Drelle v Servis-Terminal LLC

Factual and Procedural Background

The Appellant, referred to as the Appellant, appeals against an order made by ICC Judge Burton on 31 March 2023, whereby the Appellant was adjudged bankrupt following a petition presented by Company A, incorporated in the Russian Federation. The petition was founded on a debt of RUB 2 billion (approximately £22 million) said to have arisen from a judgment obtained by Company A from the Russian Arbitrazh Court of Yaroslavl Oblast on 19 May 2019. This judgment was upheld on appeal in superior Russian courts, and permission to appeal to the Russian Supreme Court was refused.

The Appellant had previously been a shareholder and CEO of Company A. Company A was declared bankrupt by the Arbitrazh Court on 3 April 2017, with claims against the Appellant brought by Company A's trustee in bankruptcy. The claims related to a loan of RUB 2 billion advanced by Company A to a Russian company, secured by a personal guarantee from the owner of that company. Following default on the loan, Company A obtained judgments against the debtor and guarantor in Russia. The Appellant was alleged to have failed to act in good faith or reasonably as a director of Company A in procuring the loan, rendering him liable to reimburse losses.

The Appellant appealed the judgment in Russia through various courts, all of which upheld the original decision. The judgment was not registered or recognised by an English court, nor was any separate recognition proceeding commenced in England. Company A relied on the judgment as constituting a "debt" for the purposes of presenting a bankruptcy petition under section 267 of the Insolvency Act 1986.

The appeal raises two principal issues: whether Company A was entitled to present a bankruptcy petition based on the unrecognised foreign judgment (the "Petition Debt Point") and whether the debt was subject to a genuine and substantial dispute due to allegations that the judgment was impeachable for fraud (the "Fraud Point").

Legal Issues Presented

1. Whether the bankruptcy petition based on the foreign judgment debt was valid despite the judgment not being registered or recognised by an English court (the Petition Debt Point).
2. Whether the debt was genuinely and substantially disputed on grounds that the foreign judgment was potentially impeachable for fraud (the Fraud Point).

Arguments of the Parties

Appellant's Arguments

• The Appellant contended that the bankruptcy petition was invalid because the foreign judgment had not been registered or recognised in England, and thus could not constitute a petition debt under s267 of the Insolvency Act 1986.
• He argued that the debt was subject to a bona fide dispute, asserting that the judgment was potentially impeachable for fraud, supported by evidence suggesting state interference and predetermination in the Russian court proceedings.
• The Appellant relied on expert evidence highlighting alleged judicial bias and procedural irregularities in the Russian judgment.
• He submitted that the Judge erred by conflating the foreign judgment with other related Russian judgments and by impermissibly conducting a "mini trial" without cross-examination of witnesses or experts.
• He challenged the Judge’s treatment of hearsay evidence and expert reports, asserting that the evidence was sufficient to raise a triable issue concerning fraud.

Company A's Arguments

• Company A maintained that the foreign judgment constituted a valid debt for the purposes of s267, notwithstanding the lack of registration or recognition in English courts.
• It argued that the threshold for impeaching a foreign judgment for fraud or bias is high, requiring cogent evidence that the judgment was deliberately wrong or procured by fraud.
• Company A submitted that the evidence relied upon by the Appellant, including hearsay and expert reports, was not cogent or sufficient to raise a substantial dispute.
• The Judge’s approach was appropriate, applying established legal principles and the "Threshold Test" to determine whether a bona fide dispute existed.
• Company A contended that the proceedings before the Judge were not a full trial and that the Judge correctly refrained from conducting a mini trial or disbelieving untested evidence.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by clarifying the statutory framework under section 267 of the Insolvency Act 1986, which governs the grounds for creditor petitions in bankruptcy. The key question was whether the foreign judgment debt constituted a "debt" payable to Company A for the purposes of presenting a bankruptcy petition, despite the judgment not being registered or recognised in England.

The court rejected the Appellant's "Enforcement Point" argument that enforcement in English courts was a prerequisite for the judgment to constitute a debt. It held that Parliament's statutory definition of "debt" in s267 prevails over common law notions of enforcement. The court relied on authority confirming that a claim need not be presently enforceable to be a debt under s267.

Applying the conflict of laws principles from Dicey, Morris & Collins, the court noted that a foreign judgment that is final and conclusive and not impeachable for fraud or public policy is conclusive as to the debt owed. The court accepted that the foreign judgment was final and not impeachable on the grounds advanced.

Regarding the Fraud Point, the court applied a "Threshold Test" requiring cogent evidence of a substantial dispute that the judgment was deliberately wrong, procured by fraud, or opposed to natural justice. The court held that evidence presented by the Appellant, including hearsay and expert reports, was insufficiently cogent to meet this threshold.

The court explained that the hearing before the Judge was akin to a summary judgment application rather than a full trial, emphasizing that the Judge was not entitled to conduct a mini trial or disbelieve untested evidence unless implausible. The Judge properly evaluated the evidence and concluded that no substantial dispute existed.

The court also addressed the Appellant's contention that the Judge erred by considering the results of appeals in Russia. It held that the fact the judgment was upheld on appeal was a relevant factor weighing against the inference of fraud or deliberate wrongdoing in the original judgment.

Overall, the court found no error of law or approach in the Judge's reasoning and concluded that the appeal grounds failed both individually and collectively.

Holding and Implications

The appeal is dismissed on all grounds.

The direct effect of this decision is that the bankruptcy order made against the Appellant based on the foreign judgment debt stands. The court confirms that an unrecognised foreign judgment debt can constitute a petition debt under s267 of the Insolvency Act 1986, provided it is not subject to a bona fide substantial dispute. No new legal precedent was established beyond affirming the application of existing principles to the facts of this case.