of that section could found a bankruptcy petition, without need for the foreign judgment to be recognised or registered in England beforehand.

The High Court's decision referred to previous case law, including Bishopsgate Investment Management Limited v Maxwell (1993) Times, 11 February, and Sun Legend Investments Ltd v Jade Yuk Kuen Ho [2013] BPIR 533, which suggested that a "debt" for the purposes of section 267 did not need to result from a final order or judgment of an English court. 

The Court of Appeal's decision

With a new legal team, before the appellate court, Mr Drelle's grounds expanded: he also sought to challenge the basis of the petition (and in particular the fact it relied on an unrecognised and unregistered Russian judgment). 

The Court of Appeal chose not to deal with his arguments relating to substantial dispute. On the basis of his new grounds, its decision in Servis-Terminal LLC v Valeriy Drelle [2025] EWCA Civ 62 overturned the first instance decision reasoning that a foreign judgment has no direct operation in England and Wales unless it has been recognised or registered.

The court emphasised the principle, as reflected in Dicey, Morris & Collins on the Conflict of Laws, rule 45, that a foreign judgment "has no direct operation in England but may be enforceable by claim or counterclaim at common law or under statute." This principle "reflects the common law's aversion to enforcing a foreign exercise of sovereign power" and prevents an unrecognised foreign judgment from being used as a "sword" to enforce a debt, including through bankruptcy proceedings which was described as a means of "collective enforcement". The court noted that while a foreign judgment can be determinative on certain points where it is used defensively (Dicey, Morris & Collins on the Conflict of Laws, rule 51) and whilst it might form the basis of a proof of debt entered by a creditor in an insolvency process (since in contrast the definition of "debt" in the context of creditor proofs includes contingent debt), it cannot be used to found a bankruptcy petition unless it has been recognised or registered.

The Court of Appeal also drew parallels with the "revenue rule" relating to the enforcement of foreign tax liabilities in English courts. The court reasoned that just as a foreign tax liability cannot be regarded as a "debt" for the purposes of a bankruptcy petition, an unrecognised foreign judgment, which similarly involves an exercise of sovereign power, should not be seen as giving rise to a "debt" capable of founding bankruptcy proceedings.

The court continued that its conclusion is "reinforced by section 267(1)(b)'s requirement that the "debt" in respect of which a bankruptcy petition is presented should be "payable ... , either immediately or at some certain, future time". A sum for the payment of which a foreign judgment provides is not, as it appears to me, to be regarded as so "payable" if the judgment is unenforceable unless and until recognised by a Court in this jurisdiction."

Implications 

The Court of Appeal's decision has clarified this area of the law following the High Court decision in Drelle and a similar High Court decision which followed several months later regarding whether an unregistered or unrecognised foreign judgment could found a winding-up petition. 

The decision has important implications for creditors seeking to enforce foreign judgments in England and Wales. It clarifies that an unrecognised foreign judgment cannot be used to initiate bankruptcy proceedings. Creditors must first seek recognition of the foreign judgment through appropriate legal channels before it can be used as the basis for a bankruptcy petition. It serves as a reminder of the complexities involved in cross-border litigation and enforcement and the need for careful legal strategy when dealing with foreign judgments.

This decision will also be relevant in respect of winding-up petitions. In the concurring Court of Appeal judgment in Drelle, it was stated that, "... a person should not be able to invoke the collective enforcement mechanisms of bankruptcy or winding up proceedings in the English court 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" (emphasis added). 

The decision does not prevent a creditor from petitioning in respect of a debt arising under a foreign law contract (rather than an obligation to pay arising purely from a judgment). The distinction is that absent registration or recognition of a foreign judgment, there is no debt recognised in England which can be used to found a petition. A debt arising under contract – even one made under a foreign law – is different.

It is worth noting, that the 2019 Hague Convention enters into force in the UK on 1 July 2025. Contracting states will be bound to recognise and enforce civil and commercial judgments given by a court of another contracting state, subject to certain defences, meaning that foreign judgments will be more widely enforceable in England, giving more options to parties seeking recovery.