Must a foreign judgment be registered before being relied on as a petitioning debt?

The Court of Appeal of England and Wales (“EWCA”) recently handed down its decision in Servis-Terminal LLC v Valeriy Ernestovich Drelle [2025] EWCA Civ 62 clarifying that, as a matter of English law, an “unrecognised” foreign judgment cannot be relied upon as a basis to commence insolvency proceedings. By “unrecognised” in this context we mean a foreign judgment that has not been registered/recognised pursuant to a statutory procedure nor sued upon for enforcement at common law. This decision may have clarified the position in England and Wales but how impactful will it be on the position in Hong Kong?

Background of the Drelle case

Valeriy Drelle was the former CEO and a shareholder of Servis-Terminal LLC, a Russian company that had been in liquidation in Russia since April 2017 (the “Company”). In 2019, the Company’s liquidator successfully obtained judgment in Russia against the debtor (Valeriy Drelle) for 2 billion roubles (approx. US$20 million). The debtor resided in London and in late 2020, the Company presented a bankruptcy petition (in England) against him based on the Russian judgment.

ICC Judge Burton initially made a bankruptcy order as he considered that the debt was not subject to a genuine and substantial dispute. The debtor appealed to a single judge in the High Court (Richards J) and on that appeal, he additionally argued that an unrecognised foreign judgment cannot be relied upon as the basis for bankruptcy proceedings. This argument was not accepted by Richards J, the learned Judge relying on rule 51 of Dicey, Morris & Collins, namely that foreign judgments should be taken as conclusive as to findings of fact and law. On that basis, Richards J held that the Company could bring a bankruptcy petition on the basis of the judgment debt even though it had not been recognised in England. This was the key issue considered by the EWCA. 

The EWCA decision

The debtor (as appellant) placed emphasis on rule 45 of Dicey Morris & Collins, namely that foreign judgments have no direct operation in England and can only be used as a defence and not a “sword”. The argument continued that as a result, rule 51 (conclusiveness of a foreign judgment) also cannot be used as a sword. Further, by virtue of rule 45, an unrecognised judgment does not give rise to a “debt” within the meaning of section 267(2)(b) of Insolvency Act 1986 since there is nothing capable of legal enforcement unless and until the foreign judgment is recognised.

The Company (as respondent) argued that section 267(2)(b) does not state that the “debt” must have been the subject of a judgment or even that it should be enforceable at common law. Applying rule 51, in the absence of a genuine dispute as to impeachability, the foreign judgment is conclusive and can be relied upon for the purpose of a petition. Rule 45 is not applicable because presentation of a bankruptcy petition does not amount to enforcement by execution of the debt in question. In this regard, the Company argued that insolvency proceedings are by their nature “sui generis…a wider legal proceeding available for collective enforcement of the admitted or proved debts”.

The EWCA allowed the appeal and set aside the bankruptcy order, broadly on the basis that:

(1) Rule 45 states unequivocally that a foreign judgment has no direct operation in England. This precludes a foreign judgment creditor from executing an unrecognised judgment in England via common law.

(2) On the Company’s contention that insolvency proceedings are not a form of “direct execution” and are instead a “collective enforcement of the admitted and proved debts”, the EWCA held that the Company was still seeking to enforce and thus the foreign judgment was not being used merely defensively but as a sword.

(3) A foreign judgment is the result of an exercise of foreign sovereign power. The application of rule 45 in the context of insolvency proceedings is therefore consistent with the common law’s aversion to enforcing (in England) a foreign exercise of sovereign power.

(4) Re a Judgment Debtor [1939] Ch 601 (“Re a Judgment Debtor”) is an authority that a foreign judgment must be registered before it can be relied upon as a debt for the purposes of presenting a petition and that “section 6’s[1] bar on ‘proceedings for the recovery of a sum payable under a foreign judgment…other than proceedings by way of registration’ encompassed bankruptcy proceedings”. 

The Position in Hong Kong

A 2018 decision in Hong Kong came to the same result as in the Drelle decision. In Re James Chor Cheung Wong [2018] 2 HKLRD 284 (“Re James Wong”), DHCJ Anthony To relied on Re a Judgment Debtor and held that the word “proceedings” within sections 4(2) and 8 of the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319) (“FJREO”) encompasses insolvency proceedings and thus a foreign judgment must be registered before it can be relied upon as a petitioning debt.  The FJREO is in material terms the same as the 1933 Act in England. In our 2021 article, we discussed whether this was the correct position as section 8 FJREO is only applicable to “proceedings for the recovery of a sum payable under a foreign judgment” (our emphasis)and that there are Hong Kong cases (such  Re Lucky Resources [2016] 4 HKLRD 301 and Re Grande Holdings [2013] 4 HKLRD) which established that insolvency proceedings are not enforcement proceedings for the recovery of a sum payable. This position reflects the Company’s argument that insolvency proceedings are not a form of enforcement by execution per se.  

