The Law Debenture Trust Corporation P.L.C v Ukraine  EWHC 655 (Comm)
The annexation of Crimea and the exertion of military, political and economic pressure by Russia against Ukraine provided the controversial context surrounding a recent claim for summary judgment in the Queen’s Bench Commercial Court.
The claimant was The Law Debenture Trust Corporation plc (“LDTC”), a company incorporated under English law. It brought these proceedings against Ukraine on the direction of the Russian Ministry of Finance. LDTC’s application for summary judgment related to Ukraine’s failure to meet its repayment obligations of c. €3 billion worth of sovereign debt notes (“Eurobonds”) that the Ukraine had issued.
LDTC was appointed as trustee under a Trust Deed by Ukraine to represent the interests of noteholders. The Trust Deed was governed by English Law and provided English courts with exclusive jurisdiction. Following months of political turmoil in Ukraine relating to Ukraine’s attempts to sign an EU Association Agreement, the Eurobonds were issued solely to Russia on 24 December 2013. The Eurobonds were tradeable instruments listed on the Irish Stock Exchange, although they were never traded by Russia.
Ukraine made initial repayments under the Eurobonds, however three months after their issuance Russia invaded and annexed Crimea on 18 March 2014. On 18 December 2015, Ukraine decided on a moratorium on repayment of the Eurobonds and refused to make any further payments. The LDTC claimed that the Eurobonds represented valid, outstanding debt obligations owed to it under English law and that its simple claim for non-payment of the outstanding amount plus interest could be decided by summary judgment without the need for a trial in English courts.
Ukraine was unsuccessful in raising a justiciable defence under English law and summary judgment was granted to the LDTC. Ukraine put before the Court four arguments in support of its position that the claim was unsuitable for summary judgment.
First, the Court dismissed Ukraine’s argument that it lacked the capacity under Ukrainian law to enter into the relevant contractual documents and to issue the Eurobonds. The Court held that Ukraine, as a sovereign State, had an unlimited capacity to borrow, which is recognised under English law, and that the State’s internal laws as to borrowing cannot have the effect that the State’s obligation to repay should be treated as void by reason of breach of such laws.
Second, Ukraine argued that Russia had committed wrongful and illegitimate acts from mid-2013 onwards that adversely affected Ukraine’s ability to access international capital markets and that this constituted duress under English law since Ukraine was in effect forced to issue the bonds to Russia. As such, Ukraine argued, the issuance of the Eurobonds was voidable. The Court found that despite ample material supporting Ukraine’s factual case as to the potential existence of duress both before and after the transaction was concluded, the acts in question concerned trade restrictive measures entered on the international plane, threats and aggression by a State and armed conflict between States, all of which are themselves non-justiciable issues and as such the duress defence could not be relied on before the Court.
Third, Ukraine argued that it was an implied term of the Eurobonds that “neither party will prevent the other from performing it” and that the minimum content of such an implied term prohibited Russia from hindering Ukraine’s performance (i.e. payment) by Russian interference or breach of international law. The Court concluded that it was not possible to imply such a term into the Eurobonds as this would severely limit the transferability of the notes, rendering them unworkable and untradeable in practice.
Finally, with respect to Ukraine’s argument that it was entitled to stop making payments under the Eurobonds as a proportionate countermeasure, the Court determined that the principle behind the failure of Ukraine’s case on duress applied equally to this argument. That is, because the underlying acts potentially justifying such a countermeasure were themselves non-justiciable, the Court could not determine this issue of countermeasures.
Accordingly, the Court dismissed Ukraine’s objections to a summary judgment process and Mr Justice Blair granted summary judgment to LDTC in the sum of c. US$3 billion and interest.