Drelle overruled: what the Supreme Court's judgment means for BVI and Cayman insolvency Summary of Supreme Court decision BVI implications Cayman Islands implications Conclusion

The UK Supreme Court's judgment in Servis-Terminal LLC v Drelle overruled the English Court of Appeal's January 2025 decision and has significant potential implications for offshore practice in the BVI and Cayman Islands with respect to the issue of when unrecognised foreign judgments can be used to found a bankruptcy or winding up petition.

This blog first summarises the Supreme Court decision before considering its potential impact in the BVI and Cayman Islands.

In Drelle, a Russian creditor company presented a bankruptcy petition against a Russian national on the basis of a RUB 2 billion "debt" owed as a result of a Russian Court judgment which had not been recognised in England. The Supreme Court was primarily concerned with whether the unrecognised foreign judgment gave rise to a "debt" within the meaning of s267 of the English Insolvency Act 1986.

The obligation principle

The Supreme Court held that it did, finding that at common law there had been a long-established principle, referred to in the judgment as the "obligation" principle. Pursuant to this "obligation" principle, the legal effect of a foreign judgment for a debt or definite sum of money is that an obligation arises at English common law to pay the judgment sum. This obligation arises as a result of the foreign judgment and is not dependent on that foreign judgment being recognised in England. There was, accordingly in Drelle, a "debt" at common law. In turn, the Supreme Court held that there was no reason to find that s267 of the Insolvency Act adopted a narrower definition of "debt" than at common law such that the unrecognised foreign judgment created a "debt" within the meaning of s267 of the Insolvency Act 1986.

In so finding, the Supreme Court rejected the contrary reasoning of the Court of Appeal noting that it had not considered the "obligation" principle in detail. The Supreme Court also noted that the Court of Appeal was wrong in finding that an unrecognised foreign judgment could only be used as a "shield" to defend a claim and not as a "sword" to found a claim. The common law obligation that arose out of a foreign judgment could in principle be used to found a claim.

Direct versus indirect operation

The Supreme Court also found that the Court of Appeal misapplied the principle that an unrecognised foreign judgment has "no direct operation" in England such that the Court of Appeal had wrongly concluded that an unrecognised foreign judgment was incapable of giving rise to