Case of the Day: Yukos v. Russia

Bill Dodge has a good post at the Transnational Litigation Blog about today’s case of the day, Yukos Capital Ltd. v. Russian Federation (D.D.C. 2025). The case was for confirmation of an arbitral award. Yukos served process on Russia under 28 U.S.C. § 1608(a)(4) through diplomatic channels. But the method was unusual. Typically, when you have to serve process in this way, you request the State Department to make service, and the State Department arranges for the US embassy abroad to deliver the papers, with a diplomatic note, to the Foreign Ministry. This is what the State Department’s regulations generally provide (22 C.F.R. § 93.1), though the regulation provides that “If the foreign state so requests or if otherwise appropriate,” the State Department can instead deliver the papers and the diplomatic note “to the embassy of the foreign state in the District of Columbia.”

Here, the State Department delivered the papers with a diplomatic note to the Russian embassy in Washington. I don’t know why the State Department did things that way. In any event, Russia argued that the court lacked personal jurisdiction because it had not been properly served. It argued that the service was improper because Russia refused delivery of the papers at the embassy, and thus it was not “appropriate,” to use the word of the regulation, to serve process at the embassy, especially in light of the inviolability of the embassy premises under the Vienna Convention.

The judge rejected Russia’s position. Some of his reasoning is not persuasive to me. For example, he argued that requiring service on the foreign ministry in Moscow instead of the embassy would make § 1608(a)(4) duplicative of § 1608(a)(3), which provides for service on the Foreign Minister. But that seems clearly wrong to me. Section 1608(a)(3) provides for service on the foreign minister by postal channels, while § 1608(a)(4) provides for service by diplomatic channels. Also, 1608(a)(3) calls for service on the foreign minister, a distinction that has been inportant in prior cases. 1

He also reasoned that the regulation merely regulated the State Department’s internal processes and that a violation of the regulation—if there was a violation—would not render the service improper. But it seems to me that the contents of the regulation might be evidence of what the United States position is on the requirements of customary international law.

I agree with everything Bill writes in his post, though I think that the issue really boils down to the question of what customary international law has to say, a point the judge did not really address. The U.N. Convention on the Jurisdictional Immunities of States and Their Properties (which is not a binding treaty) suggests that service of process in the circumstances of cases like this must be by “transmission through diplomatic channels to the Ministry of Foreign Affairs of the State concerned.” But maybe the Convention doesn’t accurately state the customary international law on this point. Bill writes: “Even if one could show widespread practice limiting transmission of service through diplomatic channels to foreign ministries, one would have to show that such practice was followed from a sense of legal obligation (opinio juris) in order to establish a rule of customary international law.”

I don’t know the answer to the customary international law question. But surely the safer course is to transmit the document to the Foreign Ministry rather than the embassy, if only to avoid needless litigation about service.

#FSIA #RecognitionAndEnforcement #Russia #ViennaConvention

Case of the day: Servis-Terminal v. Drelle

The case of the day is Servis-Terminal LLC v. Drelle, [2025] EWCA Civ 62. Servis-Terminal was a Russian company in bankruptcy proceedings in Russia. It brought a claim in a Russian court against its former CEO, Valeriy Drelle, seeking to recover ₽2 billion on a loan Servis-Terminal had made to a third party, which failed to repay it. The claim was that Drelle was liable under article 53(3) of the Russian Civil Code because he had not acted in good faith when he caused the company to make the loan. The Russian court entered a judgment in favor of Servis-Terminal, and the judgment was affirmed on appeal. Meanwhile, Drelle had moved to London.

Servis-Terminal brought a bankruptcy petition (a “creditor’s petition,” in UK terms) against Drelle, alleging that he owed it ₽2 billion on account of the Russian judgment. I take it that this is the UK equivalent of an involuntary bankruptcy petition in the United States, though here there must be a minimum of three petitioning creditors. It’s curious to me that in the UK a single creditor can force a debtor into bankruptcy, since if there is only a single creditor, there does not seem to be much point to bankruptcy rather than an ordinary lawsuit, though I may be missing something about the UK law.

The interesting question is whether the Russian judgment, which had never been recognized in the UK, could be the basis for the bankruptcy petition. My initial reaction was to say yes, because a judgment—a foreign judgment or a domestic judgment—creates a debt that can be the basis of an action on the debt. You may say that a foreign judgment is subject to various defenses to recognition and might, in the end, not be entitled to recognition. But you can say the same thing about any claim of a debt that has not been reduced to a domestic judgment, yet no one doubts that a debt owed on a contract can suffice to support a bankruptcy petition. Newey J., who wrote the lead opinion, cited Lord Collins’s opinion in Rubin v. Eurofinance, which makes this point:

[the] theoretical basis for the enforcement of foreign judgments at common law is that they are enforced on the basis of a principle that where a court of competent jurisdiction has adjudicated a certain sum to be due from one person to another, a legal obligation arises to pay that sum, on which an action of debt to enforce the judgment may be maintained.

But Lord Collins went on to say that “this is a purely theoretical and historical basis for the enforcement of foreign judgments at common law” that “does not apply to enforcement under statute” governing the recognition of foreign judgments. So maybe my own reaction overemphasizes history and theory and ignores, for instance, the relevant English statutes. Well, I plead guilty, as I know nothing really about the English statutes!

