Can foreign laws impact UK property?  UK Supreme Court holds that London property cannot form part of Russian bankrupt's estate

On 20 November 2024, the UK Supreme Court delivered its judgment in the case of Kireeva v Bedzhamov¹. The court ruled that a Russian bankruptcy trustee has no claim over a bankrupt's property in Belgrave Square on the basis that the court has no jurisdiction to assist a foreign bankruptcy trustee in respect of immovable property located in England and Wales and that such property is unaffected by a foreign bankruptcy order. This decision reaffirms the immovables rule, which (subject to exceptions) protects immovable property such as land from foreign bankruptcy claims. In this article, we consider the Supreme Court's application of the immovables rule and key takeaways from the judgment. 

Background

Mr Bedzhamov, a Russian citizen residing in England since 2017, was declared bankrupt by the Arbitrazh Court in Moscow in July 2018. Ms. Kireeva was appointed as the bankruptcy trustee. As a matter of Russian law, the bankrupt's Belgrave Square property forms part of his bankruptcy estate and Ms. Kireeva therefore sought orders from the English court to recognise the bankruptcy order and to assist in gaining possession and realising the value of the property.

The immovables rule

The immovables rule provides that a foreign court has no jurisdiction to adjudicate on rights and interests over immovable property (e.g. land) located in another country.  This rule is based on considerations of national sovereignty and the importance of land to social issues like housing policy and tenants' rights.

Supreme Court's decision

In applying the immovables rule to this case, the Supreme Court held that, according to English law, Mr. Bedzhamov's interests in the Belgrave Square property were unaffected by the Russian bankruptcy order.  Subject to statutory exceptions to the immovables rule which have been established by Parliament (and which did not apply in this case), the English court could not take steps to deprive Mr. Bedzhamov of his interests in the property in favour of the Russian bankruptcy trustee, Ms. Kireeva.

Arguments and Court's Reasoning

Ms. Kireeva's representatives presented two main arguments:

1. Appointment of a receiver: Ms. Kireeva's representatives argued that while the immovables rule prevented the property from automatically vesting in her, the English courts could appoint a receiver to sell the property and remit the proceeds to her. They cited the case of In re Kooperman² as precedent, where a Belgian trustee in bankruptcy was appointed as a receiver of leasehold interests in England. However, the Supreme Court found that this case was wrongly decided and not a valid precedent; the case had been unopposed, counsel had relied on an irrelevant authority, and the judge had not provided a reasoned judgment.
2. Proceeds of sale are movable property: Ms. Kireeva's representatives contended that once the Belgrave Square property was sold, the proceeds would be considered movable property and could be included in the bankruptcy estate. The Supreme Court disagreed, stating that the immovables rule applies to the property as of the date of the bankruptcy order. Therefore, the proceeds of any sale would still be subject to the immovables rule and not part of the bankruptcy estate.

Exceptions to the immovables rule

There are two significant statutory exceptions to the immovables rule in the context of foreign insolvency proceedings but neither applied in this case:

1. Section 426 of the Insolvency Act 1986: This allows UK courts with jurisdiction in relation to insolvency law to provide assistance to courts with corresponding jurisdiction in "any relevant country or territory". The relevant countries and territories are designated by the Secretary of State and do not include Russia.
2. Cross-Border Insolvency Regulations 2006³: These regulations provide, subject to compliance with certain requirements, for the recognition of foreign insolvency proceedings taking place in the state where the debtor has their main centre of interests or an establishment. Since Mr. Bedzhamov left Russia in 2015 and had no establishment there, these regulations did not apply.

Conclusion

The UK Supreme Court's decision in Kireeva v Bedzhamov underscores the enduring significance of the immovables rule in English law.  The court's rejection of the In re Kooperman case clarifies that the immovables rule is not merely a procedural formality but a substantive protection that prevents, subject to the above statutory exemptions, English courts from taking steps to deprive a bankrupt of immovable property in this jurisdiction in favour of a foreign bankruptcy trustee.  For creditors involved in cross-border insolvency proceedings, this decision serves as a crucial reminder to take advice on whether property can be enforced against to satisfy a debt or liability.