Property – Immovables rule – Insolvency – Respondent Russian citizen owning property in London – Respondent declared bankrupt in Russia – Appellant appointed trustee of bankruptcy estate – Appellant seeking recognition of right to take control of London property – Whether “immovables rule” under English law precluding appellant having claim to property – Whether court having common law power to recognise and assist foreign insolvency proceedings – Appeal dismissed
The respondent, a Russian citizen who left Russia in 2015 and had not lived there since, owned a property in London. In 2018, a Russian court declared the respondent bankrupt and appointed the appellant as the trustee of his bankruptcy estate. Under Russian law, the property formed part of the respondent’s bankruptcy estate and the appellant was under a duty to take control of and sell the property.
It was a long-established principle in England and Wales that questions as regards rights to and interests in land and other immovable property were governed by the law of the country in which the property was situated (the immovables rule). An issue arose whether, as matter of English law, the immovables rule prevented the appellant from claiming the property and obtaining assistance from the English court to do so.
The appellant sought recognition of her right to take control of the property and applied to set aside a previous court order made as part of separate legal proceedings that had allowed the respondent to charge his interest in the property in favour of his solicitors (the intervener).
The High Court held that, by reason of the immovables rule, English law did not recognise the appellant as having any claim to the property. The court also dismissed her set aside application. The Court of Appeal by a majority upheld the High Court’s decision: [2022] EWCA Civ 35. The appellant appealed.
Held: The appeal was dismissed.
(1) Two significant statutory measures excluded the application of the immovables rule to foreign insolvencies. Section 426 of the Insolvency Act 1986 applied where the foreign bankruptcy was taking place in a “relevant country or territory” (principally, Commonwealth countries). It was common ground that the English court had no power under section 426 to provide assistance to the appellant as the respondent’s trustee in a Russian bankruptcy, because Russia had not been designated as “a relevant country”.
The Cross-Border Insolvency Regulations 2006 applied to any bankruptcy taking place in the bankrupt’s “centre of main interests” or if it was taking place in a state where the debtor had “an establishment”. The respondent left Russia in 2015, and it was common ground that he had not had his centre of main interests or an establishment in Russia at any material time, and that accordingly it was not open to the appellant to seek recognition or obtain assistance under the 2006 Regulations.
(2) The appellant relied on the principle of modified universalism, namely that the court had a common law power to assist foreign winding up proceedings so far as it properly could, which remained an important element of the common law as regards assistance in cross-border insolvencies, but was necessarily subject to jurisdictional limits. It was necessary to bear in mind, first, that it was subject to local law and local public policy and, secondly, that the court could only ever act within the limits of its own statutory and common law powers: Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2007] 1 AC 508, Rubin v Eurofinance SA [2012] PLSCS 218; [2013] 1 AC 236 and Singularis Holdings Ltd v PricewaterhouseCoopers [2015] AC 1675 considered.
The court’s common law powers of assistance did not permit it to provide assistance which was inconsistent with rules of substantive law. The appellant did not dispute that qualification, but relied on the basic submission that the immovables rule was concerned only with legal title to immovable property and did not prevent the court from recognising, and taking steps to give effect to, the appellant’s duties and powers under Russian law as regards immovable property situated in England. The rule was not so limited but had the effect that those powers and duties under Russian law were not recognised in this jurisdiction. It would therefore be contrary to English law, and to the principle of modified universalism, for the court to accede to the appellant’s application for the appointment of a receiver or other assistance as regards the property.
(3) The fallacy on which all the appellant’s submissions were based was that, notwithstanding the immovables rule, the English court might at common law recognise and give effect to the rule of Russian bankruptcy law that all the property of the bankrupt, including interests in land located in England, formed part of the bankrupt estate. That was fundamentally at odds with the immovables rule which was a substantive rule of English law. The rule was not concerned solely with the vesting of title, but had the effect that, at common law no recognition would be given to any provision of foreign law or any order of a foreign court which purported to affect rights to or interests in land located in England. It followed that the common law did not recognise the property as being part of the assets that were within the scope of the respondent’s bankruptcy in Russia. As a matter of English law, his interests in the property were unaffected by the Russian bankruptcy order. Therefore, subject to any statutory provision to contrary effect, it was 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.
(4) In the case of a foreign bankruptcy, the status of property located in England as movable or immovable was determined as at the date of the bankruptcy order, that being the order from which, under the foreign bankruptcy law, the trustee’s title to or interest in the property derived. The proceeds of a subsequent sale of the property remained subject to the immovables rule and so would not be assets within the bankrupt estate.
It was for parliament, not the courts, to determine whether and, if so, under what conditions there should be further development beyond that already made by legislation: see section 30(1) of the Civil Jurisdiction and Judgments Act 1982.
Stephen Davies KC and William Willson (instructed by Steptoe International (UK) LLP) appeared for the appellant; Justin Fenwick KC and Stephen Robins KC (instructed by Greenberg Traurig LLP) appeared for the respondent; Andrew Scott KC and Gayatri Sarathy (instructed by Mishcon de Reya LLP) appeared for the intervener.
Eileen O’Grady, barrister
Click here to read a transcript of Kireeva v Bedzhamov
