Servis-Terminal LLC v Drelle - Case Update

The English Court of Appeal has overturned a decision holding that an unrecognised foreign judgment could form the basis of a bankruptcy petition in England.

The dispute arose after Servis-Terminal, a Russian company, sought to bankrupt its former CEO, Valeriy Drelle, in England. The bankruptcy petition was based on an unpaid judgment debt from a Russian court, which had ordered Mr Drelle to pay RUB 2 billion in damages for failing to act in good faith when approving a loan. Mr Drelle challenged the bankruptcy petition, arguing that since the Russian judgment had not been recognised in England, it could not form the basis of the petition.

At first instance, the lower Court ruled in favour of Servis-Terminal, holding that the debt was not subject to a substantial dispute and that recognition of the Russian judgment was not a prerequisite for the bankruptcy petition. However, on appeal, the Court of Appeal overturned this decision. The Court emphasized that under common law principles, foreign judgments have no direct legal effect in England unless recognised through proper proceedings. As a matter of sovereignty, foreign adjudications cannot be enforced in England without recognition, and using an unrecognised judgment as the basis for bankruptcy proceedings was effectively an attempt at enforcement.

Ultimately, the Court of Appeal ruled that the Russian judgment did not constitute a “debt” under section 267 of the Insolvency Act 1986 and that the bankruptcy order should be set aside, reaffirming the principle that foreign judgments cannot be used as a “sword” for enforcement in English courts without first undergoing a recognition process.

As a result, the Russian judgment could not provide the basis for a bankruptcy petition unless and until it was recognised in England.

Read the decision here.

Professionals involved:

• Charles Samek KC and James Bickford Smith of Littleton Chambers (instructed by Sterling Lawyers) for Mr Drelle

• Mark Phillips KC and Clara Johnson of South Square (instructed by Latham & Watkins) for Servis-Terminal