Valeriy Ernestovich Drelle v Servis-Terminal LLC (In Liquidation in the Russian Federation) [2026] UKSC 29

The UK Supreme Court held that an unrecognised and unregistrable foreign judgment (a Russian judgment against a former director) can constitute a 'debt' under section 267 of the Insolvency Act 1986, sufficient to found a bankruptcy petition, reversing the Court of Appeal.

Facts

Servis-Terminal LLC (‘ST’), a Russian company in bankruptcy acting by its trustee, obtained a judgment in the Arbitrazh Court of Yaroslavl Region on 24 May 2019 against its former Director General, Mr Valeriy Drelle, for RUB 2 billion. The judgment arose from a loan of RUB 2 billion advanced by ST in 2011 to Fort-Steiton LLC, guaranteed by Mr Motylev, which was never repaid following the collapse of the Russian Credit Bank. Mr Drelle’s appeals through the Russian court hierarchy, up to the Supreme Court of the Russian Federation, were dismissed.

Mr Drelle had relocated to London. On 9 October 2020, ST served a statutory demand on him under section 268(1)(a) of the Insolvency Act 1986 based on the Russian Judgment, and on 13 October 2020 presented a bankruptcy petition. The Russian Judgment had not been the subject of recognition proceedings in England, nor was it registrable under the Foreign Judgments (Reciprocal Enforcement) Act 1933.

ICC Judge Burton found the debt was not disputed on bona fide and substantial grounds and made a bankruptcy order. Richards J dismissed Mr Drelle’s first appeal. The Court of Appeal allowed the second appeal, holding that a bankruptcy petition could not be founded on an unrecognised foreign judgment.

Issues

The Supreme Court identified three main issues:

1. At common law, what is the legal effect, if any, of an unrecognised foreign judgment for a debt or definite sum of money?
2. On the construction of section 267 of the Insolvency Act 1986, does such a judgment give rise to a ‘debt’ within the meaning of section 267 so as to found a bankruptcy petition?
3. Does article 13 of the UNCITRAL Model Law (given effect in the Cross-Border Insolvency Regulations 2006) mean that a foreign creditor under an unrecognised foreign judgment enjoys the same rights as a creditor with an equivalent English law claim?

Arguments

For Mr Drelle (Respondent)

Mr Samek KC submitted that an unrecognised foreign judgment has no ‘direct operation’ in England and therefore no legal effect until recognised. A foreign court’s authority ends at the state’s border. Before a foreign judgment could be used offensively (as a ‘sword’), it must first be recognised by the English court. Reliance was placed on the revenue rule and on In re A Judgment Debtor [1939] Ch 601, which prohibits basing a petition on an unregistered but registrable foreign judgment under the 1933 Act.

For ST (Appellant)

Mr Phillips KC relied on the long-standing ‘obligation principle’: a foreign judgment for a debt or definite sum of money itself gives rise, at common law, to an obligation to pay the judgment sum, enforceable by action on the judgment. If it had no legal effect until recognition, no action could be brought upon it. Dr Mokal advanced a fallback argument based on article 13 of the Model Law.

Judgment

Issue 1: Effect of an unrecognised foreign judgment

Lord Briggs and Lord Hamblen (with whom Lord Sales, Lord Stephens and Lord Doherty agreed) held that the common law well-established ‘obligation principle’ remained the juridical basis for enforcement of foreign judgments. Tracing the doctrine through Russell v Smyth (1842), Williams v Jones (1845), Godard v Gray (1870) and Schibsby v Westenholz (1870), and confirmed in modern authorities including Adams v Cape Industries plc [1990] Ch 433, Owens Bank v Bracco [1992] 2 AC 443 and Rubin v Eurofinance SA [2012] UKSC 46, the court held that a foreign judgment for a debt gives rise to an obligation to pay when the final and conclusive judgment is given; this does not depend upon recognition.

The Court of Appeal’s reliance on the phrase ‘no direct operation’ in Dicey Rule 45 was misplaced: this meant only that the judgment has no status in England for the purposes of execution processes such as those in CPR 70, not that it has no legal effect. Rule 51 draws no distinction between using a foreign judgment as a shield or a sword. The analogy with the revenue rule was rejected: the revenue rule concerns the enforcement of a sovereign right, whereas ST’s claim was a private claim of the kind any citizen could bring, as confirmed by Skatteforvaltningen v Solo Capital Partners LLP [2023] UKSC 40.

