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Commercial Court orders Ukraine to pay US$3 billion on Notes held by the Russian Federation


The Law Debenture Trust v Ukraine [2017] EWHC 655 (Comm)

Ukraine has been ordered to pay more than US$3 billion under Eurobonds issued by it in December 2013 (the “Notes”). The sole Noteholder is the Russian Federation.

The Notes were due to be paid in December 2015. However Ukraine refused to pay, and declared a moratorium on its obligations under the Notes. The Trustee of the Notes, Law Debenture Trust Corporation P.L.C., commenced proceedings in the Financial List of the Commercial Court seeking payment.

Ukraine advanced various defences and the Trustee then sought summary judgment and/or strike out. On 29 March 2017, Blair J granted that application: see The Law Debenture Trust Corporation P.L.C. v Ukraine, represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine [2017] EWHC 655 (Comm).

In doing so, Blair J upheld the Trustee’s arguments that each of Ukraine’s defences had no real prospect of success.

First, Ukraine had argued that the Notes were voidable for duress (and had been avoided) because of alleged threats made by the Russian Federation to impose economic sanctions on Ukraine (and thus purportedly breach various treaties between Ukraine and the Russian Federation), and alleged threats made to Ukraine’s territorial integrity (which, it was said, had to be seen in the light of the Russian Federation’s subsequent actions in Crimea). Blair J held that these matters were plainly non-justiciable, and could not be relied upon in the context of an English law claim to duress.

Secondly, Ukraine contended that it lacked capacity to issue the Notes as a matter of Ukrainian law, and that the Minister of Finance who signed the Notes did not have authority to do so (with the result that the Notes were void). Blair J held that a sovereign State has unlimited capacity to enter into financial obligations such as the Notes, and that, although it could not be said on a summary basis that the Minister of Finance had actual authority to enter into the Notes as a matter of Ukrainian law, he clearly had usual authority to do so.

Thirdly, Ukraine argued that the Notes contained implied terms that had the result that Ukraine was not obliged to pay if the Russian Federation had taken steps to impede Ukraine’s ability to repay the Notes (which it was said to have done by its alleged conduct in Crimea and Eastern Ukraine). Blair J rejected that argument out of hand, on the basis that it would be unworkable and would destroy the tradable character of the Notes.

Fourthly, Ukraine contended that it was entitled to refuse to pay as a valid countermeasure against the Russian Federation under international law. Again, Blair J held that these matters were non-justiciable, and could not be relied on in the context of an English-law governed debt claim.

Finally, Ukraine had argued that the claim was part of a “larger war” between Ukraine and the Russian Federation, and that there was therefore “another compelling reason” for trial. This was also rejected by Blair J. In circumstances where the claim was for repayment of debt instruments, and the court had found there was no justiciable defence, it would not be right to allow the case to go forward to a full trial.

The judgment is here.

Mark Howard QC and Oliver Jones appeared for the Trustee, instructed by Norton Rose Fulbright LLP.

The Russian Federation was represented by Cleary Gottlieb Steen & Hamilton LLP.