Summary

On 20 November 2024, the UK Supreme Court handed down judgment in Kireeva v Bedzhamov [2024] UKSC 39. The question before the Supreme Court was whether the common law “immovables rule” prevented a foreign insolvency officeholder whose appointment had been recognised at common law from obtaining the English court’s assistance in realising immovable property located in England. The immovables rule provides that questions regarding rights to and interests in land and other immovable property are governed by the law of the country in which the property is situated and that jurisdiction to decide those questions belongs to the courts of that country. The Supreme Court unanimously held that the immovables rule did prevent the English court from assisting the foreign officeholder in realising property in England and dismissed the foreign officeholder’s appeal.

Facts

The Respondent, Mr Bedzhamov, is a Russian citizen who left Russia in 2015 and has lived in England since 2017. In 2015, he acquired an interest in a house in London (the “Property”). In 2018, Mr Bedzhamov was declared bankrupt by a Russian court (the “Russian Bankruptcy Order”), which also appointed the Appellant, Ms Kireeva, as the trustee of his bankruptcy estate. The Russian Bankruptcy Order was not eligible for recognition and assistance under the under the Cross-Border Insolvency Regulations 2006, so Ms Kireeva applied to the English court for recognition  and assistance in realising the Property at common law.

High Court

In the High Court ([2021] EWHC 2281), Snowden J recognised the Russian Bankruptcy Order and Ms Kireeva’s appointment. He found, however, that he had no jurisdiction to make an order vesting the Property in Ms Kireeva because it was contrary to the immovables rule. The Judge held that, even though as a matter of Russian law Ms Kireeva had become the legal owner of the Property by virtue of her appointment, English law did not recognise her as having any claim to the Property or any other immovable property in England. There was therefore no basis on which the English court could assist her to realise the Property.

Court of Appeal

Ms Kireeva appealed to the Court of Appeal where a majority of the Lords Justices upheld Snowden J’s decision and dismissed Ms Kireeva’s appeal ([2022] EWCA Civ 35). Arnold LJ gave a dissenting judgment, holding that, while the immovables rule meant that the English court would not recognise any title to immovable property in England conferred by a foreign bankruptcy court, it did not mean that the foreign officeholder had no rights at all in respect of such immovable property. Rather, the English court had discretionary power to make orders to assist a foreign officeholder in the realisation of immoveable property in England.

Supreme Court

Ms Kireeva appealed to the Supreme Court which unanimously dismissed the appeal. The Supreme Court held that the effect of the immovables rule is that the common law did not recognise the Property as being within the scope of Mr Bedzhamov’s bankruptcy in Russia. There was therefore no jurisdictional basis for the English court to take steps to deprive Mr Bedzhamov of his interests in the Property in favour of Ms Kireeva. A summary of the Supreme Court’s reasoning is set out below.

The immovables rule

The Supreme Court held that the immovables rule is an established principle that reflects domestic public policy and, in particular, territorial sovereignty (at [30]). The court also cited with approval the modern justification for the rule provided in Dicey (at [24-003]) that “important social questions may be involved” when it comes to land, “such as housing policy and tenants’ rights” (at [31]). The court further considered, again citing Dicey (at [24-003]) with approval, that the rule has a sound basis in practical considerations, as proceedings concerning land may involve inspections of the property or of local records which can be carried out only by the courts of the situs and that any judgment that may be given will normally be enforceable only with the co-operation of the courts of the situs (at [36]).

The court also clarified that the rule applies not only to land itself but to all rights over, or in relation to, land. Rights in relation to property take their character as movable or immovable from the character of the property, irrespective of whether a particular item would be characterised as personal property or real property under English law. Immovable property therefore includes leasehold interests even though these would be regarded under English law as personal property (at [41] and [42]).

Statutory exceptions

The Supreme Court noted that there are two significant statutory measures that exclude the application of the immovables rule to foreign insolvencies: Section 426 Insolvency Act 1986 and The Cross-Border Insolvency Regulations 2006 (at [48]). It was common ground however that neither applied to the Respondent’s bankruptcy as Russia is not “a relevant country” for the purpose of Section 426 Insolvency Act 1986 (at [54]) and the bankruptcy proceedings were brought in Russia where Mr Bedzhamov did not have the centre of his main interests (“COMI”) or an establishment (at [62])—the Supreme Court highlighting that it would have been open to Mr Bedzhamov’s creditors to commence proceedings in England where Mr Bedzhamov had his COMI, rather than in Russia.

Modified universalism and assistance at common law

Ms Kireeva’s principal argument was that the effect of the immovables rule should be limited to preventing the automatic vesting in her (as a matter of English law) of the bankrupt’s interest in immovables located in England, and that it should not prevent recognition of a legal or equitable interest in the Property in respect of which assistance could be given in compliance with the principle of modified universalism.[1] Otherwise, she argued, recognition by the English court of the Russian Bankruptcy Order and Ms Kireeva’s appointment would be an “empty formula” (at [67]).

