On 20 November 2024, the Supreme Court delivered judgment in the case of Kireeva v Bedzhamov [2024] UKSC 39. The case considered what effect, if any, the immovables rule had on the claim of a trustee in bankruptcy appointed in foreign proceedings to a debtor’s immovable property located in Belgravia, London. Endorsing the rule, the court rejected the argument that there existed a common law power for the English courts to assist such a trustee to realise such property.
Background
Pursuant to a bankruptcy order made by the Arbitrazh Court of Moscow in 2018 (the bankruptcy order), Ms Kireeva (the appellant) was appointed to realise the assets of Mr Bedzhamov (the respondent), who owed the equivalent of £30,000,000 in judgment debts.
Mr Bedzhamov was a Russian citizen, but had lived in England since 2017 and in 2015 purchased a property in London (the property). In 2021, Kireeva applied to the High Court seeking to have the bankruptcy order formally recognised, and for assistance in realising the property so that it could be pooled with Bedzhamov’s other assets in the Russian bankruptcy proceedings.
At first instance, Snowden J held that the bankruptcy order could be formally recognised under the common law, but that English courts could not assist Kireeva in realising the property owing to the immovables rule. That decision was subsequently upheld by the Court of Appeal.
The immovables rule is an established principle under English common law concerning how assets located in different jurisdictions are to be treated during insolvency proceedings. Specifically, the rule dictates the rights relating to immovable property (e.g. land/real estate), including leases and mortgages, are governed by the law of the jurisdiction where that property is situated. There are powerful public policy reasons why foreign laws could not affect immovable property in England and the rules reflected territorial sovereignty. Practical reasons also came into play – a local court is best placed to inspect the property and property registration records. Movable property on the contrary is deemed to ‘go with the person’ and is therefore governed by the law of the person’s domicile.
There exist two limited statutory ‘exceptions’ to the immovables rule, through which English courts are still able to aid a foreign trustee in bankruptcy:
(i) The Cross Border Insolvency Regulations 2006 (CBIR) permit a foreign trustee in bankruptcy to apply for formal recognition of their appointment, as well as further relief, provided the debtor has their centre of main interests in the jurisdiction where the trustee was appointed.
(ii) Section 426(4) of the Insolvency Act 1986 (S.426 IA) enables foreign courts of specified jurisdictions to obtain assistance from English courts in relation to foreign insolvency proceedings.
Neither of the above exceptions applied to the facts in Bedzhamov.
Decision
The Supreme Court unanimously upheld the decisions of the High Court and Court of Appeal, dismissing Kireeva’s appeal in its entirety. Having briefly considered whether it would be appropriate for the judiciary to modify the immovables rule, the Supreme Court determined that any such modification was properly a matter for parliament, and not the courts.
In reaching its decision, the Supreme Court considered the following core arguments put forward by Kireeva. Kireeva argued that the court was entitled to assist a foreign trustee in bankruptcy to ‘get in and realise’ any interest that a bankrupt might have in land situated in England. In raising this argument, she sought to reframe the CBIR and S.426 IA as mere ‘gateways’ through which such discretionary assistance could be provided by the courts, the common law being an alternative gateway.
In support of her argument, Kireeva cited the case of Re Kooperman [1928] WN 101, in which a trustee in a Belgian bankruptcy was appointed as the receiver of leasehold interest in land in England. The Supreme Court was, however, quick to note that Kooperman concerned an unopposed application, in respect of which no reasoned judgment was provided. Accordingly, the court rejected her argument.
Kireeva argued that, in accordance with the principle of ‘modified universalism’, the court had a power at common law to assist foreign insolvency proceedings so far as it properly can, which in the present instance would include appointing a receiver over the property with a power of sale.
While modified universalism was recognised by the Supreme Court as being ‘an important element of the common law as regards assistance in cross-border insolvencies’, it was also stated to be ‘necessarily subject to jurisdictional limits’. It did not permit the court to provide assistance which is inconsistent with the rules of substantive law, of which the immovables rule is a long-established part.
Accordingly, Kireeva’s argument was rejected by the Supreme Court, which also rejected her alternative argument that it was permissible and appropriate for the court to appoint a receiver because, once the property was sold, the proceeds would constitute movable property and thus fall outside of the immovables rule. The status of the property was determined at the time the bankruptcy order was made.
Implications
Careful consideration should be given as to in which jurisdiction a creditor applies for a bankruptcy order. There should be an assessment of the debtor’s centre of main interest and whether bankruptcy proceedings should be brought in that jurisdiction. As shown in Bedzhamov, outside the limited statutory exceptions provided for by CBIR and S.426 IA, the immovables rule will prevent a foreign bankruptcy order from being enforced against immovable property situated in England.
Natalie Todd is a committee member of the London Solicitors Litigation Association and a partner at Cooke, Young & Keidan