Valeriy Ernestovich Drelle v Servis-Terminal LLC

JurisdictionEngland & Wales
JudgeMr Justice Richards
Judgment Date11 March 2024
Neutral Citation[2024] EWHC 521 (Ch)
Year2024
CourtChancery Division
Docket NumberCase No: CH-2023-000082
Between:
Valeriy Ernestovich Drelle
Appellant
and
Servis-Terminal LLC
Respondent

[2024] EWHC 521 (Ch)

Before:

Mr Justice Richards

Case No: CH-2023-000082

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

ON APPEAL FROM THE INSOLVENCY AND COMPANIES COURT (ICC JUDGE BURTON)

INSOLVENCY AND COMPANIES LIST

Rolls Building

Fetter Lane,

London, EC4A 1NL

Charles Samek K.C. and James Bickford Smith who did not appear below (instructed by Sterling Lawyers Ltd) for the Appellant

Mark Philips K.C. and Clara Johnson (instructed by Latham & Watkins (London) LLP) for the Respondent

Hearing dates: 15 and 16 January 2024

Approved Judgment

This judgment was handed down remotely at 10.30am on 11 th March 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Mr Justice Richards Mr Justice Richards
1

The Appellant, Mr Drelle, appeals against the order of ICC Judge Burton (the “Judge”) dated 31 March 2023. By that order Mr Drelle, was adjudged bankrupt following a petition presented by Servis-Terminal LLC (“ST”), a company incorporated in the Russian Federation. ST's bankruptcy petition was founded on a debt of RUB 2 billion, some £22 million in sterling terms, (the “Debt”) that was said to have arisen following a judgment (the “Judgment”) that ST obtained from the Russian Arbitrazh Court of Yaroslavl Oblast (the “Arbitrazh Court”), a commercial court of the Yaroslavl region of Russia, on 19 May 2019. The Judgment was upheld following onward appeals to superior courts in Russia and permission to appeal to the Russian Supreme Court was refused.

2

Mr Drelle's appeal to this court raises two issues:

i) Whether the Judge was correct to conclude that ST was entitled to present a bankruptcy petition pursuant to s267 of the Insolvency Act 1986 based on the Debt in circumstances where the underlying Judgment had neither been registered nor recognised by an English court (the “Petition Debt Point”).

ii) Whether the Judge erred in concluding that the Debt was not subject to any genuine and substantial dispute when Mr Drelle's case was that it was at the very least not fanciful to suppose that the Judgment was impeachable for fraud (the “Fraud Point”).

3

So that this judgment can readily be read together with the reasoning of the Judge, I will tend to use defined terms used in the Judge's reserved judgment of 9 March 2023 (the “Petition Judgment”). One of the points made on appeal is that the Judge wrongly elided distinctions between the Judgment and other judgments given in Russian appeals. In particular, Mr Drelle argues that a relevant question before the Judge was whether the Judgment specifically could be impeached for fraud and not whether the Russian proceedings generally could be so impeached. Accordingly, I will seek to be rigorous in my use of defined terms. The term “Judgment” refers specifically to the judgment of the Arbitrazh Court of 24 May 2019. I use the wider defined term “Russian Judgments” to refer to the totality of the judgments in Russia, including appeals against the Judgment.

4

References to numbers in square brackets are to paragraphs of the Petition Judgment unless I specify otherwise.

THE JUDGMENT BELOW

Background – the proceedings in Russia

5

Mr Drelle had previously been a shareholder and CEO of ST. On 3 April 2017, ST was declared bankrupt by the Arbitrazh Court. ST's claims against Mr Drelle were brought by ST's trustee in bankruptcy.

6

ST's bankruptcy was brought about by Gazprom Neft PJSC (“GPN”), a Russian company that was owned as to 95.68% by PJSC Gazprom (“Gazprom”), the well-known energy company in which the Russian State owns a 50.23% stake.

7

The claims by ST's trustee in bankruptcy against Mr Drelle related to a loan (the “Loan”) of RUB 2 billion that ST advanced in December 2011 to Fort Steiton LLC (“FS”), a Russian company with the benefit of a personal guarantee (the “Personal Guarantee”) from FS's owner, a Mr Motylev. A company called Intercom Capital LLC (“Intercom”), which was controlled by Mr Motylev, succeeded to FS's obligations under the Loan on 5 November 2014.

8

Intercom defaulted on the Loan. In August 2016 and December 2016, ST obtained judgments in Russia against both Intercom and Mr Motylev with the latter judgment holding that Mr Motylev and Intercom were jointly and severally liable to ST for sums due under the Loan. ST was able to locate a number of Mr Motylev's assets outside Russia with ST's asset-tracing efforts continuing to the point of its own bankruptcy in April 2017. However, Mr Motylev did not pay the full amount due to ST.

