Background
Servis-Terminal LLC, a Russian company in bankruptcy, obtained a Russian judgment ordering its former Director General, Valeriy Drelle, to pay RUB 2 billion for loss allegedly caused by a loan he had arranged. The judgment survived three levels of appeal in Russia. Servis-Terminal then relied on it to serve an English statutory demand and present a bankruptcy petition against Drelle, who had settled in London.
Drelle argued that the debt was genuinely and substantially disputed because the Russian judgment had resulted from judicial predetermination, fraud, or proceedings contrary to natural justice and English public policy. An Insolvency and Companies Court judge rejected that challenge and made a bankruptcy order, and the High Court dismissed Drelle’s appeal. After an earlier Court of Appeal ruling and a Supreme Court appeal concerning whether an unrecognised foreign judgment could constitute a bankruptcy debt, the Supreme Court remitted Drelle’s remaining grounds to the Court of Appeal.
The Court’s Holding
The Court of Appeal unanimously allowed Drelle’s appeal and set aside the bankruptcy order. It held that the first-instance insolvency judge had erred in law by treating evidence from Servis-Terminal’s former finance director, Alyona Zheglova, as lacking cogency merely because it was double hearsay. Hearsay is admissible in civil proceedings, and the judge should have assessed its weight together with the expert evidence rather than effectively discounting it because of its form. The judge also imposed an erroneous formulation requiring “cogent evidence of a good arguable case,” instead of asking whether the debt was genuinely disputed on substantial grounds.
Remaking the decision, the Court held that Zheglova’s account, considered with expert evidence about pressures on Russian judges in cases involving influential state-connected companies, established a genuine and substantial case that the Russian judgment was impeachable for fraud, breach of natural justice, or incompatibility with English public policy. Her evidence indicated that the outcome and precise RUB 2 billion award had been communicated before the evidentiary process was complete. The Court did not decide that the Russian judgment was actually tainted; it held that the challenge was real rather than fanciful or remote and should be tried in the pending recognition proceedings, where disclosure and cross-examination would be available.
Key Takeaways
- A debtor opposing a bankruptcy petition based on a foreign judgment need only show a genuine and substantial dispute; there is no special heightened evidential standard merely because the judgment is foreign.
- Hearsay, including double hearsay, is admissible in English civil proceedings and cannot be deprived of weight solely because it is hearsay, although its hearsay character remains relevant to weight.
- An allegation of judicial predetermination does not require proof that the foreign judge deliberately reached a legally incorrect result; a biased judge may produce a decision that appears legally defensible.
- The contents of foreign trial and appellate judgments may be relevant evidence, but an appellant alleging fraud in the first-instance judgment need not prove that every appellate judgment was also deliberately wrong.
Why It Matters
The decision clarifies how English insolvency courts must assess challenges to debts founded on foreign judgments. Courts must evaluate all strands of admissible evidence together and apply the ordinary genuine-and-substantial-dispute test, rather than demanding unusually “cogent” proof at the bankruptcy stage.
It also separates the summary function of bankruptcy proceedings from the full adjudication of an attack on a foreign judgment. Where the challenge is realistically arguable, recognition proceedings—with disclosure, witness testimony, and cross-examination—are the appropriate forum for deciding whether fraud, judicial predetermination, or a denial of natural justice prevents enforcement.