The Immovables Rule and Modified Universalism
When resolving disputes arising from international business and investment transactions, national courts are put in a position in which they must must mediate what can be seen tense conflicts between the necessities of the borderless nature of international trade and the territorial limits that delineate each domestic court’s authority.
Since 2008 the term modified universalism has been used to describe how this mediation can be applied, thanks to part of a now well-known judgement given in the House of Lords of the United Kingdom, that also lent the concept being given the metaphor and being known as the ‘golden thread’:
‘The primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the golden thread running through English cross-border insolvency law since the 18th century. That principle requires that English courts should, so far as is consistent with justice and UK public policy, co-operate with the courts in the country of the principal liquidation to ensure that all of the company’s assets are distributed to its creditors under a single system of distribution.’
The judgement was made in a the case Re HIH Casualty & General Insurance Ltd that resulted in a landmark decision where English courts assisted Jersey insolvency proceedings under the Insolvency Act 1986, promoting international cooperation by recognizing foreign jurisdiction and seeking to unify insolvency proceedings, despite some initial narrow interpretations.[1]
The judgment, particularly the input by Lord Hoffmann, who, as the author of the quote cited above, thereby championed the idea of modified universalism, which led to the courts cooperating to treat one main insolvency proceeding as central, with other jurisdictions lending assistance. In this case, the UK court granted the assistance requested by the Royal Court of Jersey, recognizing the jurisdiction and facilitating cooperation between the two insolvency courts.
This case has proved to be highly significant in terms of promoting universalism as it saw a move away from stricter interpretations of national laws, such as common law in the UK, and favoured a broader approach to cross-border assistance, ultimately establishing a precedent for international comity—a set of principles that create a mutual civility or courtesy that govern when the courts and legal rules of a particular country pay deference to legal rules or proceedings of another country. Specifically applied to insolvency matters that span borders and international jurisdictions, the outcome of this case encouraged a more cohesive, ‘one-set-of-proceedings’ approach.
Modified universalism and the Bedzhamov case
A contemporary example of the tense conflicts described above being especially noticeable when it comes to cross-border insolvency affecting both corporate entities and individuals that may have operations or assets dispersed throughout several jurisdictions is the increasingly infamous case of Vneshprombank vs Bedhzamov, that highlights how aggrieved creditors and the insolvency officeholder are obliged to take into account the impact of one jurisdiction's insolvency proceedings on those of other states, or at least on how those other states may choose to act once their debtor client has become bankrupt or insolvent.
Bedzhamov, a Russian national, departed Russia in 2015 and has resided in England since 2017. After developing an interest in a house located in Belgrave Square and its linked mews house, his investment included a lease with approximately 20 years left and an arrangement with the freeholder for a new lease of 129 years, dependent on the property's redevelopment. Bedzhamov is charged with obtaining the disputed mansion through fraud amounting to £1.34 billion, of which he personally gained approximately £35.4 million, alongside numerous other assets and significant expenses. Despite a global freezing order issued in March 2019 that affects all his assets, including the mansion, Bedzhamov was allowed to access his funds for living expenses and legal fees.
The insolvency trustee, or officeholder or receiver in UK legal terminology, assigned by the Russian court for Bedzhamov, aimed to gain control of his Belgravia property in London, which was then worth around £35 million, to meet debt obligations to creditors.
In November 2004, Bedzhamov's legal team contended that although a foreign bankruptcy order may be recognized by English law for movable assets, it does not automatically give foreign trustees control over immovable assets like English real estate. The Supreme Court of the United Kingdom unanimously affirmed that, in accordance with English common law, a foreign court lacks the authority to issue orders that have an impact on land in England or Wales. [2]
Modified universalism deemed not to apply to Bedzhamov’s Belgravia Mansion
The court highlighted the constraints of modified universalism in bankruptcy cases as it does not imply that the courts possess identical powers as those available under statute concerning a UK domestic insolvency. Moreover, any changes in common law concerning land located in England must continue to adhere to the immovables rule.
Concluding, Lord Justice Newey made clear that the immovables principle signified that immovable property in the UK does not automatically belong to a foreign officeholder, but that ‘immovable property is solely governed by the laws of the Government in whose territory it is located.’ [2]
So rather than a foreign bankruptcy granting the officeholder ‘full authority’ over a property, it will not be acknowledged as having bestowed any rights or interests in such property to the officeholder.
Sources
[1] House of Lords, HIH Casualty and General Insurance Ltd [2008] 1 WLR 852 [30], Vlex Database, 09 Aoril 2008
[2] Supreme Court of the UK, Kireeva v Bedzhamov, supremecourt.uk, 20 November 2024