However, the Supreme Court rejected Ms Kireeva’s submission as fundamentally inconsistent with the immovables rule. In particular, the court held (at [69]):

“The rule is not concerned solely with the vesting of title, but has the effect, as earlier explained, that at common law no recognition will be given to any provision of foreign law or any order of a foreign court which purports to affect rights to or interests in land located in England. It follows that the common law does not recognise the Property as being part of the assets that are within the scope of the Respondent’s bankruptcy in Russia. As a matter of English law, his interests in the Property are unaffected by the Russian bankruptcy order. Therefore, subject to any statutory provision to contrary effect, it is not open to an English court to take steps to deprive the Respondent of his interests in the Property in favour of the Appellant as trustee in the Russian bankruptcy.”

“The rule is not concerned solely with the vesting of title, but has the effect, as earlier explained, that at common law no recognition will be given to any provision of foreign law or any order of a foreign court which purports to affect rights to or interests in land located in England. It follows that the common law does not recognise the Property as being part of the assets that are within the scope of the Respondent’s bankruptcy in Russia. As a matter of English law, his interests in the Property are unaffected by the Russian bankruptcy order. Therefore, subject to any statutory provision to contrary effect, it is not open to an English court to take steps to deprive the Respondent of his interests in the Property in favour of the Appellant as trustee in the Russian bankruptcy.”

Further, the principle of modified universalism is necessarily qualified by local law and local public policy. Given the immovables rule “is a substantive rule of English law”, the court’s common law powers of assistance did not permit it to provide assistance inconsistent that rule (at [88]).

In coming to its decision, the Supreme Court dismissed In re Kooperman [1928] WN 101 as wrongly decided (at [73]), this being the only case where an order was made at common law appointing a trustee in a foreign bankruptcy as the receiver of leasehold interests in land in England owned by the bankrupt.

The Supreme Court also dismissed Ms Kireeva’s alternative argument that it was permissible and appropriate for the court to appoint a receiver over the Property, because once the Property was sold the proceeds of sale would constitute movable property and would thus be recognised at common law as falling within the bankrupt estate. The court clarified that the status of the Property was determined at the date of the Russian Bankruptcy Order so that, even if subsequently sold, the sale proceeds would remain subject to the immovables rule (at [91]).

Extension of the common law

The Supreme Court rejected the suggestion that it was for the courts to modify the immovables rule and extend the common law in the way advocated by Ms Kireeva. Given “the considerations of national sovereignty which underpin the immovables rule”, such a development could only be carried out by a legislative act (at [103]). Further, in light of the existing statutory exceptions, there was a risk that any extension of the common law in this way would contradict the statutory schemes and the rationale of those statutory exceptions (at [109]).

Comment

This is a significant decision. It addresses the question of the status of the immovables rule, contrary to the view expressed by some modern textbooks and commentaries that the immovables rule was a choice of law rule only – i.e., that it mandates the application of English law to questions of title to immovables (so that an English court would not automatically recognise that title to English property had vested in a foreign officeholder) but did not prevent the English court from  assisting the foreign officeholder in realising the property of a bankrupt.

That previous view was based on earlier decisions (including In re Kooperman), which reflected the previous trend towards modified universalism, a principle that has been incrementally eroded since the Supreme Court’s decision in Rubin v. Eurofinance SA [2012] UKSC 46. Indeed, Arnold LJ (dissenting in the Court of Appeal) considered that the principle of modified universalism justified the development of the common law to allow the English court to make an in personam order to appoint a receiver over an immovable asset of a bankrupt to assist a foreign officeholder, and that the alternative approach of appointing an English trustee to deal with immovables in England would be unsatisfactory and involve “a complete retreat from universalism”  ([2022] EWCA Civ 35 at [125] and [128]).

The Supreme Court recognized this aspect of the outcome stating “It may be said, with some justification, that the application of the immovables rule in the case of a foreign bankruptcy produces a surprising result in leaving the bankrupt’s immovable property in this country to be enjoyed by the bankrupt or to be taken in execution by individual creditors on a first come, first served basis” (at [110]). However, it held that that was a matter that could only be addressed by legislation. The court also noted that this issue can be avoided by commencing bankruptcy proceedings in England or in the jurisdiction where the debtor has his centre of main interests (so that recognition is available under the Cross-Border Insolvency Regulations 2006). For that reason, there seems little prospect of legislative change to address it.

If you would like to discuss the contents of this article further, please contact Jamie Leader or Boris Telyatnikov.

[1] This principle provides that the court has a common law power to assist foreign winding up proceedings so far as it properly can to ensure that all the bankrupt’s assets are distributed to the creditors under a single system of distribution.