Drelle vs HWA - Diverging Approaches In England And Jersey

Key Takeaways

• Following Drelle, a creditor does not have standing to bring a bankruptcy petition in England and Wales on a foreign judgment that has not been recognised or registered in that jurisdiction.
  
  
• In Jersey, HWA has shown that even without recognition of a foreign judgment, a creditor may have standing to bring a creditors' winding up application, subject to certain conditions.
  
  
• Despite Drelle, Jersey's insolvency regime remains structurally different from its English counterpart and is deliberately more creditor friendly.

The English Court of Appeal in Servis-Terminal LLC v Drelle (Drelle) held that a creditor cannot bring a bankruptcy petition in England and Wales on an unpaid foreign judgment that has not been recognised in that jurisdiction. In reaching its conclusion, the English Court upheld Dicey's principle - a foreign judgment has no direct operation domestically, until it is recognised or registered.

As the case advances to the UK Supreme Court (UKSC), the English Court of Appeal's reasoning (and any confirmation of it by UKSC) deserves close attention in Jersey, as it differs from the Jersey Court of Appeal's decision in HWA 555 Owners, LLC v Redox PLC S.A. (HWA).

The English position following Drelle

In Drelle, the Trustee in Bankruptcy of Servis Terminal LLC (ST) obtained a Russian judgment against ST's former CEO, Mr Drelle. ST issued a statutory demand under section 268(1)(a) of the Insolvency Act 1986 (1986 Act) relying on the (unrecognised) Russian judgment, following which Mr Drelle was placed into bankruptcy.

Mr Drelle appealed to the English High Court, which dismissed the appeal. On further appeal, the English Court of Appeal held that, absent recognition proceedings, the foreign judgment could not form the basis of a bankruptcy petition, and the bankruptcy order was accordingly set aside.

The key takeaways from Drelle:

• The presentation of a bankruptcy or winding up petition on a judgment debt amounts to enforcement.
• The rule against enforcing unrecognised foreign judgments is akin to the revenue rule¹, both of which seek to protect sovereign rights.
• The use of an unrecognised foreign judgment as a "sword" to invoke collective enforcement is as objectionable as proceeding to direct execution.
• An unrecognised foreign judgment does not constitute a "debt" under the 1986 Act.
• The Court also aligned its approach with the principle that judgments registrable under the Foreign Judgments (Reciprocal Enforcement) Act 1933 cannot be used in insolvency unless registered.

Drelle makes clear that the term 'debt' in the English bankruptcy gateway (section 267 of the 1986 Act) is subject to recognition principles when the debt arises from a foreign judgment.

The Jersey position following HWA

In HWA, the creditor relied on a foreign costs order in support of its application to wind up the debtor under Article 157A of the Companies (Jersey) Law 1991 (as amended) (Companies Law) without needing prior recognition of that judgment.

Although the application failed at first instance, the Royal Court of Jersey (Jersey Court) nevertheless held that the plaintiff was a creditor in the liquidated sum exceeding the prescribed minimum of £3,000.

The Jersey Court of Appeal sided with HWA and ordered that the debtor be wound up pursuant to Article 157A of the Companies Law.

The key takeaways from HWA are as follows:

• In Jersey, a foreign order/judgment can be sufficient evidence of a debtor's liability to a creditor without first requiring recognition in Jersey.
• A "claim" in respect of Article 157A(1) of the Companies Law, can include contingent or unliquidated claims, provided that the Jersey Court is satisfied to the civil standard of proof that the value of the claim exceeds the prescribed threshold (£3,000).²
• Article 157C(1) of the Companies Law gives the Jersey Court discretion, but the default position is that a qualifying creditor is prima facie entitled to a winding up order. Absent exceptional circumstances, a compliant application should succeed.
• The Jersey Court made obiter remarks that the presentation of a winding up petition is not a process of execution or enforcement for individual creditors but instead a 'class remedy' for the collective benefit of all creditors. This contrasts with Drelle, which treated the presentation of a bankruptcy petition as both a class remedy and a mechanism of enforcement.

Interestingly, in reaching its decision, the Jersey Court of Appeal cautioned against the placing of undue reliance on English case law.

Reading Drelle through a Jersey lens

While Drelle is not binding on the Jersey Court, it may be persuasive, particularly the decision is upheld by the UKSC. However, Jersey's insolvency framework is deliberately creditor-friendly and, as seen with just and equitable winding up, can be more flexible than its English counterpart.³

Article 157A essentially offers two routes to a creditors' winding up:

• the "claim and insolvency" gateway under 157A(1)(b); and
• the "statutory demand" gateway in 157A(1)(a) in accordance with Article 157A(2).

As shown in HWA, in Jersey under the "claim and insolvency" gateway, a creditor with an unrecognised foreign judgment can pursue a winding up application under Article 157A(1)(b) on the underlying claim, provided the Court can be satisfied that the value threshold is met and insolvency is established.

This limits the impact of Drelle: rather than treating the foreign judgment as an operative "debt" the creditor presents its own claim and invites the Court to exercise its discretion in the round, weighing parallel proceedings and the integrity of creditor protection.

Unlike Drelle, the creditor in HWA did not attempt to establish standing through a statutory demand. Following Drelle, a creditors' winding up application based on a statutory demand relying on a foreign debt might well be treated differently by the Jersey Court, but this remains untested.

Conclusion

Even if Drelle is upheld in the UKSC, HWA makes clear that while Jersey's insolvency regime borrows some concepts from English law, its structure is distinct.

Jersey has deliberately fashioned a standing rule hospitable to contingent and unliquidated claims which, with reference to HWA and in contrast to Drelle, are not predicated on recognition. When the Jersey Court considers whether to wind up a company, it isn't just looking at the private dispute between one creditor and the debtor. Instead, the Jersey Court is also concerned with broader, collective interest.

Footnotes

1 The revenue rule states that the courts of one country will not enforce the tax laws of another country.

2 Wolffe JA took the dissenting view that the natural interpretation of Article 157A(1) of the Companies Law and Article

3 of the Bankruptcy (Désastre) (Jersey) Law 1990 Law is that the presence of the word 'liquidated' means that the creditor must in fact have a claim for a liquidated sum, which is not less than the prescribed minimum.

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