Rupert Wheeler
Can a bankruptcy petition be presented when based on an unrecognised and unregistered foreign judgment? This vexed and important question has attracted substantial interest from insolvency practitioners both on and offshore. The concern is particularly acute for judgments issuing from jurisdictions like Russia, which are unregistrable in England, Cayman and BVI. There is no domestic framework for the quick registration of those judgments, such as that available for other jurisdictions under statutes like the English Foreign Judgments (Reciprocal Enforcement) Act 1933. If the foreign judgment does not create a qualifying debt for insolvency purposes, creditors would be forced to commence recognition and enforcement proceedings that add cost and frequently lead to protracted litigation.
The confusion was created by the recent English proceedings in Drelle v Servis-Terminal LLC (in Liquidation in the Russian Federation). The Court of Appeal ([2025] EWCA Civ 62) held that a foreign judgment did not create a qualifying debt until it was recognised, signalling a departure from the previously assumed position. Welcome clarity has therefore been brought by the United Kingdom Supreme Court ([2026] UKSC 29), which last month held that a foreign judgment does constitute a qualifying debt both at common law and as a matter of construction of the Insolvency Act 1986 (“the 1986 Act”).
The key statutory context of the dispute was section 267(1) of the 1986 Act, which requires that “A creditor’s petition must be in respect of one or more debts owed by the debtor […]”. Section 267(2) states the conditions that must be met for a debt to qualify. These include being in excess of the bankruptcy level (267(2)(a)) and being “for a liquidated sum payable […] either immediately or at some certain, future time” (267(2)(b)). However, as the UKSC noted, section 267 is otherwise silent as to the definition of “debt” for these purposes.
Background
Mr Drelle was formerly the Director General of a Russian company called Servis-Terminal LLC (“ST”). ST went bankrupt. Its trustee in bankruptcy brought a claim against Mr Drelle in Russia, alleging that he had acted unreasonably and in bad faith by causing ST to loan money to another Russian company that had also gone bankrupt. The Russian Court granted ST’s claim and ordered Mr Drelle to pay ST RUB 2 Billion (“the Russian Judgment”). Mr Drelle relocated to England but did not satisfy the Russian Judgment. ST served a statutory demand and then an expedited bankruptcy petition based upon it.
Mr Drelle challenged the bankruptcy proceedings on a number of grounds. This included the proposition that the Russian Judgment was not a “debt” within the meaning of section 267(2)(b) of the 1986 Act. In short, he argued that a foreign judgment is of no legal effect in England unless it is registered or recognised. Until then, it cannot create a qualifying debt.
The High Court (Richards J; [2024] EWHC 521 (Ch)) disagreed with him, relying on Rule 51 of Dicey, Morris & Collins, The Conflict of Laws (16th Ed). This states that “a foreign judgment which is final and conclusive on the merits and not impeachable [i.e. cannot be set aside or challenged] […] is conclusive as to any matter thereby adjudicated upon, and cannot be impeached for any error either [of fact or law]”. The Russian Judgment was not impeachable because it was given by a court of competent jurisdiction. It was therefore final and conclusive as to the matters it established, including the fact that Mr Drelle owed a debt to ST.
The Court of Appeal (Newey, Snowden and Popplewell LLJ; [2025] EWCA Civ 62) disagreed and overturned Richards J. It relied upon Rule 45 of Dicey, which states that a foreign judgment “has no direct operation in England” such that it can only be enforced by suing upon it (or used as a defence) (see also Rule 46-1). It thus could not found bankruptcy proceedings.
Among other things, the Court of Appeal also placed weight on the rule that an English court has no jurisdiction to enforce a foreign tax (“the Revenue Rule”). By analogy, the English court should not have jurisdiction to enforce a foreign judgment, since they both arise “from an exercise of [foreign] sovereign power”. Consequently, it held that to permit a bankruptcy petition to be founded on an unrecognised foreign judgment would breach this rule.
UKSC Decision
The UKSC concluded that a foreign judgment did create a qualifying debt, as demonstrated by the historical common law position and as a matter of statutory construction.
Common Law
The key factors in the common law analysis were (i) the obligation principle, (ii) Dicey’s meaning of “direct operation” and (iii) the Revenue Rule.
The (i) obligation principle, which has been recognised since the 17th century, obliges English courts to enforce foreign judgments. Its foundations were the requirement of judicial comity and a fear that enforcement would not be reciprocated abroad if not done in England. By the mid-19th century, it had developed into the straightforward principle that “where a court of competent jurisdiction has adjudicated a certain sum to be due from one person to another, a legal obligation arises to pay that sum, on which an action of debt to enforce the judgment may be maintained”(per Parke B in Williams v Jones (1845) 13 M & W 628; 153 ER 262). This was explained in Williams on the basis that in this way “the judgments of foreign and colonial courts are supported and enforced, and the same rule applies to inferior courts in this country, and applies equally whether they be courts of record or not”.
Similarly, in Godard v Gray (1870) LR 6 QB 139, which concerned the enforcement of a French judgment, Blackburn J stated that the foreign judgment was not considered “as merely prima facie evidence of that cause of action for which the judgment was given, but as in itself giving rise, at least prima facie, to a legal obligation to obey that judgment and pay the sum adjudged”.
The principle is reflected in leading modern authorities including Adams v Cape Industries plc [1990] Ch 433 (CA), Owens Bank v Bracco [1992] 2 AC 443 (HL) and Rubin v Eurofinance SA [2012] UKSC 46; [2013] 1 AC 236.
The obligation principle therefore demonstrates that, contrary to the Court of Appeal’s judgment, a foreign judgment debt has legal effect because it creates a legal obligation to pay the sum adjudged. This is regardless of recognition or registration in England and Wales.