9

The proceedings in Russia against Mr Drelle were based on Article 53(3) of the Civil Code of the Russian Federation. It was asserted that Mr Drelle had failed to act in good faith or reasonably in the interests of ST when, as a director of ST, he procured ST to make the Loan. As a consequence, it was said that he was liable to reimburse ST for losses occasioned when FS and Mr Motylev defaulted on their obligations ([47]).

10

In the Judgment, the Arbitrazh Court gave judgment for ST on its claim, finding among other matters that:

i) Mr Drelle failed to verify FS's solvency to the requisite standard before transacting with it. His failure to do so meant that he was not acting in good faith or reasonably performing his duties as ST's CEO ([51(i)]).

ii) Mr Drelle had not verified Mr Motylev's personal financial position and so should not have accepted an unsecured personal guarantee from Mr Motylev. He should have required Mr Motylev to provide security for his obligations. These failings also meant that Mr Drelle had also failed to act reasonably or in good faith [51(ii)].

iii) The Loan was a sufficiently large transaction to require the approval of ST's shareholders which had not been sought ([51(iv)]). That was significant because, under Russian law, if a director procured a company to enter into a transaction without having obtained a necessary approval as required by law or the company's charter, that engaged a presumption that the director had not acted in good faith ([48]).

11

Mr Drelle appealed against the Judgment to the Russian Court of Appeal. The appeal involved a full review of the decision at first instance ([53]) with the result that it gave Mr Drelle a further opportunity to succeed on the merits. The Court of Appeal upheld the Judgment deciding that it had correctly applied the law taking into account the circumstances of the case ([56]).

12

Mr Drelle brought a further appeal to the Cassation Court. That court's jurisdiction on appeal did not include reviewing the manner in which the court below had evaluated the evidence. The Cassation Court dismissed the appeal and Mr Drelle was refused permission to appeal to the Russian Supreme Court.

The Petition Judgment

13

The Judgment was not eligible for registration under the Foreign Judgments (Reciprocal Enforcement) Act 1933 (the “1933 Act”) and, accordingly, ST made no attempt to register it under that Act. Nor did ST take any separate proceedings in the English courts under Part 7 that specified the Judgment as a cause of action and sought an English judgment (“Recognition Proceedings”). Its position was, and remains, that the Judgment resulted in Mr Drelle owing it a “debt” for the purposes of s267 of the Insolvency Act 1986 (the “Insolvency Act”) and that this is sufficient for ST to apply for a bankruptcy order.

14

Although not mentioned in the Petition Judgment, it is common ground that ST served a statutory demand in respect of the Debt dated 9 October 2020 on Mr Drelle at his home address in London. ST presented a bankruptcy petition on 13 October 2020 that was founded on the Judgment.

The Petition Debt Point

15

Before the Judge, Mr Drelle accepted that the Judgment, even though it had not been the subject of Recognition Proceedings was in principle capable of constituting a petition debt for the purposes of s267 of the Insolvency Act. His main opposition to the making of a bankruptcy order was based on the proposition that the Fraud Point meant that the Debt was the subject of a bona fide dispute on substantial grounds.

16

By his order of 31 July 2023, Fancourt J gave Mr Drelle permission, to the extent necessary, to withdraw any concessions of the kind described in paragraph 15. above. On 16 August 2023, Fancourt J also gave Mr Drelle permission to appeal against the Petition Judgment. As a consequence, it is common ground that the Petition Debt Point is properly before me and, since it was not before the Judge, I cannot set out her reasoning on it.

The Fraud Point

17

The Judge directed herself as follows:

i) Rule 48 in the then current edition of Dicey, Morris & Collins, The Conflict of Laws ( “Dicey”) (Rule 51 in the most recent edition) required her to treat the Judgment as inviolate unless it can be impeached under Rules 50 to 52 on the grounds of fraud, the Judgment being contrary to public policy or opposed to natural justice ([30]).

ii) An allegation of judicial bias and/or of improper interference with the judicial process is capable of making out the “fraud”, “natural justice” and “public policy” exceptions in Rule 50.

iii) A bankruptcy petition cannot successfully be founded on a debt that is subject to a bona fide dispute on substantial grounds ([6]). Accordingly, it is necessary to determine whether there was a bona fide dispute on substantial grounds to the effect that Russian Judgments may be impeached for one of the reasons set out in paragraph 17.i) above ([31]).

iv) She would apply the following approach to deciding that question ([61]):

Evidence to the standard of a genuine triable issue of incompetence, if I were to find it, is not enough. I must find that there is before me, a substantial dispute as to whether the Russian Judgments are deliberately wrong or that the...

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1 cases
  • Re A Company
    • United Kingdom
    • Chancery Division
    • 8 May 2024
    ...Mr Willson provided a supplementary skeleton on the morning of the hearing, dealing with the case of Drelle v Servis-Terminal LLC [2024] EWHC 521 (Ch) in which judgment had been handed down the previous day. That judgment is helpful although not determinative of all the issues in this part......

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