Whose Land Is It To Play With?
‘Whose Land Is It Anyway‘ is about the case of Kireeva v Bedzhamov [2022] EWCA Civ 35 in the Court of Appeal considered if a Russian Receiver administering the property of Mr George Bedzhamov could take control of the property in London.
Mr Bedzhamov (“B”) had been put into Bankruptcy in Russia and Ms Kireeva was the Receiver acting under the relevant Russian Order.
There was a notable flashpoint here, as the Court of Appeal judges got themselves into a cracking little disagreement over a matter that is no doubt a subject right and firmly at the heart of many a UK taxpayer’s Christmas dinner debates – the immovables rule.
That what? Err the Immovables Rule.
The Court of Appeal held that the immovables rule meant that in relation to the property in the UK the Court would not afford assistance to the Russian Receiver. In other words not so much whose land is it but who has rights to control it.
What Is The Immovables Rule?
The Immovables Rules is the principle that as a matter of English law, a foreign Court has no jurisdiction to make orders in respect of land in England and rights relating to such land are governed exclusively by English law. Thus, Dicey, Morris & Collins on the Conflict of Laws states the following:
Rule 47(2)
“A court of a foreign country has no jurisdiction to adjudicate upon the title to, or the right to possession of, any immovable situate outside that country.”Rule 132
“All rights over, or in relation to, an immovable (land) are (subject to the Exception hereinafter mentioned) governed by the law of the country where the immovable is situate (lex situs).”(The “Exception” is that Rule 132 does “not apply to the formal and material validity, interpretation and effect of a contract, and capacity to contract, with regard to an immovable”: see paragraph 23E-080.)
What Is The Effect Of The Immovables Rule?
The immovables rule is very strict in its application and means not just that immovable property in this part of the world does not vest automatically in a foreign office-holder, but that (as Story said in the passage from “Commentaries on the Conflict of Laws” quoted by Ritchie J in MacDonald v Georgian Bay Lumber Co):
“immoveable property is exclusively subject to the laws of the Government within whose territory it is situate”.
Far, therefore, from a foreign bankruptcy giving the office-holder “complete dominion” over an immovable, it will not be recognised as having conferred any interest in or right to such property on the office-holder and, absent statutory intervention, the office-holder will not be entitled to an order vesting it in him.
What Is The Rationale For the Immovables Rule?
The rationale for the immovables rules was articulated as follows by Lord Justice Newey:
… movable property falls to be distinguished from immovable property, which, if situated in England, will not automatically vest in a foreign office-holder even if the foreign law provides for that. Further, the recognition of a foreign bankruptcy order can be opposed on, among others, the ground of fraud. As is explained in Dicey, Morris & Collins on the Conflict of Laws, 15th ed., at Rule 50, “[a] foreign judgment relied upon as such in proceedings in England, is impeachable for fraud” and “[s]uch fraud may be either (1) fraud on the part of the party in whose favour the judgment is given; or (2) fraud on the part of the court pronouncing the judgment”. In the present case, Mr Bedzhamov contends that the Court should decline to recognise the Russian bankruptcy proceedings on the ground that the debt on which the petition which led to the bankruptcy order was founded was based on fraud.
The Immovables Rule Led To Judicial Disagreement
There was no unanimous agreement amongst the judges in the Court of Appeal over the operation of the immovables rules ie. that the foreign Receiver had no automatic vesting rights over land in this neck of the woods.
Lord Justice Newey – Whose Land Is It?
Lord Justice Newey who delved into most of the authorities said:
The immovables rule has the consequence that, in the eyes of English law, Ms Kireeva has no interest in, or right to, the Belgrave Square Property; that Russian law may say otherwise is irrelevant. That being so, Ms Kireeva cannot be considered to have an interest meriting protection by the grant of a receiver or injunctive relief. It could not be right to make an order which, directly or indirectly, via the appointment of Ms Kireeva with a power of sale, involved the transfer of the Belgrave Square Property to or at the direction of someone who, as a matter of English law, has no interest in, or right to, it.
Often at least, the appropriate course where the immovables rule prevents a foreign office-holder from realising immovable property in this jurisdiction will be for a creditor to bring bankruptcy proceedings here or, perhaps, in a jurisdiction from which an office-holder can invoke section 426 of the 1986 Act or the CBIR. That may or may not be possible in the present case. If, however, it is not, that will be because of a particular feature of Russian law. As a matter of English law, the fact that a debtor has been adjudicated bankrupt elsewhere does not deprive the English Court of jurisdiction to make a bankruptcy order. Further, it appears to me that there must be room for argument as to whether it would lie in Mr Bedzhamov’s mouth to resist an English bankruptcy petition by reference to the Russian bankruptcy if (a) the debt on which the petition was founded remained undischarged whether or not the creditor had proved in Russia and (b) the Belgrave Square Property could not otherwise be realised for the benefit of creditors.
