CR-2023-007112 - [2024] EWHC 1070 (Ch)

The status of a foreign judgment which has neither been recognised under either of the two relevant Acts nor converted by way of a Part 7 claim and any role it might play in insolvency proceedings had not been closely examined until recently.

On 11.3.2024, the day before this hearing, Richards J handed down judgment in the case of Drelle v Servis-Terminal LLC [2024] EWHC 521 (Ch). This was an appeal from ICC Judge Burton. She had adjudged Mr Drelle bankrupt on the basis of a Russian judgment which had not been subjected to the Part 7 procedure for conversion to an English judgment. Her decision had been made on the basis that there was no real dispute. The issue of whether the petition could be brought on the basis of an unregistered/unrecognised foreign judgment (“the Petition Debt Point”) had been conceded by Mr Drelle at first instance, but he was granted permission to withdraw those concessions for the purpose of his appeal.

The central question was whether an unrecognised foreign judgment met the requirements of s267 of the Insolvency Act 1986 (“IA 1986”) such as to provide the foundation for a creditor’s petition for bankruptcy:

Richards J considered Rule 45 in Dicey & Morris which states clearly that a foreign judgment has no direct operation in England (although it may be raised as a shield) but also considered Rule 51 which provides that a foreign judgment which is a 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 otherwise impeached for any error either (1) of fact; or (2) of law.

Mr Drelle claimed that the rules effectively precluded any action being brought on the foreign judgment, including presentation of a bankruptcy petition, as this is using it as a sword and not a shield, contrary to Rule 45. He also relied on Briggs on Private International Law in the English Courts (2^nd Ed) which included a passage stating that to enforce a foreign judgment it must be registered or recognised.

Richards J referred to s267 IA 1986 and took the view that the question of what a debt was for the purpose of IA 1986 should be determined by reference to the words of the statute. The judge noted that the judgment was not impeachable under Rule 51 (Dicey) and that there was no question but that Mr Drelle owed the judgment sum.

S267, said the judge, does not consider how, or in which courts, any such debt could be enforced. Bishopsgate Investment Management v Maxwell (1993) Times 11 February was confirmation that IA 1986 changed the landscape of insolvency proceedings so that a debt no longer needed to result from a final order or judgment. It could be based on trade or other debts to which there was no real defence. Thus, an unrecognised foreign judgment, incontrovertibly owed, is a liquidated sum not subject to a contingency. It satisfies the requirements of s267 IA 1986.

At paragraphs 45 & 46 of his judgment, Richards J dealt with the point as to whether a conclusive debt can found a petition even if there is no English/Welsh judgment and it is otherwise “unenforceable”:

“The difficulty with that argument is that s267 requires that there be a “debt” without expressly considering how, or in which courts, any such debt could be enforced. Moreover, authority suggests that an inability presently to take court proceedings to enforce a claim for a liquidated sum does not prevent that claim from constituting a debt. Perhaps the clearest authority is the judgment of Chadwick J in Bishopsgate Investment Management Limited v Maxwell (1993) Times, 11 February. In his judgment, Chadwick J confirmed that the Insolvency Act had changed the law from that previously applicable under the Bankruptcy Act 1914. Following the Insolvency Act, a “debt” for the purposes of s267 did not need to result from a final order or judgment of an English court. Thus, a trade debt is in principle capable of founding a bankruptcy petition even though, until judgment is obtained on that debt, it will not be possible to “enforce” it.

The “obstacle” on which Mr Drelle relies, namely that ST has only an unrecognised foreign judgment, does not prevent the Judgment constituting a “debt”. It does not alter the conclusion that the Judgment, which is to be taken as final and conclusive for the purposes of Ground 1, requires payment of a liquidated sum that is not subject to any contingency. Rather, the “obstacle” relied upon presents a barrier to enforcement of the Judgment in the particular jurisdiction of England and Wales that is no different in nature to the barrier to enforcement that faces a creditor who has an English trade debt, but no judgment.”

Richards J carefully looked at a number of Commonwealth authorities in Re Drelle, and concluded that they correlated to old Acts, with its more limited definition of a debt which could found insolvency proceedings.

Richards J also accepted and agreed with the conclusion in Sun Legend Investments v Ho [2013] BPIR 533:

“I also accept the submission that a bankruptcy petition does not constitute enforcement of the Hong Kong judgment. The bankruptcy jurisdiction since 1986 is a separate jurisdiction involving a class remedy”.

Winding up petitions are not, of course, bankruptcy petitions. The equivalent provision is s122(1) IA 1986 of which the only relevant provision is s122(1)(f) IA 1986: “the company is unable to pay its debts”. S123 IA 1986 sets out the definition of inability to pay its debts of which ss123(1)(a) (failure to pay statutory demand) and 123(1)(e) (company is unable to pay debts as they fall due) are relevant in this case. The term “Debt” is defined in IR 14.1(3):

“Debt” , in relation to [decision procedures in respect of a moratorium under Part A1 of the Act, ]³ winding up and administration, means (subject to the next paragraph) any of the following—

(a)

any debt or liability to which the company is subject at the relevant date;

(b)

any debt or liability to which the company may become subject after the relevant date by reason of any obligation incurred before that date;

(c)

any interest provable as mentioned in rule 14.23

It would be perverse for the common term “debt” to be construed differently for the purposes of winding up and bankruptcy. Accordingly, the principles applied in Re Drelle apply in this case, and the Lebanese judgment forms a debt for the purposes of winding up without the need for registration or recognition subject to the limitation question.