Lex situs still applies, so properties in England cannot form part of a foreign bankrupt’s estate
The Supreme Court was faced with a very peculiar case in which one of the parties tried to enforce a foreign judgement on a property situated in the UK. The question was, therefore, whether the lex situs principle, namely that the rights to and interests in land and other immovable property are governed by the law of the country in which the property is situated, impedes a foreign trustee’s claim over that immovable.
Background:
Mr. Bedzhamov is a Russian citizen who has been residing in England since 2017. He left Russia in 2015 and acquired an interest in a house in Belgrave Square and its associated mews house. His interest comprised a lease with some 20 years remaining and an agreement with the freeholder for the grant of a new lease for a period of 129 years, conditional on the redevelopment of the Property.
In August 2016, Vneshprombank LLC, a Russian bank in provisional liquidation, obtained a judgement on an unjust enrichment claim against the respondent in a district court in Moscow for a total of approximately £30m. In December 2016, another bank, VTB 24 Bank, obtained another judgement against Mr. Bedzhamov for the equivalent of £3m.
Mr. Bedzhamov was declared bankrupt by the Arbitrazh Court in Moscow in July 2018 and Ms. Kireeva was appointed as the bankruptcy trustee. As a matter of Russian law, the bankrupt's Belgrave Square property forms part of his bankruptcy estate and Ms. Kireeva therefore sought orders from the English Court to recognise the bankruptcy order and assist in gaining possession so as to realise the value of the property. The High Court dismissed the claim and the decision was upheld by the majority in the Court of Appeal (CoA). Ms. Kireeva appealed to the Supreme Court.
Decision:
The Supreme Court unanimously dismissed the appeal. The Supreme Court applied the immovable rule and held that Mr. Bedzhamov's interests in the Belgrave Square property were unaffected by the Russian bankruptcy order. Lord Lloyd-Jones and Lord Richards began by providing a background to the history and application of the immovables rule, confirming that a foreign court does not have the power to make orders in respect of land in England and that rights relating to such land are governed exclusively by English law. The reason for this is simple in that the rule ensures that property rights are managed by local law, thereby preventing foreign jurisdictions from interfering with immovable property in the UK.
Common law does not provide any assistance in these circumstances, as none of the two statutory exceptions applied. Indeed, neither the Russian bankruptcy order, nor the trustee’s role fell within the statutory exceptions provided by the Insolvency Act 1986 or the Cross-Border Insolvency Regulation 2006. The Court also rejected the reliance on In re Kooperman [1928] by distinguishing it, as the application was unopposed, while also noting that “Kooperman is not an authority on which any weight can be placed.”
Ms. Kireeva argued that, once the Belgrave Square property was sold, the proceeds would be considered moveable property and could thus be included in the bankruptcy estate. The Supreme Court disagreed, stating that the immovables rule applies to the property as of the date of the bankruptcy order.
Implications:
This is an important judgement in the context of international insolvency relating to immovables. It makes it clear that, unless one of the two exceptions applies, the courts will be unwilling to displace the lex situs principle. Indeed, the Court clarified that this rule is not merely a procedural formality but a substantive protection.
Any foreign bankruptcy trustee will, therefore, have to initiate its proceedings in the UK for such a judgement to be enforceable. This decision also leaves the door open for Parliament to introduce a legal provision to assist foreign bankruptcy trustees in a similar position.