In the circumstances, it seems to me that the Judge was correct to decline to grant Ms Kireeva assistance in relation to the Belgrave Square Property even on the basis that the Russian bankruptcy was recognised. I would dismiss the Immovables Appeal.
Lord Justice Arnold – Whose Land Is It?
However, they were clearly not all of the same minds in the Court of Appeal because Lord Justice Arnold, who appeared to be looking at practicalities turned matters right upside down and said:
Rule 132 of Dicey, Morris & Collins on the Conflict of Laws states that “[a]ll rights over, or in relation to, an immovable” are (subject to an exception which is not relevant for present purposes) “governed by the law of the country where the immovable is situate (lex situs)”. This is a choice of law rule. Its effect, as shown by the authorities reviewed by Newey LJ in paragraph 48 above, is that English law applies to any question concerning rights to immovables in England to the exclusion of any other law. Its rationale is explained by the editors in paragraph 23-063:
“It is based on obvious considerations of convenience and expediency. Any other rule would be ineffective, because in the last resort land can only be dealt with in a manner which the lex situs allows.”
…
The power to appoint a receiver is a well-established power of courts of equity. As TMSF confirms, it is a power that can be applied to new situations where there is a principled basis for doing so. As Lord Hoffmann’s dictum in Cambridge Gas suggests, modified universalism provides a principled basis for exercising the power in the present context. Moreover, although Re Kooperman is of little weight as an authority, it is not one that has previously been judicially doubted or attracted adverse academic comment. On the contrary, it has been treated as correctly stating the law in commentaries (as well as, I presume, inspiring Lord Hoffmann’s statement): see, in addition to those cited by Newey LJ in paragraph 54 above, Sheldon et al, Cross-Border Insolvency (4th ed.) at paragraph 10.9 and Lightman & Moss, The Law of Administrators and Receivers of Companies (6th ed.) at paragraph 30-40. Thus the endorsement of the decision by this Court would not represent some radical departure from existing law, but rather would amount to putting the existing law on a sound footing.
I do not consider that exercising the power to appoint a receiver in this context would be inconsistent with the immovables rule, or more specifically with Rule 217 of Dicey, Morris & Collins. As I have explained, the immovables rule is a choice of law rule which results in the application of English law to questions of title to immovables. In the bankruptcy context it has the effect that the English courts will not simply recognise a foreign office holder’s title to an immovable under the foreign law; but it does not mean that the foreign office holder has no rights at all in respect of that immovable. On the contrary, a foreign office holder whose appointment has been recognised by the English courts has the right to apply for the assistance of the English courts in realising assets falling within the bankrupt estate for the benefit of creditors. It is not inconsistent with the Rule 217 for the English courts to come to the assistance of a foreign office holder whose appointment has been recognised by exercising a discretionary power available under English law to make an in personam order appointing a receiver in respect of the immovable. Because the power is a discretionary one, the court can take into account factors which properly bear on the exercise of the discretion. In the present case, for example, it might be concluded that, having regard to Ms Kireeva’s delay in making her application, the proper course would be to appoint a receiver on terms that preserved Mr Bedzhamov’s ability to fund his legal costs, and perhaps his living expenses, from the proceeds of sale of the Belgrave Square Property until judgment on VPB’s claim. That might be regarded as achieving practical justice.
Nor do I accept that this amounts to judicial legislation, any more than the decisions in Cartier did. As I have explained, it would represent a confirmation of the existing case law. At worst, it would be a principled development of the law. As in Cartier, it would amount to the common law developing in parallel with statute, a familiar phenomenon in many areas of law. This is not to say that either section 426 of the 1986 Act or the CBIR should be applied by analogy: they do not apply, and it is no part of Ms Kireeva’s case that the court should somehow proceed as if one or the other applied.
Finally, I do not regard the possibility of an English bankruptcy order being made in respect of Mr Bedzhamov as a satisfactory alternative. That would involve a complete retreat from universalism: in CBIR terms, an English bankruptcy would be a fresh “main proceeding” independent of the Russian one giving rise to the potential for conflict between the two, there being no such thing as an ancillary bankruptcy under English law where the CBIR do not apply. Experience of international bankruptcies and corporate insolvencies in the digital age shows that it is both bad policy and unworkable in practice to treat English bankruptcy and insolvency law as an island unto itself.
For the reasons given above, I would allow the Immovables Appeal and remit Ms Kireeva’s application in relation to the Belgrave Square Property to the High Court for a hearing as to how the discretion to appoint a receiver should be exercised.