Drelle’s counsel argued that at common law, a foreign judgment that has not been recognized cannot be used as a “sword,” which, he argued, included use in a bankruptcy petition. He also argued that a foreign judgment that has not been recognized does not create a “debt” within the meaning of the UK bankruptcy statutes (though he recognized that a foreign judgment could be proved as a debt in a bankruptcy case once the case is begun). But Servis-Terminal’s counsel argued that debts, in bankruptcy, generally don’t need to have been reduced to judgment, or even to be enforceable at common law.

Newey J. reasoned that while a foreign judgment can sometimes be decisive on an issue before an English court, that is only true when it is used as a “shield,” not a “sword.” In other words, you can sometimes set up an unrecognized judgment as a defense, but that rule doesn’t apply in a case like this, where Servis-Terminal sought to use the foreign judgment offensively, to force Drelle into bankruptcy. The judge also noted the accepted rule that a foreign tax judgment cannot be enforced in England.

I can’t comment on the correctness of the decision as a matter of English law, of course. On general principles, though, I do not really understand the rationale for the decision. One of the reasons for bankruptcy laws is to provide a debtor with a respite from the demands of his creditors and to provide for an orderly distribution of his assets. I would have thought that someone in Drelle’s position who, let’s say, received a demand letter from Servis-Terminal’s lawyers could put himself under the bankruptcy court’s protection in whatever way one does that in England, which would answer the point about use of the foreign judgment as a sword rather than a shield; and it seems odd that the judgment would count as a debt for one purpose but not for the other. But the court reviewed the decisions in Government of India v. Taylor and another case, which stood for the proposition that even in a voluntary bankruptcy, a foreign state could not collect taxes due under its law from the bankruptcy estate in the English proceeding. It is surprising to me that the judges thought that the treatment of foreign tax liabilities was a relevant analogy to the the treatment of foreign judgments generally. Consider that tax and revenue matters are excluded from the scope of the Hague Judgments Convention and, in the US, from the Uniform Foreign-Country Money Judgment Recognition Act. According to the reporters of the Restatement (Third) of the Foreign Relations Law of the United States , the reason is that one state should not enforce another state’s public laws. See id. at § 483 rptr’s n. 2. But the dispute between Drelle and Servis-Terminal was a private dispute.

But issues of foreign judgment recognition sometimes lead to head-scratching decisions. I’m reminded of the Second Circuit’s decision in Chevron v. Naranjo, which held that a foreign judgment debtor could not seek a declaration that a foreign money judgment was not entitled to recognition before the foreign judgment creditor sought recognition in New York. I thought at the time that the decision was odd, and it seems odd to me in a way akin to the way Servis-Terminal seems odd.

#Bankruptcy #RecognitionAndEnforcement #Russia #UK

Friend of Letters Blogatory Bill Dodge had an interesting post at the Transnational Litigation Blog on Estate of Ke v. Yu, a new Fourth Circuit case suggesting that forum non conveniens should never be a defense in an award or judgment recognition case. I agree with that view 100%, because an enforcement case is (or should be) always about reaching assets in the place where you bring the enforcement case. Allowing an FNC defense thus gives judgment or award debtors a path to shield assets from enforcement that to me makes little sense.

But the case has another interesting point. The underling arbitral award was denominated in renminbi, but the district court entered judgment in dollars. What is the right rule for currency conversion? Bill was one of the reporters for the Restatement (Fourth) of the Foreign Relations Law of the United States, so he has something to say about this.

Bill notes that the Fourth Circuit cited § 823 of the Restatement (Third), which opines that courts have discretion to issue a judgment in foreign currency, and he writes that this provision was “superseded by § 490 of the Restatement (Fourth),” which expressly prefers judgments in the currency of the award being confirmed. The Restatement (Fourth) position is in line with the Uniform Foreign-Money Claims Act, but that uniform act has only been adopted in a minority of states, mostly in the west. While it’s right to say that the new Restatement supersedes the old Restatement as a statement of the views of the ALI, it’s important to remember that the Restatement is not a statute. It’s not as simple as saying that Restatements should reflect the law as it is rather than as it ought to be. But I think that particularly on cutting-edge issues like the rule of currency conversion in enforcement cases, it’s important to recognize that in practice, there may not be very many cases on point, and it’s perfectly okay for a court to rely on an earlier Restatement view that it thinks makes good sense. (Of course, the court should at least acknowledge and come to grips with a new Restatement view, and the Fourth Circuit didn’t do that here).

Now, what about the merits? I think there are lot of reasons to say that the default rule should always be that American courts enter judgments in dollars, even when the underlying obligation is in another currency. I want to focus just on one here. Bearing in mind that the ultimate point of an enforcement action is collection, issuance of judgments in a foreign currency seems to me to be super impractical. Let’s say you have a judgment in renminbi. Is the writ of execution (the ordinary means of enforcing a money judgment) going to be in renminbi, too? If so, what is the sheriff or the marshal supposed to do with it? Suppose you want the sheriff to take some land and auction it off to satisfy the judgment debt. Won’t the auction be conducted in dollars? The same thing goes for seizures of personal property.

In short, while there may be justifications for issuing judgments in the foreign currency, I see real practical problems that, if anything, are more rather than less pronounced in the enforcement context, where the whole case is really about enforcement, where the rubber meets the road.

Photo Credit: Wazouille (Public Domain)

https://lettersblogatory.com/2024/08/04/currency-conversion-newer-isnt-always-better/

#arbitration #China #RecognitionAndEnforcement