Issue 2: Construction of section 267

The court held that ‘debt’ in section 267 is used in its wide general common law sense — a legal obligation to pay a sum of money. Statutes must be construed against the background of the common law at the time of enactment. Since the common law understood an unrecognised foreign judgment as giving rise to an immediate debt obligation, it fell within section 267. The purpose of sections 267 and 268 was to establish a precisely specified basis for concluding inability to pay debts, warranting pari passu distribution; there was no reason why an obligation under an unrecognised foreign judgment should not qualify.

The court rejected the submission that bankruptcy is ‘enforcement’ incompatible with the position under Dicey Rule 46(1). Dicey’s editors (and Professor Briggs) accept that a statutory demand may be served on a foreign judgment debt. Moreover, bankruptcy proceedings are not enforcement of an individual creditor’s judgment but a collective scheme, citing Sian Participation Corpn v Halimeda International Ltd [2024] UKPC 16.

As to the 1933 Act and Judgment Debtor, the court held that the 1933 Act did not affect the pre-existing common law position for unregistrable judgments. It was the new bankruptcy scheme in the 1986 Act that, for the first time, permitted reliance on such a debt as the basis for a petition, since the Bankruptcy Act 1914 required an act of bankruptcy involving a judgment amenable to execution.

Issue 3: Model Law article 13

The court rejected ST’s fallback argument. ‘Foreign’ in article 13 is a geographical descriptor of the creditor’s location, not a reference to the governing law of the debt. In any event, the argument was unnecessary given the conclusion on Issue 2.

Disposition

The appeal was allowed. The remaining grounds concerning whether the debt was disputed on bona fide and substantial grounds (Grounds 2 to 4) were remitted to the Court of Appeal, which had granted permission on those grounds but not determined them.

Implications

The decision confirms and reinforces the common law ‘obligation principle’: a final and conclusive foreign judgment for a debt or definite sum of money, given by a court of competent jurisdiction and not impeachable, creates in England an immediate obligation to pay, enforceable by an action on the judgment, without prior recognition proceedings. That obligation qualifies as a ‘debt’ for the purposes of section 267 of the Insolvency Act 1986.

The practical consequence is that a creditor holding an unrecognised and unregistrable foreign judgment may serve a statutory demand and present a bankruptcy petition against a debtor in England without first bringing separate recognition proceedings. This may offer significant procedural expedition for foreign judgment creditors, particularly those whose judgments come from jurisdictions outside statutory reciprocal-enforcement regimes.

The judgment clarifies the meaning of ‘no direct operation’ in Dicey Rule 45 — this relates to execution processes, not to the legal effect of the judgment as a source of obligation. It also clarifies that Dicey Rule 51 (conclusiveness) applies whether the foreign judgment is used defensively or offensively.

The judgment carefully limits itself: it does not disturb In re A Judgment Debtor [1939] Ch 601 in relation to registrable judgments under the 1933 Act, where registration remains a required preliminary. The revenue rule is preserved, but distinguished from private claims on foreign judgments. Debtors retain the ability to dispute the debt on bona fide and substantial grounds — including grounds of impeachment such as fraud, want of natural justice or public policy — in the bankruptcy proceedings themselves, as remains to be considered on remittal in this case.

The decision matters to insolvency practitioners, cross-border litigators, foreign creditors seeking recovery against debtors located in England, and debtors resisting bankruptcy petitions founded on foreign judgments. It reinforces the coherence of English common law on foreign judgments and its interaction with the modern insolvency statutory scheme.

Verdict: The appeal was allowed. The Supreme Court held that an unrecognised and unregistrable foreign judgment for a debt or definite sum of money gives rise to an obligation to pay that constitutes a ‘debt’ within the meaning of section 267 of the Insolvency Act 1986 and can therefore found a bankruptcy petition. The Court of Appeal’s decision on Ground 1 was reversed, and the remaining grounds (Grounds 2 to 4) concerning whether the debt was disputed on bona fide and substantial grounds were remitted to the Court of Appeal for determination.

Source: Valeriy Ernestovich Drelle v Servis-Terminal LLC (In Liquidation in the Russian Federation) [2026] UKSC 29