Louise Clark reviews a complex Supreme Court decision on the interface between Russian bankruptcy law and English property law
Key points
- Rights to and interests in land in England are governed by English law
- Unless limited exceptions apply interests in English land are unaffected by foreign bankruptcy
It is an established principle in the common law of England and Wales, as in other national legal systems, that rights to and interests in land are governed by the law of the country in which the property is situated and jurisdiction belongs to the courts of that country alone.
In Kireeva v Bedzhamov [2024] UKSC 39; [2024] PLSCS 206, the Supreme Court has considered the extent to which this principle – the immovables rule – impacts on the claim of a foreign trustee in bankruptcy to property in England owned by the debtor.
Background
Georgy Bedzhamov was a Russian citizen. He left Russia in 2015 and had acquired a long leasehold interest in property in Belgrave Square, London, and its associated mews house. He had lived in England since 2017.
In July 2018, Bedzhamov was declared bankrupt in Russia for sums exceeding £33m under judgments obtained by two Russian banks. Lyubov Kireeva was appointed as the equivalent of a trustee in bankruptcy of his estate. The property formed part of Bedzhamov’s estate and, under Russian law, Kireeva was under a duty to take control of and sell it.
One Russian bank was pursuing Bedzhamov for more than £1.34bn in English proceedings which had yet to come to trial. A worldwide freezing order made in March 2019 applied to all his assets, including the property, but he was able to fund his living expenses and legal costs. Variations to the freezing order permitted him to charge the property to his solicitors for accrued and future legal costs and to sell the property.
Kireeva sought recognition at common law of the Russian bankruptcy order and of her appointment as Bedzhamov’s trustee in bankruptcy and such further relief as the court saw fit, including orders for the entrustment of the property. She also applied to set aside the order allowing Bedzhamov to charge the property for legal costs.
The law
A court of a foreign country has no jurisdiction to adjudicate on the title to or the right to possession of any immovable (land) situate outside that country and all rights over or in relation to an immovable are governed by the law of the country where the land is situated: Rules 139 and 140, Dicey, Morris and Collins, The Conflict of Laws, 16th ed (2022).
Under English law, immovable property includes leasehold interests, rentcharges and mortgages and any claim to an interest in, or right over, land within the jurisdiction including claims for beneficial interests as well as legal title.
Where an individual is declared bankrupt, all property belonging to or vested in the bankrupt at the commencement of the bankruptcy vests in the trustee in bankruptcy under section 306 of the Insolvency Act 1986. There is an exception for property outside the jurisdiction but a trustee is entitled to seek an order that the bankrupt take the necessary steps to vest the foreign immovable in the trustee. The position is similar under Russian law.
However, two significant statutory measures exclude the application of the immovables rule to foreign insolvencies and provide for the United Kingdom courts to give assistance:
(i) section 426 of the Insolvency Act 1986 applies where the foreign bankruptcy is taking place in any relevant country or territory: in practice this means a Commonwealth country or British overseas territory; and
(ii) the Cross Border Insolvency Regulations 2006 apply to any bankruptcy taking place in the bankrupt’s “centre of main interests” or where the debtor has “an establishment”.
The decisions
The High Court recognised the Russian bankruptcy order and Kireeva’s appointment because Bedzhamov had submitted to the jurisdiction of the Russian court.
However, because of the immovables rule, English law did not recognise Kireeva as having any claim on the property or any other immovable property in England. So there was no basis on which the English court could provide assistance to her to gain possession of or to realise the property. The applications were dismissed and Kireeva’s appeals to both the Court of Appeal and the Supreme Court failed.
Land in England is governed exclusively by English law subject to the two statutory exceptions referred to above, neither of which applied in this case. Russia was not a relevant country for the purposes of section 426 of the 1986 Act and Bedzhamov had not had his centre of main interests or an establishment in Russia at any material time, so the 2006 Regulations did not apply.
Kireeva argued that the statutory exceptions were not exceptions to the immovables rule but gateways to obtaining assistance. The common law was also a gateway through which a foreign trustee could obtain assistance to realise any interests of the bankrupt in land in England by the appointment of a receiver with a power of sale who would remit the proceeds of sale to her for distribution in accordance with Russian bankruptcy law.
The Supreme Court considered that this argument was based on the fallacy that, notwithstanding the immovables rule, the English court could recognise and give effect to Russian bankruptcy law that all Bedzhamov’s property, including land in England, fell within his bankruptcy estate. This was fundamentally at odds with the immovables rule, which does not recognise any foreign law or order of a foreign court which purports to affect rights to or interests in land in England.
As a matter of English law, Bedzhamov’s interests in the property were unaffected by the Russian bankruptcy order. Any further modification of the immovables rule was a matter for Parliament and not the courts.
Louise Clark is a property law consultant and mediator
