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Ukraine Points Finger at Russia in Dispute Over $3 Billion Eurobonds

English judges apply the law and do not dabble in politics. As a Court of Appeal case strikingly showed, however, the frequent appearance of foreign states as parties to litigation in London often means that burning issues of international power politics lurk in the background.

The case concerned Eurobonds with a nominal value of $3 billion that were issued by Ukraine. They were tradable commodities on the Irish stock exchange and were governed by English law, with the English courts enjoying exclusive jurisdiction in respect of any disputes arising. The bonds were constituted by a trust deed, and were held by a British company acting as trustee. Their beneficial owner was, however, the Russian Federation.

After making three interest payments in respect of the bonds, Ukraine declined to make any further payments of either interest or capital. In those circumstances, Russia directed the trustee to take enforcement proceedings in respect of the bonds. Ukraine’s various defences to the claim were rejected by the High Court and the trustee was awarded summary judgment for $3.075 billion.

In resisting the claim, Ukraine argued that it had issued the bonds under massive, unlawful and illegitimate economic and political pressure exerted by Russia. Russia was alleged to have applied duress with a view to making Ukraine dependent on Russian financial support and undermining the will of the Ukrainian people to participate in the process of integration with the European Union.

In upholding Ukraine’s appeal against the summary judgment, the Court found that it had a good arguable case that it had acted under duress. There were sound public policy reasons why that claim should proceed to a full trial. By adopting English choice of law and jurisdiction clauses in its loan relationship with Ukraine, Russia had accepted the risk that the English law of duress would be applied.

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