In an important decision with implications extending to other common-law jurisdictions, the Eastern Caribbean Court of Appeal has considered several foundational issues concerning the recognition and enforcement of foreign judgments at common law.
Ikon Shina Ltd v Smyshliaeva concerned efforts by the largest creditor of an insolvent Russian company to enforce a Russian judgment against the company’s controllers. It appears to be the first time any common law appellate court has considered the recognition and enforcement of the Russian concept of ‘subsidiary liability’, a novel insolvency claim introduced in 2017 by which the de facto controllers of a bankrupt Russian company may be held personally liable (on a joint and several basis) for the company’s debts, and company creditors may be empowered to pursue those controllers directly to recover outstanding debts instead of awaiting a distribution from the bankruptcy.
Ikon Shina Ltd (Ikon Shina), part of the major European tyre-producing group Nokian Tyres, is the largest creditor of Track LLC (Track), a Russian tyre distributor. Among Track’s de facto controllers were Mr Andrei Smyshliaev and his (now ex-)wife Ms Olga Smyshliaeva. Mr Smyshliaev is also thought to be Track’s ultimate beneficial owner.
In March 2016, Track was declared insolvent by the Russian court and placed under the control of a court-appointed bankruptcy receiver. Following the 2017 insolvency law reforms, Track’s receiver brought a claim for subsidiary liability against the Smyshlieavs and the company’s other de facto controllers. In March 2019, the Russian court held Track’s controllers liable for all of Track’s debts on a joint and several basis (the March Ruling). The March Ruling confirmed Ikon Shina’s claim in Track’s insolvency in the amount of approximately 1.5 billion roubles (equivalent to approximately US$19 million).
Utilising an innovation introduced as part of the 2017 reforms, Ikon Shina and several other creditors then elected to take assignments of the judgment debt created by the March Ruling in proportion to their claims in Track’s insolvency. To give effect to the election, Track’s receiver applied to the Russian court “for substitution of recoverer”, which the Russian court granted in June 2019 (the June Ruling). The formal operative part of the June Ruling provided that Ikon Shina was substituted for the insolvency receiver “as the recoverer” of approximately 1.5 billion roubles of the debt created under the March Ruling but did not expressly order Track’s controllers (including the Smyshliaevs) to pay sums to Ikon Shina (or Track’s other creditors).
Ikon Shina had previously obtained a freezing injunction in the British Virgin Islands (BVI) against a BVI company which Mr Smyshliaev was suspected of owning and which itself owns a motor yacht named ‘Olga’.
In July 2020, Ikon Shina commenced a claim in the BVI against the Smyshliaevs seeking to enforce the March and June Rulings at common law as a debt arising under a foreign judgment.
Following a trial in April 2022, Wallbank J dismissed Ikon Shina’s claim. He held that the March and June Rulings had to be considered separately and that, while the March Ruling was a judgment for a definite sum and entitled to enforcement at common law, the June Ruling was not. The judge construed the statement in Dicey, Morris and Collins on The Conflict of Laws (at [14-021]) that to be enforceable at common law a foreign judgment “must order X, the defendant in the English action, to pay A, the claimant, a definite and actually ascertained sum of money” as in effect requiring a formal operative order of the foreign court expressly directing the Smyshliaevs to pay Ikon Shina a definite sum.
There were two principal issues before the Court of Appeal.
The first issue was whether the June Ruling had the effect of assigning the debt created under the March Ruling to Ikon Shina. This turned on the identification of the proper law of the assignment of a foreign judgment debt, a question which it appears has never previously been the subject of judicial consideration. The Court of Appeal accepted Ikon Shina’s argument that the nature and assignment of a foreign judgment debt should be governed by the lex fori where the judgment is given (at [52]). The expert Russian law evidence demonstrated that, under Russian law, the June Ruling effected a valid partial assignment of the debt under the March Ruling. Accordingly, the Court of Appeal concluded that Ikon Shina had “a distinct, enforceable right to recover the portion of the judgment debt corresponding to its admitted claim in the Track bankruptcy” (at [57]).
The second issue concerned the identification of the content of the obligation created or imposed by the June Ruling, and in particular whether express words in its formal operative part requiring the Smyshliaevs to pay Ikon Shin a definite sum were required for the judgment to be entitled to enforcement. The Court of Appeal undertook a careful and detailed examination of the theoretical basis of recognition and enforcement of foreign judgments at common law and confirmed that its juridical foundation in both English and BVI law remains the doctrine of obligation (at [85]-[88]). Under the doctrine, parties to a foreign judgment undertake an obligation (to which the common law gives effect) to accept and abide by the judgment as settling the merits of their dispute once and for all. The Court of Appeal’s confirmation of the continued relevance of the doctrine is of some significance: although the doctrine’s roots stretch back to the 18th century, it has more recently come under critical scrutiny both judicially and academically, most prominently by Lord Collins in Rubin v Eurofinance SA [2013] 1 AC 236 at [9] (who famously suggested that it was a “purely theoretical and historical basis for the enforcement of foreign judgments at common law”).
Applying the doctrine of obligation, the Court of Appeal held that Wallbank J was incorrect to focus solely on the formal operative part of the June Ruling. It held that in identifying the obligation undertaken by the parties to a foreign judgment “the BVI or English court must ascertain the meaning and legal effect of the foreign judgment, an exercise governed by the foreign law under which the judgment was rendered” and that that exercise “may require consideration of the judgment itself, the procedural rulings it stems from, and any related instruments that illuminate its operative effect”.
Rejecting multiple other challenges that had been advanced to the recognition and enforcement of the March and June Rulings, the Court of Appeal concluded that the rulings were entitled to recognition and enforcement at common law and allowed the appeal.
Andrew McLeod acted for the successful appellant, instructed by Walkers.
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