In this article, Katie Farmer looks at the Supreme Court's decision in the Kireeva v Bedzhamov case, focusing on whether a Russian trustee in bankruptcy can claim a bankrupt's property in London.
In September 2023, we covered the English Court's 2023 decision in the Kireeva v Bedzhamov proceedings concerning a Russian bankrupt's ability to sell a property in London, notwithstanding the Russian bankruptcy proceedings and a worldwide freezing order. In that article, we mentioned that in the 2022 decision it was held that, under common law principles, a foreign bankruptcy order did not vest immoveable property in the foreign trustee in bankruptcy. The Trustee made a further appeal to the Supreme Court on the immovables question, and the appeal is due to be heard in November 2023. The Supreme Court handed down its judgment on 20 November 2024.
As a matter of Russian law, the property owned by the bankrupt forms part of his bankruptcy estate and the trustee is under a duty to get in and realise it for the benefit of his creditors. The issue for decision is whether, as a matter of English law, the immovables rule prevents the Appellant as trustee from claiming the property in London and from obtaining assistance from the English court to do so. The statutory provisions under which the English court may give assistance to a foreign trustee in bankruptcy do not apply in this case. The question was therefore whether assistance may be given at common law.
The immovables rule
The Supreme Court started from the position that it is the special nature of land that has given rise to the immovables rule, as a result of which a foreign court has no jurisdiction to make orders in respect of land in England and Wales and rights relating to such land are governed exclusively by the law of England and Wales. Courts in this jurisdiction will normally recognise at common law executive and legislative acts of a foreign state, as well as judgments of foreign courts affecting property within the jurisdiction of the foreign court.
Under English law, immovable property includes, as regards land, leasehold interests, rentcharges and mortgages, and indeed any claim to an interest in, or right over, land within the jurisdiction. It applies as much to claims to a beneficial or equitable interest in property as it does to claims to legal title. Under Russian bankruptcy law, the position is similar to that under the Insolvency Act 1986: all the property of the bankrupt, wherever it is situated and whether it is movable or immovable, vests in the trustee to be realised for the benefit of the creditors.
Where an individual has been declared bankrupt in any other foreign country, a straightforward application of the immovables rule would, as a matter of English law, deny the claim of the foreign trustee to any interest in land in England. The effect of the immovables rule as applied under English law is that the provisions of foreign law have no effect on the ownership of interests in land situated in England and that a foreign court has no jurisdiction to make an order which affects the ownership of interests in land in England. The immovables rule is a substantive rule of English law and, unless some exception exists applicable in the case of a foreign bankruptcy, it will apply to the claims of foreign trustees.
Exceptions
The Court then considered two statutory measures which exclude the application of the immovables rule to foreign insolvencies; section 426 of the Insolvency Act 1986 ("IA 1986"), which is a provision for courts in the UK to give assistance in relation to insolvency proceedings in certain other countries, and the Cross-Border Insolvency Regulations 2006, which incorporate the UNCITRAL Model Law on Cross-Border Insolvency into the law of England and Wales, and Scotland.
It was common ground that neither applied to the Respondent's (Russian) bankruptcy. This left only the common law potentially available to the Trustee.
Common law
The Supreme Court held that the common law does not recognise the English property as being part of the assets that are within the scope of the Respondent’s bankruptcy in Russia. As a matter of English law, his interests in this 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.
While the court has a common law power to give assistance to foreign trustees in bankruptcy, this does not permit it to provide assistance which is inconsistent with rules of substantive law, such as the immovables rule.
The Supreme Court did not find it appropriate to develop the common law to allow for further assistance to be given to foreign trustees in bankruptcy, saying that this must be a matter for Parliament, on the basis that such development would not be incremental but a substantial departure from existing law and principles of public policy to which the existing law gives effect. The Supreme Court stated that the fact that legislation in the form of section 426 of the IA 1986 and the CBIR has already created exceptions to this aspect of the immovables rule in defined circumstances makes it all the more important that any further exceptions should be achieved by legislation only.
Conclusion
Therefore, under the immovables rule, as a matter of English common law, a foreign trustee in bankruptcy has no interest in or right to the bankrupt’s immovable property in this jurisdiction.