Since our 2021 article, the Hong Kong Court of Appeal (“HKCA”) has given further guidance in Liu YongLiang v Bank of China Limited, Dongguan Branch [2021] HKCA 1048. In that case, the petitioner had obtained a judgment in Guangdong but the judgment was not recognised or registered in Hong Kong. The petitioner then issued a statutory demand in Hong Kong based on the underlying debt which arose via a personal guarantee. The statutory demand did not refer to the Guangdong judgment. The debtor made an application to set aside the statutory demand but the application was dismissed by the Court of First Instance (which decision was not published). The debtor appealed to the HKCA.  In the appeal, the debtor sought to introduce a new argument, relying on section 22(2) of the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597) (“MJREO”)[2] (which is equivalent to section 8 FJREO) and on section 5 of the Foreign Judgments (Restrictions on Recognition and Enforcement) Ordinance (Cap. 46) (“FJRREO”). The argument was that the petitioner was indirectly seeking to enforce the Guandong judgment when issuing the statutory demand. Section 5 FJRREO contains wider wording than in the FJREO, stating that “no proceedings may be brought…on a cause of action” (as opposed to “proceedings for the recovery of a sum payable”) (our emphasis). Given this, the meaning of “proceedings” in both sections were argued.

The HKCA dismissed the appeal. It accepted at paragraph 52 the petitioner’s argument that insolvency proceedings are not proceedings for recovery of a sum of money and therefore sections 5 FJRREO and 22(2) MJREO do not bite.  Although the statutory demand was not based on the Guangdong judgment, in addressing the debtor’s argument that the bank was ‘indirectly’ enforcing it, the HKCA dealt with the point in clear terms: “The crucial issue is whether bankruptcy proceedings are ‘proceedings for the recovery of a sum payable under a Mainland judgment’ within the meaning of section 22(2) of the MJREO. In our judgment, the answer is clearly ‘No’”.

Unfortunately, the HKCA did not mention Re James Wong in the judgment and stated at paragraph 33 that there was no direct authority on point relating to bankruptcy proceedings in respect of the application of sections 5 FJRREO and section 22(2) MJREO. This is notwithstanding that section 8 FJREO (the section considered in Re James Wong) has the same effect as the sections considered by the HKCA.

The HKCA then refused to grant leave to appeal further to the Court of Final Appeal (“CFA”) (see [2022] HKCA 245). In the leave application, the debtor tried to re-argue that insolvency proceedings fall within “proceedings” in sections 5 FJRREO and 22(2) MJREO but the HKCA held that those arguments were already comprehensively dealt with in the substantive judgment. In dismissing the leave application, the HKCA again made a clear statement that bankruptcy proceedings are not prohibited by section 5 of the FJRREO. The debtor did then make an application directly to the CFA seeking leave to appeal but he (acting in person by that time) did not appear at the hearing. The application was dismissed.

In the circumstances, notwithstanding that Re James Wong does not appear to have been cited to the HKCA, there is a binding appellate decision holding that “proceedings” within sections 8(2) FJREO, 5(1) FJRREO and 22(2) MJREO do not include insolvency proceedings.

Commentary

What can we expect in Hong Kong in the future in light of the seemingly contrasting positions of the HKCA and the EWCA?

(1) At paragraph 59 of the substantive decision in Liu YongLiang v Bank of China, the HKCA unequivocally stated that, given the class right nature of the bankruptcy proceedings, they are not a “cause of action” or “proceedings” within the meaning of the relevant sections of the FJREO, FJRREO and MJREO. This is consistent with the approach referred to in our 2021 article. Re James Wong should no longer be relied upon on this issue.

(2) The EWCA decision is not binding in Hong Kong. EWCA decisions do have persuasive effect here, but the HKCA decision in Liu Yongliang v Bank of China will be binding on a first instance judge (subject to it being distinguished or it being successfully argued that the discussion on this issue was obiter).

(3) In Re Shandong Chenming (2022) 25 HKCFAR 98, the CFA made it easier to wind up non-Hong Kong companies by moderating the second core requirement, namely that the making of a winding up order must benefit the petitioner. The CFA held that “it is entirely proper to seek to enforce payment of an undisputed debt by the presentation of a winding-up petition” and thus any leverage incidental to the presentation of the petition could be seen as a benefit. There are potentially two contrasting implications of the CFA judgment.

• On the one hand, there is a sound policy to make it easier to wind up non-Hong Kong companies which have sufficient connection with Hong Kong. Approximately 92% of companies listed on the main board of the Hong Kong Stock Exchange are companies incorporated outside of Hong Kong, but the business operations of those companies are often not based in Hong Kong. This structure made it difficult to satisfy the second requirement. This policy prevents debtors from taking a “catch me if you can” approach by hiding in their home jurisdiction. Given this, the HKCA’s judgment in Liu Yongliang v Bank of China will likely be seen as being consistent with this policy.

• On the other hand, the CFA’s acceptance that insolvency proceedings can be utilised to “enforce payment” may create room to argue that they can likewise be viewed as “proceedings for the recovery of a sum payable” within the meaning of the FJREO and MJREO. We query whether this will be a viable argument given the strong policy considerations above.

(4) There is undoubtedly scope for further arguments on this issue.

Ian De Witt, Robin Darton and Tim Au

If you would like to discuss any of the matters raised in this article, please contact:

Ian De Witt

Partner | Email

Robin Darton

Partner | Email

Tim Au

Partner | Email

The above is not intended to be relied on as legal advice and specific legal advice should be sought at all times in relation to the above.

[1] Foreign Judgments (Reciprocal Enforcement) Act 1933, which section is the equivalent to the relevant sections in the FJREO and MJREO discussed below.

[2] This Ordinance extends the same registration etc. mechanism to judgments of Mainland China, thus avoiding any possible argument that a Mainland judgment is not foreign given that Hong Kong is part of China (noting that in private international law the two jurisdictions are seen as separate).