The Court of Appeal has confirmed that the High Court was right to restrict the assistance an English court could give to a Russian trustee in bankruptcy at common law, refusing to allow immoveable property situated in England to be administered by the trustee as part of the foreign bankruptcy proceedings: Kireeva v Bedzhamov [2022] EWCA Civ 35.

The court found that where recognition of foreign bankruptcy proceedings is granted under common law, the English courts cannot exercise their discretion to allow a foreign trustee to dispose of any immoveable property located in England which belongs to the bankrupt. While the courts should seek to co-operate with foreign courts in relation to cross-border insolvencies, any such co-operation must remain within the constraints of domestic law. To sidestep the "immoveables rule" would amount to an unacceptable act of judicial legislation.

The decision helpfully re-iterates the limits of the assistance that a foreign law insolvency office holder may obtain under common law in relation to English property. When faced with such a scenario, it will be necessary to bring bankruptcy or insolvency proceedings in England and Wales or in a jurisdiction in which the officeholder can invoke section 426 of the Insolvency Act 1986 ("IA") or the Cross Border Insolvency Regulations 2006 ("CBIR") to be able to deal with the relevant property (as explained below).

Background

Mr Bedzhamov was declared bankrupt in Moscow and Ms Kireeva was appointed as his receiver (the Russian equivalent of a trustee in bankruptcy). Ms Kireeva applied for recognition in England of both the Russian bankruptcy order against Mr Bedzhamov, and her status as Mr Bedzhamov's receiver. Ms Kireeva further applied for common law relief to administer property owned by Mr Bedzhamov at Belgrave Square, so that it could be pooled alongside his other assets in England.

The routes by which a foreign insolvency office holder would typically seek assistance from the English court, being s.426(4) IA and the CBIR, were unavailable to Ms Kireeva.

  • Section 426(4) IA provides that an English court with jurisdiction shall provide assistance to foreign courts located in "any other part of the United Kingdom or any relevant country or territory". However, this is generally limited to Commonwealth jurisdictions and excludes Russia.
  • The CBIR provides for the recognition of foreign insolvency proceedings and extensive relief for officeholders in relation to the same. However, such relief is only available where the debtor has their "centre of his main interests ("COMI") or an establishment in the country where the foreign representative has been appointed. In this instance, Mr Bedzhamov had neither his COMI nor an establishment in Russia (in the former case, as he had been domiciled in the UK since 2015).

The only route available to Ms Kireeva for recognition of the Russian bankruptcy proceedings was therefore to seek recognition at common law, which allows recognition of foreign insolvency proceedings where the bankrupt individual is domiciled in the foreign country, or has submitted to the foreign court's jurisdiction.

Snowden J (as he then was) granted Ms Kireeva's application for recognition, but dismissed it insofar as it sought assistance in relation to the Belgrave Square property. He considered that there is clear authority that a foreign bankruptcy order cannot, under common law, vest immoveable property in England in the foreign office holder. This is due to the so called "immoveables rule" whereby, as a matter of English law, a foreign court has no jurisdiction to make orders in respect of land in England and rights relating to such land are governed exclusively by English law.

Snowden J stated that, if and to the extent that Re Kooperman  [1928] WN 101 might be thought to support the application in relation to the Belgrave Square property, he did not regard it as a persuasive authority and declined to follow it. In that case the court allowed a Belgian trustee to order the sale of a leasehold property in England, with authority to retain the proceeds as trustee.

Ms Kireeva appealed the decision in relation to the Belgrave Square property, relying on various cases in which she asserted that English judges had granted relief comparable to that given in Re Kooperman,  including Hughes v Hannover  [1997] APP.L.R. 01/28.  Although Hughes  concerned s.426 IA, Ms Kireeva argued that it was still relevant to the position under common law as, whilst s.426 provides the gateway, Hughes showed that the actual assistance is provided under the court's general jurisdiction and powers.

Ms Kireeva also argued that the "immoveables rule" could be side-stepped due to the concept of "modified universalism" – the idea that English courts should seek to co-operate with foreign courts as far as possible to ensure that the assets of the bankrupt are distributed to creditors under a single system of distribution. With this in mind, she argued that the court should allow her to administer the Belgrave Square property as receiver (exercising powers akin to a trustee), disposing of the need for a separate bankruptcy petition to be made in England. She sought support from Cambridge Gas v Official Committee of Unsecured Creditors [2006] UKPC 26, in which Lord Hoffmann stated that, while there would be no automatic vesting of the property, the English courts have a "discretion to assist the foreign trustee by enabling him to obtain title to or otherwise deal with the property".

Decision

The Court of Appeal rejected the appeal (by a majority: Newey and Stuart-Smith LJ, with Arnold LJ dissenting), finding that there was no basis to side-step the "immoveables rule" and order that Ms Kireeva be permitted to deal with the Belgrave Square property.

Newey LJ questioned Re Kooperman's  status as good law, emphasising that no reasoned judgment had been given, and said it should only be followed if justification for doing so was found elsewhere.

He found that the authorities relied on by Ms Kireeva could be distinguished from the present case, since they all depended on the exercise of statutory powers and did not themselves show orders such as that found in Re Kooperman to be available at common law. Particularly Hughes was found to be of no assistance, since it solely focused on s.426 and the court did not have to consider how far relief might be available under the court's general jurisdiction or otherwise where a foreign office-holder is recognised at common law.

As to the concept of modified universalism, Newey LJ referred to Singularis Holdings Ltd v PricewaterhouseCoopers  [2014] UKPC 36, in which the Privy Council stressed that Cambridge Gas  should not be followed in this respect: "it cannot be assumed, simply because there would be a statutory power to make a particular order in the case of domestic insolvency, that a similar power must exist at common law". He disagreed with the notion that the common law could be developed to effectively dispose of a long-held aspect of English law such as the "immoveables rule". If such a development were to take effect, it would need to be properly legislated for by Parliament.

Newey LJ also rejected Ms Kireeva's arguments that the immoveable rule means that title is not recognised as vesting in a foreign law office holder on recognition but the English court will recognise everything else, such that the office holder has "complete dominion" over the property. He noted that, if that were the case, the immoveable rule would hardly matter. Rather, the case law made clear that, pursuant to the immoveable rule, the foreign office holders will not have any interest or right to the property.

Stuart-Smith LJ agreed with Newey LJ, adding that there was no basis to appoint Ms Kireeva as receiver over the Belgrave Square property when she had no title or interest in the property under English law.

Arnold LJ dissented, finding that the "immoveables rule" does not mean that the foreign officeholder has no rights in respect of the immoveable. Rather, in his view, the English court has a discretionary power to make an in personam order appointing a receiver in respect of the immoveable and the court should take into account factors which properly bear on the exercise of the discretion. He considered this would not amount to judicial legislation, but rather the common law developing in line with statute.

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