Supreme Court Decision in Kireeva v Bedzhamov – Reaffirming the Immovables Rule

The recent Supreme Court decision in Kireeva v Bedzhamov [2024] UKSC 39 (the Judgment) has upheld the Court of Appeal’s decision not to assist a Russian receiver in foreign bankruptcy proceedings. The decision confirmed the long-established position that there is no common law exception to the Immovables Rule (the Rule) (i.e. that land situated in England and Wales is governed exclusively by English law, thereby limiting the jurisdiction of foreign courts over such property), and clarified the limitations of “modified universalism”.

This Supreme Court judgment will be of particular interest in cross-border insolvency proceedings, where attention must be paid to assets outside the jurisdiction and how they can be realised. Similarly, it will be of interest to creditors, who must carefully consider in which jurisdiction they ought to apply for a bankruptcy order.

Background

The case arose from the purported frauds of Mr. Bedzhamov (the Respondent), following two successful claims and bankruptcy petitions in Russia.

After various failed attempts at overturning the decisions in Russia, the Arbitrazh Court declared the Respondent bankrupt on 02 July 2018 and appointed Ms. Kireeva (the Appellant) as his receiver. By this time, however, the Respondent was domiciled in London.

On 19 February 2021, the Appellant issued an application seeking recognition at common law of the Russian bankruptcy order against Mr Bedzhamov, and of herself as his bankruptcy trustee. The Appellant likewise sought orders for the Belgrave Square Property (and any other property of the Respondent in England) (the Property) to be entrusted, vested in, or transferred to herself as trustee. As a matter of Russian law, the property in London formed part of the Respondent’s bankruptcy estate and so the Appellant was under a duty to obtain and realise it for the benefit of his creditors.

On 13 August 2021, the High Court concluded that the Russian bankruptcy and Ms Kireeva’s appointment should be recognised in the UK. Crucially however, the Court dismissed the application for recognition of the bankruptcy order insofar as it related to immovable property. The Court’s position was that as a matter of English law, giving assistance to the Appellant in this manner would contravene the Rule.

This decision was appealed but later dismissed by the Court of Appeal. The Appellant then brought the case before the Supreme Court in the most recent limb of proceedings.

Overview of the Immovables Rule

The Rule provides that the rights, interests and titles in and over immovable property (i.e. land) are governed only by the laws of the territory in which it is situated. It follows that orders of a foreign court, targeting land in England & Wales, are incapable of overriding this position in the absence of an exception.

The Rule is well-established in private international law. Per Dicey, Morris & Collins on the Conflict of Laws^[1]:

1. Rule 139: “A court of a foreign country has no jurisdiction to adjudicate upon the title to, or the right to possession of, any immovable situate outside that country.”
2. Rule 140: “All rights over, or in relation to, an immovable (land) are (subject to the Exception hereinafter mentioned) governed by the law of the country where the immovable is situate (lex situs).”

This position was reflected in Waite v Bingley.^[2] In Waite, the Judge determined that the claims of Australian creditors were “no impediment at all to the Plaintiffs’ title“.^[3] The lex situs prevailed regarding the rights and interests in the Property.

Issue

The issue before the Supreme Court was whether the Court of Appeal was right not to grant cross-border assistance to the foreign receiver at common law, in relation to the Property.

Court of Appeal Finding

Case law has long established that a foreign court order is not generally sufficient, as Ms. Kireeva suggested, to take control over land in the UK. As such, the Court of Appeal majority found that any common law order to vest the Property in the Appellant would be too significant a departure from the Rule to be viable.

As summarised by Newey LJ, a foreign bankruptcy “will not be recognised as having conferred any interest in or right to such property on the office-holder and, absent statutory intervention, the office-holder will not be entitled to an order vesting it in him”.^[4]

Statutory Exclusions

There are two statutory exceptions to the Rule. For one, s. 426 Insolvency Act 1986 provides that when the UK Court purports to give assistance in bankruptcy to another ‘relevant country or territory’, the Rule may be set aside. The second exception was implemented by the Cross-Border Insolvency Regulations 2006 (the “Regulations”), which state that a foreign proceeding will be recognised if it is taking place in the state where the debtor has ‘the centre of its main interests’, or where the debtor runs a business. Neither exception applied, and so the issue fell purely to common law considerations.

