Summary
In IKON Shina Ltd v Smyshliaeva [BVIHCMAP2022/0073], the Eastern Caribbean Court of Appeal allowed an appeal against the Commercial Court’s refusal to make amounts due under Russian insolvency judgments arising from the collapse of Track LLC, a Russian company affiliated with the Respondent, enforceable as a judgment of the BVI Court.
The appeal arose in the context of efforts by IKON Shina Ltd, a manufacturer of automobile tyres, (the "Appellant”) to recover substantial sums awarded in its favour under the Russian insolvency regime, following the 2016 collapse of Track LLC resulting from the alleged malfeasance of its former controllers.The appeal addressed the circumstances in which a foreign judgment arising out of insolvency proceedings — particularly those concerning subsidiary liability for wrongful trading — may be recognised and enforced at common law in the BVI. The case traversed the intersection between Russian bankruptcy law, the doctrines of private international law, and the principles governing finality,definitiveness, and enforceability of foreign judgments.
Factual and Procedural Background
The Appellant had entered into a supply agreement for car tyres in 2014 with Russhina-Tyumen LLC, whose payment obligations were guaranteed by Track LLC. Both entities were controlled by the Smyshliaev family, including the Respondent. Following default, Track was declared insolvent in March 2016 by the Commercial Court of the Republic of Bashkortostan. Thereafter, the Russian Court issued two key rulings: the “March Ruling” (28 March 2019), which imposed joint and several subsidiary liability on five individuals who had formerly controlled Track LLC, including the Respondent, in the sum of RUB 3.2 billion (approximately US$41 million); and the “June Ruling” (13 June 2019), which assigned to the Appellant a specific portion of that liability, calculated to reflect its admitted claim in the Track bankruptcy.Proceedings were brought in the BVI seeking enforcement of the amounts due under those rulings as judgments of the BVI Court, but at first instance Wallbank J. dismissed the claim, holding that neither Russian ruling, considered separately, constituted a final money judgment for a definite sum enforceable at common law. The Court of Appeal disagreed.
The Core Issues on Appeal
The Court was required to determine:
- Whether the June Ruling effected a substantive assignment of the debt created under the March Ruling.
- Whether the two rulings, read together, constituted a judgment for a definite sum of money enforceable by the Appellant.
- Whether the rulings were final and conclusive.
- Whether any of the recognised common law defences to enforcement—fraud, public policy, or breach of natural justice—were engaged.
The Assignment Under Russian Law
The Court held that the June Ruling did not merely effect a procedural substitution of the Appellant in place of the Track estate. Rather, applying Russian law as the lex fori of the original judgment, it constituted a statutory assignment of a portion of the judgment debt. The assignment was grounded in Article 61.17 of the Russian Federal Law on Insolvency, which, following 2017 reforms, permits creditors to seek direct enforcement against controlling persons of an insolvent debtor. The Appellant’s entitlement corresponded precisely to the value of its claim in the Track estate.
The Court found that expert evidence, including that of the Respondent’s own expert, supported the proposition that such assignments are operative under Russian insolvency law. While questions remain over the treatment of recoveries with the Russian insolvency (e.g. whether they must be redistributed pari passu), this did not detract from the conclusion that the Appellant acquired a legally enforceable debt right.
Enforceability as a Final Money Judgment
The Court rejected the trial judge’s conclusion that the June Ruling was not a judgment for a definite sum. Drawing on Dicey, Morris & Collins, Godard v Gray, and Adams v Cape, the Court confirmed that a foreign money judgment need not use a specific verbal formula to be enforceable. So long as the judgment creates a binding obligation to pay a determinable amount, it is enforceable. Here, the June Ruling expressly identified the sum allocated to the Appellant (approximately RUB 1.55 billion, or around US$20 million), thereby satisfying the requirement as a definite amount.
The Court also emphasised that the March and June Rulings must be read together. Together, they imposed liability and allocated enforcement rights in respect of specific sums. There was no need for further judicial determination in Russia to render the judgment effective; it was not interlocutory, conditional, or susceptible to future variation.
No Defence Based on Fraud, Public Policy, or Natural Justice
The Respondent alleged that the Russian proceedings were tainted by fraud—namely, that signature on the underlying guarantee was said to be forged (an argument also raised at first instance, and rejected by Wallbank J.). However, applying Owens Bank v Bracco and the strict principles in Dicey, Morris & Collins, the Court reiterated that fraud will only defeat enforcement where it was operative in the foreign proceedings and not discoverable with reasonable diligence. Importantly, there was no evidence that the Appellant procured, or was even aware of, the alleged fraud, which was an internal matter to the company.
The Court also dismissed the Respondent’s argument based on alleged breach of natural justice. The respondent had an opportunity to participate in the Track bankruptcy proceedings, and her inability to challenge the guarantee in the Russian court arose from procedural limitations under Russian law, not from any denial of fairness in the BVI sense. The right to be heard had not been contravened.
Public Policy and Insolvency Considerations
As Wallbank J. had at first instance, the Court dealt robustly with the contention that enforcement would offend BVI public policy or disrupt collective insolvency proceedings. It held that the Russian statutory mechanism for pro rata assignment of proportions of company receivables to individual creditors for enforcement was not contrary to BVI principles of creditor equality, nor was the Appellant’s claim inconsistent with collective enforcement. Rather, the recognition of the assigned claim gave effect to the Russian court’s adjudication in the foreign bankruptcy and furthered the objectives of creditor protection. This is particularly notable and important where the assistance of the BVI Court in enforcing judgments in the name of the estate was not available to Russian bankruptcy trustees themselves under BVI statute.
Outcome
The Court of Appeal allowed the appeal, set aside the dismissal of the claim, and entered judgment in the Appellant’s favour in the sum of RUB 1,554,102,387.86 (i.e. approximately US$20 million), with interest to run at 5% from the date of the original BVI judgment refusing recognition. Costs were awarded to the Appellant both at first instance and on the appeal.
Commentary
This judgment is of considerable significance for cross-border insolvency practice. It confirms that foreign judgments arising out of insolvency proceedings—particularly those involving secondary liability and statutory assignment—can be recognised and enforced in the BVI where they satisfy common law tests of finality, definiteness, and jurisdiction.
Notably, the decision reaffirms that statutory assignment of enforcement rights under foreign law may give rise to an enforceable common law debt. The judgment underscores the BVI courts’ readiness to give effect to foreign insolvency mechanisms, provided they comply with established common law standards.
It will be of particular interest to insolvency practitioners and cross-border litigators seeking to enforce Russian or civil law judgments in the common law international financial centres.
Iain Tucker (Partner, Walkers BVI) and Cate Barbour (Senior Counsel, Walkers Dubai) acted for the successful Appellant, together with Andrew McLeod of One Essex Court as counsel at the hearing.
