Immovables Rule Unmoved in Common Law
Immovables Rule Unmoved in Common Law
Friday 22 November, 2024
The common law operates to prevent bankruptcy orders in foreign jurisdictions affecting land in New Zealand.
The United Kingdom Supreme Court has confirmed the common law “immovables rule” by dismissing the appeal in Kireeva v Bedzhamov. The common law will not give effect to judicial decisions of foreign countries insofar as they affect immovable property rights in rem outside the original jurisdiction.
Background
Mr Bedzhamov was a Russian citizen who left Russia in 2015 and lived in England since 2017. He owned a house in London. In 2018 two Russian banks successfully applied for orders declaring Mr Bedzhamov bankrupt. A “financial manager” was appointed (the equivalent of a trustee in bankruptcy in the UK or the Official Assignee in New Zealand).
The financial manager applied to the Chancery Division of the High Court in England for recognition at common law of (a) the Russian bankruptcy order and (b) her appointment as financial manager.
Justice Snowden, for the most part, granted the applications. However, his Honour dismissed the application for recognition of the bankruptcy order insofar as it related to immovable property.
The financial manager appealed. The Court of Appeal, by a majority, upheld the decision of Snowden J.
The financial manager appealed to the UK Supreme Court. On 20 November 2024 that appeal was dismissed.
The application for recognition of the bankruptcy order was dismissed in relation to immovable property because of the “immovables rule”.
Immovables rule
The common law has long held that only the sovereign of the country where land is situated has jurisdiction in rem over that land. The UK Supreme Court set out at length the authorities for this principle.
The rule means that title or possession of immovable property in, for example, New Zealand is governed only by the law of New Zealand. The statutes and judicial decisions of New Zealand will not affect immovable property rights in rem elsewhere, and vice versa.
The principle is important because it provides a dependable and clear method for resolving conflicts of international laws. As land cannot be moved, parties can rely on the principle that disputes in relation to it will be resolved by local law; the lex situs.
What is captured by “immovable property” will depend on each jurisdiction but at least includes land. Under English law immovable property includes all rights over or in relation to land such as leases and mortgages over land.
By contrast, movable property in a bankruptcy will “go with the person” and is governed by the law of the bankruptcy’s domicile (permanent home).
The immovables rule is present in many jurisdictions, for example:
McCormick v Sullivant 23 US (10 Wheaton) 192 (1825) (Supreme Court of the United States of America)
Duke v Andler [1932] 4 DLR 529 (Supreme Court of Canada)
Australian Mutual Provident Society v Gregory (1908) 5 CLR 615 (High Court of Australia)
Schumacher v Summergrove Estates Limited [2014] NZCA 412 (Court of Appeal of New Zealand)
Exceptions
After discussing the jurisprudence underlying the immovables rule the UK Supreme Court set out the two exceptions. Neither applied in the present case.
The first exception in English law is s 426 of the Insolvency Act 1986. That provision empowers English courts to give assistance in a bankruptcy to another “relevant country or territory”.
The term “relevant country or territory” refers to the Channel Islands, Isle of Man, and a country designated by the Secretary of State for that purpose. The designated countries are Commonwealth countries or British Overseas Territories. Accordingly, this exception did not aid the appellant financial manager as Russia was not included.
The second exception to the immovables rule is the Cross-Border Insolvency Regulations 2006. The Regulations incorporate into English law the UNCITRAL Model Law on Cross-Border Insolvency.
Under the Regulations a foreign proceeding will be recognised if it is taking place in the state where the debtor has “the centre of its main interests” or if it is taking place in a state where the debtor has “an establishment” (ie. is running a business on the ground).
Upon recognition of a foreign proceeding on either ground the foreign representative can request that the local court grant relief. That relief can include entrusting the administration and realisation of assets in Great Britian to the foreign representative.
The proceeding in question was in Russia and the respondent, Mr Bedzhamov, had not lived there since 2015. The proceeding therefore was not taking place where Mr Bedzhamov had the centre of his main interests, nor where he had an establishment. The Regulations did not apply and the appellant financial manager could not rely on them for the English court’s assistance.
Development?
The UK Supreme Court went on to consider whether the common law should develop to meet the appellant’s application. The Court held it should not. Any further departure from the rule would be a significant shift. Parliament had already legislated two exceptions. Any further exception to the longstanding immovables rule should be left to Parliament.
After rejecting each of the appellant’s submissions the appeal was dismissed.
Immovables rule in New Zealand
The immovables rule has been adopted into New Zealand common law. It is also seen in legislation such as s 7(1) of the Property (Relationships) Act 1976 which confirms the Act only applies to immovable property within New Zealand.
New Zealand has two exceptions to the immovables rule.
New Zealand too has adopted the UNCITRAL Model Law on Cross-Border Insolvency in the form of the Insolvency (Cross-Border) Act 2006. Section 8 of that Act provides that where a foreign court has jurisdiction in an insolvency proceeding and makes an order requesting aid from the New Zealand High Court, the High Court may, if it thinks fit, act in aid of that foreign court in the insolvency proceeding. In doing so the High Court may exercise the same powers as if the proceeding were in New Zealand.
The same requirements that the proceeding take place in the state where the debtor has “the centre of its main interests” or where the debtor has an “establishment” apply.
The second exception relates to Australian judgments. The Trans-Tasman Proceedings Act 2010 allows for the registration of Australian judgments. Once registered in New Zealand the judgment will be enforceable as if made by a New Zealand court.
Notably, s 61 of the Act provides that registration of a judgment must be set aside if the judgment relates to immovable property in a country other than Australia. This is another instance of the immovables rule and a confines the exception to Australia and New Zealand.
Implication for New Zealand practitioners
The application of the immovables rule in New Zealand means that if a situation like Mr Bedzhamov’s arose here the result would likely be the same.
Despite a bankruptcy order overseas, the bankrupt can continue to enjoy their immovable property in New Zealand. The bankrupt, however, may still be vulnerable to foreign claims in personam or claims from New Zealand creditors.
The United Kingdom Supreme Court decision can be found here.