Lord Justice Stuart-Smith – Whose Land Is It?
However, Lord Justice Stuart-Smith calmed things down and settled it. He preferred the approach to the immovables rule argued by Lord Justice Newey.
Faced with two cogent approaches that lead to different conclusions on the Immovables Appeal, I prefer the reasoning and conclusion of Newey LJ. Given the clarity of the judgments of Newey and Arnold LJJ I will explain the reasons for my conclusion very shortly.
I accept that Mr Bedzhamov is subject to the in personam jurisdiction of the English Court and that, as a result, the Court has jurisdiction, in the strict sense, to make an order appointing a receiver under section 37 of the Senior Courts Act 1981. What is at issue in the Immovables Appeal is essentially a demarcation dispute between the Immovables Rule and the principle of “modified universalism”.
A trend towards modified universalism lends support to the submission that there is a discretion to appoint a receiver in such cases; but [19] of Cambridge Gas, which seems to me to be the high water mark for Ms Kireeva’s case, gives no indication of when or on what basis the discretion should be exercised. Furthermore, although that statement of principle has not been overruled, the decisions in Rubin and Singularis represent at least a retrenchment and do not support the more expansive approach to modified universalism that might have taken hold if Cambridge Gas had not been overruled.
On the other side of the dispute, the immovables rule is of long-standing and is entrenched in English law. Its effect is that Ms Kireeva has no interest in or rights over the Belgrave Square Property. As such, I do not accept that Ms Kireeva has “an interest … which merits protection”. It is not suggested that the English Court could or should exercise its in personam jurisdiction to order Mr Bedzhamov to transfer the Belgrave Square Property to Ms Kireeva; and, if it were suggested, I would reject the suggestion as an unprincipled negation of the immovables rule. Yet the effect of appointing a receiver with a power of sale would be essentially the same for practical purposes. If the receiver were not to have a power of sale, it is difficult to see what useful purpose they would serve. Put another way, I see no principled basis upon which it would be right to appoint as a receiver (with or without a power of sale) a person who is considered by English law to have no title to or interest in the Belgrave Square Property.
I can see the convenience that may follow from treating the Belgrave Square Property as if it were part of Mr Bedzhamov’s movable bankrupt estate. However, if that result is to be achieved, it should in my view be achieved after due consideration by Parliament and not by judicial decision.
Supplemental Issue Of Written Evidence
There was a supplemental issue as to whether or not the Court should have recognised the Russian Bankruptcy Order in the first place and it was noted that B’s witness statement had been provided on the eve of the final day of the hearing before the judge. This led to review of the position on written evidence:
Mr Fenwick cited a number of cases to show that there are only limited circumstances in which a Court can dismiss evidence given by affidavit or witness statement without the witness being cross-examined. The authorities to which he referred included Re Lo-Line Electric Motors Ltd [1988] Ch 477 at 487, Re Keypak Homecare Ltd [1990] BCLC 440 at 446, Re a company (No 006685 of 1996) [1997] 1 BCLC 639 at 648, Re Hopes (Heathrow) Ltd [2001] 1 BCLC 575 at 582, Long v Farrer & Co [2004] BPIR 1218 at paragraph 57, Shierson v Vlieland-Boddy [2005] EWCA Civ 974, [2005] 1 WLR 3966 at paragraph 56, Coyne v DRC Distribution Ltd [2008] EWCA 488, [2008] BCC 612 at paragraph 58, and Re Burnden Group Ltd [2017] EWHC 247 (Ch) at paragraph 2.14. To my mind, however, it suffices to quote from Coyne v DRC Distribution Ltd [2008] EWCA Civ 488, [2008] BCC 612, where Rimer LJ accepted in paragraph 58:
“it is well-settled practice that if a court finds itself faced with conflicting statements on affidavit evidence, it is usually in no position to resolve them, and to make findings as to the disputed facts, without first having the benefit of the cross-examination of the witnesses. Nor will it ordinarily attempt to do so. The basic principle is that, until there has been such cross-examination, it is ordinarily not possible for the court to disbelieve the word of the witness in his affidavit and it will not do so. This is not an inflexible principle: it may in certain circumstances be open to the court to reject an untested piece of such evidence on the basis that it is manifestly incredible, either because it is inherently so or because it is shown to be so by other facts that are admitted or by reliable documents …. [Counsel] said that these principles apply equally to the case in which the evidence is given by witness statement rather than by affidavit, and I agree. I said as much in my summary of the principles in Long v. Farrer & Co and Farrer [2004] EWHC 1774 (Ch); [2004] BPIR 1218, at paragraphs 57 to 61.”
In this case, the judge of the first instance had not addressed the matter of whether or not a witness statement of B was ‘incredible’.
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