UK High Court rejects full trial in Ukraine-Russia bond spat

Listen to this article

00:00
00:00

The High Court in London has ruled that it would not be right for a $3bn bond case brought by Russia against Ukraine to proceed to full trial as Kiev has no “justiciable defence.”

Russia had brought a lawsuit in the English courts against Ukraine for its non payment of notes in the form of Eurobonds.

Earlier this year, Russia had applied for the High Court to decide the claim without a trial as it sought to show Ukraine had no real prospect of defending the lawsuit at a full blown trial.

However Ukraine had argued a full trial was necessary to look at the issue in full, including the annexation of Crimea by Russia, which it says has inflicted pain on the country’s economy and hindered its ability to repay debts.

In its defence, Kiev argued that Russia had applied “massive, unlawful and illegitimate economic and political pressure” on Ukraine in 2013 to deter the government from signing an association agreement with the EU and to accept Russian financial support instead.

The Eurobond notes were to be the first tranche of that support and Ukraine claims the borrowing resulted from that pressure and so its non payment is justified.

On Wednesday Mr Justice Blair ruled in favour of Russia and found the case cannot be brought in the English courts as it would involve the courts deciding on “transactions entered into between states on the plane of international law” as well as international treaties which are not part of domestic law.

“This is a claim for repayment of debt instruments to which the court has held that there is no justiciable defence. It would not be right to order the case to go forward to a full trial in such circumstances,” the judge said.

Ukraine is expected to appeal the decision and there will be a further court hearing to decide on the terms of the judgment.

In the court hearings in January, lawyers for Ukraine had alleged to the High Court that this was no “simple debt claim” but “in reality a tool of oppression wielded by one sovereign state against another”.

“The claim arises from, and is itself part of, a broader strategy of unlawful and illegitimate economic, political and military aggression by Russia against Ukraine,” Bankim Thanki QC, the barrister acting for Kiev, alleged in written arguments for the January hearing.

Ukraine has claimed the agreement it entered into was voidable because of “duress” to which Kiev was purportedly subjected three years ago as a result of alleged threats by Russia.

Ukraine defaulted on the bond at the end of 2015 after reiterating that it would not offer Russia different conditions to those agreed with other creditors in a restructuring deal secured earlier that year.

Mark Howard QC, acting for Russia, told the court Ukraine was now claiming it did not have the capacity to enter into the original bond agreements due to alleged breaches of the country’s budget law.

He alleged Ukraine had always treated the notes as valid ever since they were issued in 2013, both in public statements and representations to the International Monetary Fund.

He also said in written arguments that the English courts could not determine whether Russia’s conduct in relation to Ukraine was contrary to international law. This dispute was a “simple English-law governed debt agreement”, he argued.

“The matters of which Ukraine complains do not form part of English law or part of the agreements and cannot be adjudicated upon by the English courts,” he said, adding that alleged “political aggression” or breaches of international law had no connection with the dispute.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.