Unrecognised foreign judgments: can they form the basis of a bankruptcy petition?

The position in England

The English Court of Appeal recently held in Servis-Terminal LLC v Drelle [2025] EWCA Civ 62 that, as a matter of English law, a bankruptcy petition cannot be presented in respect of a foreign judgment which has not been recognised or registered in England.  This is because foreign judgments have no direct operation in England.  Any judgment creditor seeking to enforce a foreign judgment in England cannot do so by direct execution of the judgment and must first bring an action on the foreign judgment at common law or register it under the relevant statutory regime.  It is inappropriate to serve a statutory demand in respect of an unrecognised foreign judgment if that lack of recognition means, under English law, that there is no debt that could be pursued.  For more details, please see this post by our London Disputes team.

The position in Hong Kong

A similar case in Hong Kong is Re James Chor Cheung Wong [2018] HKCFI 585.  The petitioning creditor filed a bankruptcy petition against the debtor, Mr Wong, on failure to comply with a statutory demand for an underlying debt of AUD114,763.92, being the legal costs and interest which the debtor was ordered to pay the petitioner pursuant to two costs orders of the Supreme Court of Queensland.  The Hong Kong Court of First Instance ("CFI") dismissed the bankruptcy petition on the grounds that the costs order was a foreign court order which had not been enforced or recognised in Hong Kong, and therefore could not form the basis of a statutory demand and petitioning debt. 

The CFI similarly held that a judgment or order of a foreign court has no direct operation in Hong Kong and must first be registered under common law or under the relevant statutory regime.  In this case the relevant statutory regime was the Foreign Judgments (Reciprocal Enforcement) Ordinance ("FJREO"), as the order was made by an Australian court.  Section 8 of the FJREO provides that no proceedings can be brought for the recovery of a sum payable under a foreign judgment to which the FJREO applies, other than proceedings by way of registration.  The CFI considered that the bar on proceedings for the recovery of a sum payable under a foreign judgment included bankruptcy proceedings, as the word "proceedings" should be given its ordinary meaning.  Therefore, if a judgment has not been registered, the court will not entertain its use as a basis for issuing a statutory demand in bankruptcy proceedings.    

In contrast is the Hong Kong Court of Appeal ("CA") case of Liu YongLiang v Bank of China Limited Dongguan Branch [2021] HKCA 1048.  The petitioning bank served a statutory demand on the debtor, Mr Liu, demanding repayment of RMB419,620,000 with interest pursuant to a guarantee.  The statutory demand made no reference to a PRC judgment issued by the Guangdong Court holding Mr Liu liable to repay the same amount to the bank ("PRC Judgment").  Mr Liu applied to set aside the statutory demand, arguing that his liability under the guarantee was a matter of PRC law and pending his appeal before the PRC courts.  The CFI dismissed Mr Liu's application, and its reasons were not published.  Mr Liu then appealed to the CA, introducing a new argument that the bank should be barred from filing the bankruptcy petition because sections 5(1) and 22(2) of the Mainland Judgments (Reciprocal Enforcement) Ordinance ("MJREO") provide that no proceedings can be brought for the recovery of a sum payable under a Mainland judgment to which the MJREO applies, other than proceedings by way of registration. 

The CA dismissed Mr Liu's appeal and held that section 22(2) of the MJREO could not be a defence to the statutory demand, which was issued based on the guarantee, not the PRC Judgment.  At the time when the statutory demand was served, the guarantee remained an enforceable debt that could be relied on as a basis for issuing the statutory demand.  Section 22(2) of the MJREO did not make the guarantee unenforceable, because the PRC Judgment was not final and conclusive at that time.

In any event, the CA held that the natural meaning of "proceedings for the recovery of a sum" under the MJREO does not include bankruptcy proceedings because the nature of a bankruptcy petition is not to recover a sum of money, but instead puts in place a statutory regime for the benefit of all the creditors.  Section 22(2) of the MJREO therefore cannot be a defence in the context of bankruptcy proceedings.    

Comments

Whilst it is clear under the English position that a statutory demand cannot be served in respect of an unrecognised foreign judgment, such decision is not binding on the Hong Kong courts.  Instead, the decision of the CA in Liu YongLiang remains binding at least on a first instance judge.  That being said, the decision in Liu YongLiang, as described above, was probably fact-specific.  The statutory demand was issued at a time when the PRC Judgment was pending appeal and therefore not yet final and conclusive.  The CA nevertheless went on to interpret the MJREO and held that the bar on proceedings for the recovery of a sum excludes bankruptcy proceedings.  It remains to be seen whether this position will be revisited by the Hong Kong courts in the future.

For more information, please contact Jojo Fan, Managing Partner, Paul Quinn, Partner, Rachael Shek, Partner, Truman Mak, Partner, Sara Troughton, Knowledge Lawyer or your usual Herbert Smith Freehills contact.