Kireeva v Bedzhamov

Heard on 21 and 22 November 2023

Lord Lloyd-Jones AND Lord Richards ( with whom Lord Reed, Lord Briggs and Lady Rose agree):

It is an established principle in many national legal systems, including the common law of England and Wales, that questions as regards rights to and interests in land and other immovable property are governed by the law of the country in which the property is situated (the lex situs) and that jurisdiction to decide those questions belongs to the courts of that country. Where immovable property is situated in country A, neither the law nor the courts of country A will recognise or give effect to any laws or judicial decisions of other countries which purport to govern or decide issues of rights to and interests in that immovable property, save to the extent of any exceptions under the law of country A. In this judgment, we refer to this principle of private international law, as applied to immovable property in England and Wales, as “the immovables rule”.

The issue on this appeal is the effect, if any, under English common law of the immovables rule on the claim of a trustee in bankruptcy or similar representative appointed in foreign bankruptcy proceedings to immovable property situated in England and owned by the debtor.

This issue arises in relation to a property in London owned by the Respondent, against whom a bankruptcy order was made by a Russian court. The Russian court appointed the Appellant as the trustee of his bankruptcy estate. As a matter of Russian law, the property in London 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.

As we will later explain, 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 is therefore whether assistance may be given at common law.

As the issue in this appeal has been argued as a question of principle, it is necessary to give only a brief summary of the facts and of the extensive proceedings in Russia and England.

The Respondent is a Russian citizen who left Russia in 2015 and has lived in England since 2017. In 2015, he acquired an interest in a house in Belgrave Square and its associated mews house (“the Property”). 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 (“VPB”), a Russian bank in provisional liquidation, obtained a judgment on an unjust enrichment claim against the Respondent in a district court in Moscow. The judgment sum had a sterling equivalent in excess of £30 million. The Respondent's appeal was dismissed, as were subsequent attempts by him to set aside the judgment. In December 2016, VTB 24 Bank (“VTB”), also a Russian bank, obtained judgment against the Respondent in another district court in Moscow on a guarantee which the court found to have been given by the Respondent. The judgment sum had an approximate sterling equivalent of £3 million.

In January and April 2017, VPB and VTB respectively filed bankruptcy petitions with the Moscow City Arbitrazh Court (“the Arbitrazh Court”) against the Respondent based on the judgments obtained by them.

On 20 September 2017, the Arbitrazh Court accepted the validity of VTB's claim and ordered a debt restructuring procedure in respect of the Respondent's debts, appointing a financial administrator to supervise the debt restructuring. The Respondent's appeal against this order was dismissed.

The Arbitrazh Court subsequently accepted the validity of VPB's claim on its judgment, which was opposed by the Respondent, as well as a claim by the Federal Tax Authority.

On 2 July 2018, the Arbitrazh Court declared the Respondent bankrupt and appointed the Appellant as the new financial manager for the purpose of realising the Respondent's assets, a position equivalent to that of trustee in bankruptcy under English law. We will refer to this order as “the Russian bankruptcy order”.

In December 2018, VPB issued proceedings against the Respondent in the Chancery Division of the High Court in London, claiming damages in excess of £1.34 billion in respect of losses alleged to have been suffered as a result of fraud on the part of the Respondent, who it was said had personally benefitted to the extent of some £35.4 million. A worldwide freezing order was made against the Respondent in March 2019. The order applies to all his assets including, by the express terms of the order, the Property. In the usual way, the Respondent was permitted to use his funds for living expenses and for the payment of legal costs. As we understand it, these proceedings are continuing and have yet to come to trial: see Vneshprombank LLC v Bedzhamov [2024] EWHC 1048 (Ch), [2024] 1 WLR 4674.

Pursuant to a variation of the freezing order made by Falk J on 5 March 2021 (“the Variation Order”), the Respondent charged his interest in the Property to his then solicitors, Mishcon de Reya LLP, to secure accrued and future legal costs.

At least partly to fund his defence of the action brought by VPB, the Respondent has taken steps with a view to a sale of his interests in the Property and succeeded in an application, opposed by the Appellant, to vary the freezing order to permit a sale: Vneshprombank LLC v Bedzhamov [2023] EWHC 1459 (Ch).

In February 2021, the Appellant issued an application in the Chancery Division, seeking recognition at common law of the Russian bankruptcy order and of her appointment as the Respondent's bankruptcy trustee and financial manager and “[s]uch further relief as the Court sees fit, including orders for the entrustment of the Belgrave Square Property (and any other property of the Respondent in England) and that the Applicant will be able to question the Respondent in relation to the Belgrave Square Property”.

In her evidence in support of the application, the Appellant said that she had become aware of the Property in January 2021 and, given that it is a major asset, she “would therefore like to take control over it, as I am entitled and obliged to do under Russian law, to protect the interests of the bankruptcy estate (which includes the collective interest of at least three creditors)”.

The Appellant also issued an application to set aside the Variation Order which had enabled the Respondent to charge his interest in the Property in favour of Mishcon de Reya (“the Set Aside Application”).

Both applications were heard by Snowden J who, by an order dated 25 August 2021, formally recognised the Russian bankruptcy order and the Appellant's appointment by the Arbitrazh Court. He directed that any application by the Appellant for assistance in relation to the Respondent's movable assets in England should be made to Falk J, but he dismissed the application insofar as it sought assistance in relation to the Property and any other immovable assets in England. He also dismissed the Set Aside Application. See [2021] EWHC 2281 (Ch).

As regards recognition, Snowden J held that, although it was common ground that the Respondent had not been domiciled in Russia at the time of either the bankruptcy application or the bankruptcy order, he had submitted to the jurisdiction of the Arbitrazh Court and that the orders declaring him bankrupt and appointing the Appellant should be recognised on that basis. In addition to challenging the jurisdiction of the Arbitrazh Court, the Respondent resisted recognition on a number of other grounds, all of which were rejected by the judge. One of those grounds was that the VTB judgment on which the Russian bankruptcy order was based had been obtained by fraud, through forging his signature on the guarantee on which VTB made its claim. The Court of Appeal allowed the Respondent's appeal against the order for recognition on this ground alone and directed that the matter be remitted for a new hearing with cross-examination of the Respondent: [2022] EWCA Civ 32, [2023] Ch 45. This was heard by Falk J who held that the Respondent had not established that the guarantee was a forgery and that the Russian bankruptcy order and the Appellant's appointment should be recognised at common law: see [2022] EWHC 2676 (Ch). There is no longer any dispute about the recognition order.

As regards the Appellant's claim for assistance in relation to the Property, the Appellant submitted that this was not barred by the immovables rule. Mr Davies KC and Mr Willson, appearing then as now for the Appellant, submitted that the effect of the immovables rule was limited to preventing an automatic vesting of the legal title to the Property in the Appellant as trustee. The foreign bankruptcy order could not bypass the local system for transferring legal title under the lex situs. The English court would, however, recognise that the Property fell within the Respondent's bankrupt estate and would assist the Appellant to realise it for the benefit of the estate...