Introduction

The case Servis-Terminal LLC v Drelle ([2025] EWCA Civ 62) addresses a pivotal issue in English insolvency law: the extent to which a bankruptcy petition can be based on a foreign court’s judgment that has not undergone recognition proceedings in England and Wales. The appellant, Mr. Valeriy Drelle, former CEO of Servis-Terminal LLC, challenges the validity of a bankruptcy petition founded on a Russian court’s judgment for RUB 2 billion. This case not only scrutinizes the enforcement of foreign judgments within English jurisdiction but also explores the interplay between state sovereignty and insolvency proceedings.

Summary of the Judgment

The Arbitrazh Court of Yaroslavl Oblast originally held Mr. Drelle liable for RUB 2 billion for failing to act in good faith as a director of Servis-Terminal LLC, based on Article 53(3) of the Civil Code of the Russian Federation. Despite multiple appeals, the judgment was upheld. In October 2020, Servis-Terminal LLC served a statutory demand under the Insolvency Act 1986 in England, invoking the Russian judgment to claim bankruptcy against Mr. Drelle. ICC Judge Burton granted a bankruptcy order in March 2023, a decision upheld by Richards J in March 2024. Mr. Drelle's subsequent appeal questioned the legitimacy of basing the bankruptcy petition on an unrecognized foreign judgment. The Court of Appeal ultimately allowed the appeal, setting aside the bankruptcy order and dismissing the petition, reinforcing the principle that foreign judgments not recognized in England cannot form the basis of bankruptcy proceedings.

Analysis

Precedents Cited

The judgment extensively references Dicey, Morris & Collins on the Conflict of Laws, particularly Rules 45 and 51, which outline the common law stance that foreign judgments have no direct operation in England and Wales but may be enforced through specific procedures or used as defenses. The decision also deliberates on cases such as Owens Bank Ltd v Bracco, Rubin v Eurofinance SA, and Carl Zeiss Stiftung v Rayner & Keeler Ltd, which collectively establish that enforcement of foreign judgments requires recognition or registration. Moreover, statutory frameworks like the Administration of Justice Act 1920 and the Foreign Judgments (Reciprocal Enforcement) Act 1933 are pivotal in determining the enforceability of foreign judgments in England.

Legal Reasoning

The core legal reasoning pivots on the principle of state sovereignty and the common law rule that foreign judgments do not automatically operate within English jurisdiction. The court emphasized that without recognition or registration under relevant statutes, a foreign judgment cannot be used as a "sword" to enforce debts, including through bankruptcy petitions. The judgment underscored that insolvency proceedings in England are mechanisms for collective enforcement based on debts recognized under English law, not directly enforceable foreign judgments. References to statutory provisions, such as Section 267 of the Insolvency Act 1986 and precedents like Government of India v Taylor, illustrate the judiciary's stance that foreign revenue laws and sovereign judgments remain outside the enforceable scope unless duly recognized.

Impact

This judgment significantly impacts the enforcement of foreign judgments in English insolvency proceedings. It clarifies that without recognition or registration, foreign judgments cannot be the foundation for bankruptcy petitions, thereby safeguarding the integrity of English legal processes against external sovereign influences. This decision harmonizes insolvency law with international principles of state sovereignty, ensuring that only debts recognized under English law are subject to collective enforcement. Future cases involving foreign judgments will require diligent consideration of recognition procedures, potentially influencing international business and cross-border insolvency cases.

Complex Concepts Simplified

Foreign Judgment Recognition

In English law, a foreign court’s judgment doesn’t automatically hold power. For it to be enforceable, it must go through a **recognition** process, essentially an acknowledgment by English courts that the foreign decision is valid and can be acted upon within England.

Bankruptcy Petitions as a "Sword"

Using a bankruptcy petition to enforce a foreign judgment is likened to wielding a "sword" because it actively seeks to impose liability. The court ruled that without proper recognition, such petitions cannot be based on foreign judgments, aligning with the principle that England doesn't enforce foreign sovereign decisions unilaterally.

State Sovereignty in Legal Enforcement

**State sovereignty** refers to the independence of a state to govern itself. In this context, it means that one country’s legal judgments are not to be enforced by another country's courts unless specific legal processes permit it, maintaining respect for each nation's legal authority.

Conclusion

The Servis-Terminal LLC v Drelle decision reaffirms the strict boundaries of enforcing foreign judgments within English insolvency law. By upholding that unrecognized foreign judgments cannot underpin bankruptcy petitions, the Court of Appeal maintains the sovereignty of English law and ensures that collective enforcement mechanisms operate solely based on debts acknowledged within its legal framework. This precedent serves as a crucial reference for future insolvency and cross-border enforcement cases, emphasizing the necessity of proper recognition procedures for foreign judgments to have any bearing in English courts.