Court of Appeal revisits foreign judgment debts and bankruptcy petitions

Background

Servis-Terminal LLC ("ST"), a Russian company in bankruptcy, obtained a Russian judgment requiring its former director general, Mr Drelle, to pay RUB 2 billion after the Russian court found that he had breached his duties in causing ST to make a substantial loan. The judgment was upheld through three levels of appeal in Russia. 

ST subsequently served a statutory demand and presented a bankruptcy petition in England based on the Russian judgment. Mr Drelle disputed the debt on genuine and substantial grounds, alleging that the Russian proceedings had been affected by fraud, bias, political interference and/or breaches of natural justice. A bankruptcy order was nevertheless made. 

Earlier this year in Servis-Terminal LLC v Drelle [2026] UKSC 29, the Supreme Court confirmed that whilst an obligation arising under an unrecognised foreign judgment may not have direct enforcement effect without further steps, it nevertheless creates an enforceable obligation which can be sued upon in England and as such, can constitute as a "debt" upon which an English bankruptcy petition can be presented under section 267 of the Insolvency Act 1986. 

The Supreme Court remitted the case back to the Court of Appeal to determine whether the debt was genuinely disputed on substantial grounds.

The Key Issue

The central issue on the remitted appeal was whether Mr Drelle had raised a genuine and substantial dispute as to the Russian judgment debt, including whether there was a sufficiently arguable case that the underlying judgment was affected by judicial predetermination, fraud or breach of natural justice. 

A particular focus was witness evidence reporting on a conversation which allegedly indicated, before the Russian proceedings had concluded, that Mr Drelle could not win and that judgment would be entered against him for RUB 2 billion. The lower court had characterised this evidence as "double hearsay" and treated it as lacking cogency. 

Decision

The Court of Appeal allowed the appeal and set aside the bankruptcy order.  

In reaching the decision, the Court of Appeal held that:

• The correct question in bankruptcy proceedings is whether there is a genuine and substantial dispute, rather than whether there is "cogent evidence of a good arguable case";
• There is no special heightened standard of proof simply because a party is seeking to impugn a foreign judgment. At trial, allegations of fraud or breach of natural justice are determined on the ordinary civil standard, namely the balance of probabilities; 
• Where judicial predetermination is alleged, it is not necessary to establish that the foreign judge deliberately reached the wrong substantive decision; and 
• The evidence has to be considered in the round. 

The Court of Appeal considered that the appropriate forum for determining those allegations should be the separate recognition proceedings, where disclosure and cross-examination would be available. 

Why this matters

The judgment is significant for creditors, insolvency practitioners and debtors dealing with foreign judgment debts.

Firstly, although the Supreme Court has confirmed that prior recognition of a foreign judgment is not a prerequisite to using the resulting obligation as a bankruptcy petition debt, that does not prevent a debtor from raising a genuine and substantial challenge to the judgment itself. 

Secondly, the Court of Appeal has emphasised that the court should not impose an artificially heightened evidential threshold simply because allegations of fraud, bias or procedural impropriety are made against a foreign court. The question remains whether the dispute is real and substantial rather than frivolous or remote. 

Thirdly, evidence should be assessed cumulatively. Hearsay evidence, expert evidence and evidence about the circumstances surrounding foreign proceedings may each have limitations when viewed individually but together may be sufficient to demonstrate a genuine and substantial dispute. 

For petitioning creditors, this underlines the importance of considering potential challenges to the underlying foreign judgment before relying on it as the basis of bankruptcy proceedings. Where substantial allegations about the integrity of the foreign proceedings require disclosure, oral evidence and cross-examination, ordinary recognition proceedings may be the appropriate forum for resolving them. 

Conclusion

Servis-Terminal LLC v Drelle now establishes two important, and complementary, principles. An unrecognised foreign judgment can give rise to a debt capable of supporting an English bankruptcy petition, but that does not prevent the debtor from demonstrating that the debt is genuinely and substantially disputed by raising an arguable challenge to the integrity of the foreign judgment. 

The latest decision therefore provides an important reminder that insolvency proceedings should not be used to determine substantial disputes that properly require a full trial.