Valeriy Ernestovich Drelle v Servis-Terminal LLC

An unrecognised foreign judgment may constitute a debt capable of founding a bankruptcy petition under section 267 of the Insolvency Act 1986. Recognition proceedings are not a necessary precondition where the judgment determines a presently payable, liquidated and non-contingent obligation.

Where a bankruptcy petition debt is challenged on the basis that a foreign judgment was procured by fraud or contrary to natural justice, the debtor must show a bona fide dispute on substantial grounds. Alleged legal or evidential errors are insufficient unless supported by cogent material indicating deliberate error, bias, predetermination or equivalent procedural injustice. An untested evidential hearing is analogous to a summary judgment application, and the court must avoid conducting a mini-trial.

Servis-Terminal LLC presented a bankruptcy petition against Valeriy Ernestovich Drelle based on a Russian judgment requiring payment of RUB 2 billion. The judgment had been upheld on appeal in Russia but had not been registered or recognised by an English court.

ICC Judge Burton adjudged Mr Drelle bankrupt. On appeal, Mr Drelle argued that the unrecognised judgment was not a petition debt under section 267 of the Insolvency Act 1986, and that the debt was subject to a genuine and substantial dispute because the Russian judgment might be impeached for fraud, bias or procedural injustice.

The central issues were whether an unrecognised foreign judgment could constitute a petition debt and whether the evidence met the applicable threshold for disputing the judgment.

1. Petition debt. The appeal on Ground 1 was dismissed. Section 267 of the Insolvency Act 1986 asks whether there is a debt that is a liquidated sum payable to the petitioning creditor. It does not make the availability of direct enforcement proceedings, or prior recognition of a foreign judgment, an express requirement.
2. Assuming that the Russian judgment was final and conclusive and not impeachable, Dicey Rule 51 meant that Mr Drelle was conclusively taken to owe ST RUB 2 billion. The absence of English recognition created an obstacle to enforcement in England and Wales, but did not prevent the judgment debt from being a debt for section 267 purposes. The court respectfully agreed with Sun Legend Investments Ltd v Jade Yuk Kuen Ho [2013] BPIR 533.
3. Fraud and substantial dispute. The hearing below was not a trial because the evidence was not tested by cross-examination and the purpose was to determine whether the Threshold Test was met. It was analogous to a summary judgment application. The judge therefore had to avoid resolving disputed factual matters by conducting a mini-trial or impermissibly disbelieving untested evidence.
4. The Threshold Test required cogent evidence of a substantial dispute that the foreign judgment was deliberately wrong, so wrong as to evidence bias or bad faith, or impeachable for fraud or natural injustice. The principles in Maximov [2017] EWHC 1911 (Comm) were relevant to the inferential case, but did not exhaustively address allegations of actual bias or predetermination.
5. The judge was entitled to conclude that the double-hearsay evidence concerning an alleged advance indication of the result was insufficiently cogent. She was also entitled to examine the Russian judgments to assess whether the alleged errors were sufficiently extreme to support an inference of deliberate wrongdoing. The experts’ disagreements about Russian law and alleged errors in the judgment did not themselves establish the necessary additional inference.
6. The judge’s evaluative conclusion was open to her. The unsuccessful Russian appeals were relevant to the inferential case, although they did not provide an independent answer to an allegation of fraud. Grounds 2, 3, 4, 5 and 6 were dismissed. The appeal was dismissed on all grounds.

• High Court: On appeal from the order of ICC Judge Burton dated 31 March 2023, Mr Justice Richards dismissed the appeal on all grounds.
• Insolvency and Companies Court: ICC Judge Burton adjudged Mr Drelle bankrupt on ST’s petition.