
The case of the day is Servis-Terminal LLC v. Drelle, [2025] EWCA Civ 62. Servis-Terminal was a Russian company in bankruptcy proceedings in Russia. It brought a claim in a Russian court against its former CEO, Valeriy Drelle, seeking to recover ₽2 billion on a loan Servis-Terminal had made to a third party, which failed to repay it. The claim was that Drelle was liable under article 53(3) of the Russian Civil Code because he had not acted in good faith when he caused the company to make the loan. The Russian court entered a judgment in favor of Servis-Terminal, and the judgment was affirmed on appeal. Meanwhile, Drelle had moved to London.
Servis-Terminal brought a bankruptcy petition (a “creditor’s petition,” in UK terms) against Drelle, alleging that he owed it ₽2 billion on account of the Russian judgment. I take it that this is the UK equivalent of an involuntary bankruptcy petition in the United States, though here there must be a minimum of three petitioning creditors. It’s curious to me that in the UK a single creditor can force a debtor into bankruptcy, since if there is only a single creditor, there does not seem to be much point to bankruptcy rather than an ordinary lawsuit, though I may be missing something about the UK law.
The interesting question is whether the Russian judgment, which had never been recognized in the UK, could be the basis for the bankruptcy petition. My initial reaction was to say yes, because a judgment—a foreign judgment or a domestic judgment—creates a debt that can be the basis of an action on the debt. You may say that a foreign judgment is subject to various defenses to recognition and might, in the end, not be entitled to recognition. But you can say the same thing about any claim of a debt that has not been reduced to a domestic judgment, yet no one doubts that a debt owed on a contract can suffice to support a bankruptcy petition. Newey J., who wrote the lead opinion, cited Lord Collins’s opinion in Rubin v. Eurofinance, which makes this point:
[the] theoretical basis for the enforcement of foreign judgments at common law is that they are enforced on the basis of a 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.
But Lord Collins went on to say that “this is a purely theoretical and historical basis for the enforcement of foreign judgments at common law” that “does not apply to enforcement under statute” governing the recognition of foreign judgments. So maybe my own reaction overemphasizes history and theory and ignores, for instance, the relevant English statutes. Well, I plead guilty, as I know nothing really about the English statutes!
Drelle’s counsel argued that at common law, a foreign judgment that has not been recognized cannot be used as a “sword,” which, he argued, included use in a bankruptcy petition. He also argued that a foreign judgment that has not been recognized does not create a “debt” within the meaning of the UK bankruptcy statutes (though he recognized that a foreign judgment could be proved as a debt in a bankruptcy case once the case is begun). But Servis-Terminal’s counsel argued that debts, in bankruptcy, generally don’t need to have been reduced to judgment, or even to be enforceable at common law.
Newey J. reasoned that while a foreign judgment can sometimes be decisive on an issue before an English court, that is only true when it is used as a “shield,” not a “sword.” In other words, you can sometimes set up an unrecognized judgment as a defense, but that rule doesn’t apply in a case like this, where Servis-Terminal sought to use the foreign judgment offensively, to force Drelle into bankruptcy. The judge also noted the accepted rule that a foreign tax judgment cannot be enforced in England.
I can’t comment on the correctness of the decision as a matter of English law, of course. On general principles, though, I do not really understand the rationale for the decision. One of the reasons for bankruptcy laws is to provide a debtor with a respite from the demands of his creditors and to provide for an orderly distribution of his assets. I would have thought that someone in Drelle’s position who, let’s say, received a demand letter from Servis-Terminal’s lawyers could put himself under the bankruptcy court’s protection in whatever way one does that in England, which would answer the point about use of the foreign judgment as a sword rather than a shield; and it seems odd that the judgment would count as a debt for one purpose but not for the other. But the court reviewed the decisions in Government of India v. Taylor and another case, which stood for the proposition that even in a voluntary bankruptcy, a foreign state could not collect taxes due under its law from the bankruptcy estate in the English proceeding. It is surprising to me that the judges thought that the treatment of foreign tax liabilities was a relevant analogy to the the treatment of foreign judgments generally. Consider that tax and revenue matters are excluded from the scope of the Hague Judgments Convention and, in the US, from the Uniform Foreign-Country Money Judgment Recognition Act. According to the reporters of the Restatement (Third) of the Foreign Relations Law of the United States , the reason is that one state should not enforce another state’s public laws. See id. at § 483 rptr’s n. 2. But the dispute between Drelle and Servis-Terminal was a private dispute.
But issues of foreign judgment recognition sometimes lead to head-scratching decisions. I’m reminded of the Second Circuit’s decision in Chevron v. Naranjo, which held that a foreign judgment debtor could not seek a declaration that a foreign money judgment was not entitled to recognition before the foreign judgment creditor sought recognition in New York. I thought at the time that the decision was odd, and it seems odd to me in a way akin to the way Servis-Terminal seems odd.
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