As to (ii) “direct operation”, the UKSC explained that by this Dicey simply meant that a foreign judgment had “no status as a judgment” in England. It could therefore not be “enforced by execution” like an English judgment could, for instance through the means in Part 70 of Civil Procedure Rules. A further historical trace back to the first edition of Dicey in 1896 reflected this analysis.
Though it could not be enforced like an English judgment, a foreign judgment had indirect operation in England. This was because it permitted the holder of the foreign judgment to sue upon the common law obligation to pay the judgment sum, rather than the underlying facts which led to the judgment (e.g. the contractual obligation upon which the judgment was based). It also operated indirectly in that it could be relied upon as being conclusive as to the matters of fact and law determined by it (see re Owens above).
The final key consideration was (iii) the Revenue Rule, namely that “the English courts have no jurisdiction to entertain an action […] For the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign state” (Dicey Rule 20). The Court of Appeal had reasoned by analogy that a bankruptcy petition could not be based on a foreign judgment because this, like a foreign tax liability, arose from the exercise of a foreign sovereign power.
The Supreme Court found that this analogy was false and the reliance on the revenue rule misplaced. There was a “world of difference” between a sovereign authority bringing a claim asserting a sovereign right (e.g. to a tax), compared to a private person bringing a claim asserting a private right. Further, the revenue rule would not apply where a sovereign authority brings a claim asserting a private right that could be brought by any citizen, as opposed to a public right (see the recent decision in Skatteforvaltningen v Solo Capital Partners LLP [2023] UKSC 40; [2024] AC 539). Obviously, ST’s presentation of a bankruptcy petition based on a foreign judgement debt was neither brought by a sovereign power nor based upon a sovereign right. Accordingly, the Revenue Rule did not apply.
For those reasons, the obligation to pay the foreign judgment debt remained intact despite the matters relied upon by the Court of Appeal.
Statutory Construction
As to statutory construction, the UKSC noted that the concept of “debt” under the 1986 Act was not restricted to judgment debts (domestic or otherwise), because a statutory demand could be based on any debt (c.f. the more restrictive bankruptcy regime under the former Bankruptcy Act 1914).
In interpreting the definition of “debt” in this context, it was necessary to look at the common law as the starting point. This is because the draftsman would have had the common law in mind (a canon of statutory construction). The basic common law definition of debt was one person’s obligation to pay a sum of money to another. This would include an unrecognised foreign judgment debt for the reasons discussed above. The UKSC found no reason to depart from that meaning in interpreting section 267. Indeed, the fact that the draftsman had been at pains to define other characteristics of the debt in section 267(2) (e.g. liquidated sum, in excess of the bankruptcy level) but left “debt” itself undefined, suggested a wide reading.
On that basis, a “debt” under section 267 included ST’s foreign judgment debt against Mr Drelle. The appeal was allowed.
Offshore Implications
In addition to settling this question for English and Welsh practitioners, Drelle will also bring clarity for offshore jurisdictions.
The British Virgin Islands Commercial Court recently followed the Court of Appeal’s reasoning in Drelle. In JJW Hotels & Resorts Holding Inc v Rhodes BVIHC (COM) 2025/0296, joint liquidators of a Guernsey company had obtained final costs orders in Guernsey against JJW Hotels, which was incorporated in the BVI. The liquidators proceeded to serve a statutory demand under section 155 of the BVI Insolvency Act 2003, without obtaining BVI recognition of the costs order. Section 155 requires that the debt be “due and payable at the time of the demand”. The Commercial Court followed the Drelle Court of Appeal and set aside the statutory demand based on the proposition that the foreign judgment debt was not a due and payable debt in the BVI until recognition.
It remains to be seen whether this approach will be followed in the BVI in light of the UKSC’s decision (which is highly persuasive but not binding). It may well not be, not least because the UKSC’s reasoning is consistent the Privy Council’s decision in Vendort Traders Inc v Evrostroy Grupp LLC [2016] UKPC 15. In this binding BVI appeal, the JCPC held that an unrecognised foreign arbitral award could found a BVI statutory demand because it gave rise to an enforceable debt at the point of issue. The court had distinguished Vendort in JJW Hotels, but the distinction is now far more difficult to justify.
The Cayman Islands had, for at least the last 30 years, permitted winding up petitions to be based on unregistered foreign judgments (see e.g. In re Lhasa Investments Ltd [1996] CILR N-3). The Court of Appeal’s judgment in Drelle was therefore a source of potential confusion and concern. This is not least because, curiously, the Cayman Foreign Judgments Reciprocal Enforcement Act (1996 Revision) only permits registration of judgments issuing from certain jurisdictions in Australia.
While the problem does not appear to have been in direct issue in any published Cayman decision, it is now likely settled by the UKSC judgment (which is again highly persuasive). It is however notable that Doyle J, sitting in the Cayman Financial Services Division, implied that he might not have followed the Court of Appeal in any event. While drawing attention to the Drelle judgment in Sin Capital [2025] CIGC (FSD) 18, he noted at [5] that the Isle of Man court in Obertor Ltd v Gaetano Ltd 2DS 2010/17 “did not require a foreign judgment to be registered prior to reliance being placed on a statutory demand following such foreign judgment”.
Conclusion
The UKSC’s decision in Drelle resolves an important practical problem by an interesting analysis of the historical and contemporaneous interaction between insolvency law and private international law. While it remains to be seen whether it is followed offshore, it will undoubtedly bring comfort to creditors seeking to bring insolvency proceedings based on unregistrable and unrecognised foreign judgment debts.