Supreme Court Decision

The Court unanimously decided that the appeal should not be granted.

The opinion of the Court was that Judicial intervention in the form of common law assistance “might well contradict both the statutory scheme and the rationale of those statutory exceptions”.^[5]

Common law relief

In declining to grant any relief in respect of the Property, the Court found that there was no common law power which allowed for the Property to be ‘entrusted’ or transferred to, vested in, or sold for the Appellant’s benefit, by virtue of the Russian court order.

The Appellant counsel’s submission was that the statutory exceptions were not actually exceptions per se, but were gateways for assistance available through the overarching gateway of the common law. Subsequently, he submitted, English law recognises and must give effect to the foreign trustee’s duty and right to access and realise the bankrupt’s interests in land in England.^[6]

This argument was rejected. The Court considered it to be “fundamentally at odds with… a substantive rule of English law”.^[7] It was held that the Rule has the effect that at common law, no recognition will be given to any provision of foreign law which affects rights over, or interests in land situated in England. English law did not recognise the Property as being part of the assets within the scope of the Russian bankruptcy order. Therefore, it was not within the Court’s jurisdiction to provide the relief sought by the Appellant.

Re Kooperman

Of the authorities the Appellant sought to rely on, the Judge gave the strongest consideration to Re Kooperman. Counsel had argued before the Court of Appeal that the case testified to the availability of relief in common law, in accordance with the principle of “modified universalism”.^[8]

The Appellant counsel’s reference to Re Kooperman was not inaccurate. The Court noted that the case has been cited in a number of textbooks as showing that it is possible to “mitigate” or “side step” the Rule.^[9] However, the Supreme Court reaffirmed that the case was not good authority.

The application in Kooperman was unopposed, and counsel in the case furthermore admitted to relying on an authority concerning the appointment of a receiver over moveable property.^[10] Accordingly, the Supreme Court deemed it wrongly decided. Endorsements of Kooperman in case law were not sufficiently cogent to persuade the Court in relation to the common law relief sought and so the Rule prevailed.

Modified Universalism

Beyond Kooperman, the Appellant counsel sought to rely on the principle of ‘modified universalism’ as a basis for the common law relief requested. In the context of cross-border insolvency, the principle has established that “the court has a common law power to assist foreign winding up proceedings so far as it properly can”.^[11] Counsel subsequently argued that a common law power to assist Ms. Kireeva, equivalent to the court’s statutory powers, must necessarily exist.

However, the Supreme Court in Kireeva found that the modified universalism power to assist was “necessarily subject to jurisdictional limits”.^[12] It followed that the substantive law position of the Rule was not to be offset by the principle. English law applied as the relevant lex situs, and the established English law position was that the Court did not possess a common law power to assist. Exercising the principle to find otherwise was held to be beyond the jurisdiction of the Court.

Comment

The Supreme Court decision in Kireeva confirmed that in the absence of either of the two statutory exceptions, foreign office-holders will have no claim to a debtor’s immovable property situated in England & Wales.

In determining that Kooperman is not good authority, the Supreme Court has overwritten the textbook position on exceptions to the Immovables Rule, and has disregarded the existence of a common law power to assist a foreign receiver with land in England & Wales.

By refusing to find a common law power to assist Ms. Kireeva, the Supreme Court opted instead to uphold the long-established boundaries of judicial law-making. The presence of the two statutory exceptions prompted the Court not to modify the Rule, recognising that doing so risked a misinterpretation of Parliamentary intent. In the absence of any legislation passed to the contrary, this will continue to be the authoritative position going forward.

FOOTNOTES

[1] Dicey, Morris & Collins on the Conflict of Laws 16th Ed. (2023), pp. 1384-1392

[2] (1882) 21 Ch D 674

[3] Ibid, at 682

[4] [2022] EWCA Civ 35 (“Court of Appeal Judgment”), paragraph 100

[5] Judgment, paragraph 109

[6] Judgment, paragraph 68

[7] Judgment, paragraph 69

[8] Court of Appeal Judgment, paragraph 44

[9] Court of Appeal Judgment, paragraph 54

[10] Bergerem v Marsh (1921) 6 B&CR 195

[11] Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36, paragraph 15

[12] Judgment, paragraph 87