Navigating Cross-Border Bankruptcy: The UK Supreme Court’s Judgment in Kireeva v Bedzhamov [2024] UKSC 39

Summary

On 20 November 2024, the UK Supreme Court handed down its long-awaited decision in Kireeva v Bedzhamov [2024] UKSC 39 (“Bedzhamov”). The key issue was whether English common law recognised a Russian bankruptcy order as affecting immovable property located in England. A unanimous Supreme Court held that it did not do so and dismissed the appeal.

Background

Mr Bedzhamov, the Respondent, was a Russian national who had lived in England since 2017. In 2015 he purchased a property in Belgravia (“Property”). In 2018, a Russian court declared Mr Bedzhamov to be bankrupt (“Bankruptcy Order”) as he owed over £30 million in judgment debts. Ms Kireeva, the Appellant, was appointed to realise his assets. In 2021, the Appellant applied to the High Court in England to recognise the Bankruptcy Order and for assistance in realising the Property.

High Court

Snowden J, who delivered the High Court judgment in Kireeva v Bedzhamov [2021] EWHC 2281 (Ch), held that the Bankruptcy Order was recognised under the common law as the Respondent had submitted to the jurisdiction of the Russian courts. However, Snowden J held that he could not assist the Appellant in realising the Property. This was because under English common law, there was no provision that a foreign bankruptcy order could have effect on immovable property located in England. 

Court of Appeal

The Appellant appealed to the Court of Appeal and argued that under the common law the court retained a discretion to realise property which was the subject of a foreign bankruptcy order.  The majority of the Court of Appeal dismissed the appeal in Kireeva v Bedzhamov [2022] EWCA Civ 35. Arnold LJ dissented and was of the view the court under the common law had a discretionary power to assist a foreign bankruptcy order in the realisation of immoveable property in England.

Supreme Court

The Immovables Rule

The Supreme Court stated that according to private international law, only the law of the state in which the immovable property was situated, the lex situs, applied. In other words, foreign law had no application to immoveable property located in England. This was known as the “immovables rule”.

The Supreme Court cited Dicey, Morris and Collins, The Conflict of Laws, 16th ed (2022) at paragraph 26:

Rule 139 – A court of a foreign country has no jurisdiction to adjudicate upon the title to, or the right to possession of, any immovable situate outside that country.

The Supreme Court explained that the rules regarding immovable property applied to land and all rights over land, including leases and mortgages. There were powerful public policy reasons why foreign laws could not affect immovable property in England. The rules regarding immovables reflected territorial sovereignty. There were also practical reasons, namely that the local court was best placed to inspect the property and the property registration records. The Supreme Court noted that there were similar immovables rules in other common law jurisdictions, such as the USA and Canada.

The Supreme Court stated that the position was different regarding moveable property. Once the foreign bankruptcy order was recognised, the moveable property of the bankrupt, normally automatically vested in the trustee in bankruptcy. The Supreme Court stated at paragraph 46:

… In cases of transmission of movable property, whether on death or bankruptcy, English law applies the principle accepted in most legal systems that movable property is deemed to “go with the person” and be governed not by the lex loci but by the law of the person’s domicile….

The Supreme Court dismissed the Appellant’s argument that it should grant its assistance since the proceeds of sale of the Property would constitute movable property. The relevant time was the status of the Property at the date the Bankruptcy Order was made. At this date the Property had not been realised and was therefore immovable.

Statutory Exceptions

The Supreme Court carefully analysed the two statutory exceptions regarding foreign bankruptcy proceedings effecting immovable property in England. The first exception was section 426 of the Insolvency Act 1986 (“IA”) in relation to bankruptcy proceedings in Northern Ireland, Scotland, the Channel Islands and the Isle of Mann. This clearly did not apply to bankruptcy proceedings in Russia.  

The second statutory exception was The Cross-Border Insolvency Regulation 2006 (“Regulation”) which incorporated UNCITRAL Model Law on Cross- Border Insolvency (“Model Law”) into English law. Foreign proceedings will be recognised if they take place in the jurisdiction in which the debtor has their centre of main interests (“COMI”), article 17(2)(a) Model Law. The local courts may grant appropriate relief including the realisation of immovable property, article 21 Model Law.  Model Law applies regardless of whether the other state has adopted Model Law.  As the Russian bankruptcy proceedings were brought after the Respondent had permanently moved to England, his COMI did not lie in Russia, and Model Law could not be relied upon. The Supreme Court noted that the Appellant could have brought bankruptcy proceedings in England, where the Respondent’s COMI lay, but had not done so.

Modified Universalism

The Appellant argued that according to “modified universalism” the court had power under the common law to assist foreign bankruptcy proceedings as far as it could, and that this of itself was a source of jurisdiction. In addition, the recognition of the foreign bankruptcy order without the ability to assist in the realisation of immovable property would mean very little in practice.  The Supreme Court dismissed the argument as not giving sufficient respect to the immovables rule. The Supreme Court stated at paragraph 69 [emphasis added]:

….at common law no recognition will be given to any provision of foreign law or any order of a foreign court which purports to affect rights to or interests in land located in England. …As a matter of English law, his interests in the Property are unaffected by the Russian bankruptcy order. Therefore, subject to any statutory provision to contrary effect, it is not open to an English court to take steps to deprive the Respondent of his interests in the Property in favour of the Appellant as trustee in the Russian bankruptcy.

Development of Common Law

The Supreme Court considered whether it should develop the common law beyond the statutory exceptions to realise immovable property located in England in relation to a foreign bankruptcy order.  The Supreme Court declined to do so. This was an area in which there were important considerations of national sovereignty. In addition, the existence of the two statutory exceptions meant that there was a considerable risk of inconsistencies arising if the courts were to develop the common law. It was for Parliament to further develop the law.

Comment

Bedzhamov serves as an important reminder that creditors must carefully consider in which jurisdiction they apply for a bankruptcy order.  Creditors cannot assume that they can enforce a foreign bankruptcy order against immovable property situated in England. There should be a careful consideration of whether section 426 IA, regarding bankruptcy proceedings in the UK, Channel Islands or the Isle of Mann, or the Model Law, for other foreign bankruptcy proceedings, may be of assistance. In relation to the Model Law, there should be an assessment of the debtor’s COMI and whether bankruptcy proceedings should be brought in that jurisdiction. Bedzhamov also demonstrates the careful separation of powers between the legislature and the judicial functions in the UK, with the courts careful not to trespass upon parliamentary sovereignty.