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

JurisdictionEngland & Wales
JudgeMr Justice Blair
Judgment Date29 March 2017
Neutral Citation[2017] EWHC 655 (Comm)
Docket NumberCase No: FL-2016-000002
CourtQueen's Bench Division (Commercial Court)
Date29 March 2017
The Law Debenture Trust Corporation P.L.C
Ukraine, represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine

[2017] EWHC 655 (Comm)


Mr Justice Blair

Case No: FL-2016-000002





Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Mark Howard QC and Oliver Jones (instructed by Norton Rose Fulbright LLP) for the Claimant

Bankim Thanki QC, Malcolm Shaw QC and Simon Atrill (instructed by Quinn Emanuel Urquhart & Sullivan, LLP) for the Defendant

Hearing dates: 17–19 January 2017

Judgment Approved by the court for handing down (subject to editorial corrections)

Mr Justice Blair


The parties and the proceedings


This is an application by the claimant for summary judgment in respect of non-payment of Notes in the form of debt instruments that are commonly called Eurobonds. Summary judgment is the procedure by which the court may decide a claim without a trial, where the claimant can show that the defendant has no real prospect of successfully defending the claim.


The claimant (the "Trustee") is The Law Debenture Trust Corporation plc. It is a company incorporated under the laws of England. It is trustee under a Trust Deed which was (or was purportedly) entered into with the defendant on 24 December 2013. It is a professional provider of such services, and as explained below, it brings these proceedings on the direction of the Russian Ministry of Finance. The Russian Federation ("Russia") is the sole holder of these Notes.


The defendant ("Ukraine") is the State of Ukraine. It is the issuer of the Notes. It is represented by the Minister of Finance of Ukraine acting upon instructions of the Cabinet of Ministers of Ukraine (the Cabinet of Ministers of Ukraine is referred to in the evidence and in this judgment as the "CMU").


Ukraine's case is that Russia applied massive, unlawful and illegitimate economic and political pressure to Ukraine in 2013 to deter the administration led by President Viktor Yanukovych from signing an Association Agreement with the European Union, which was to have been signed at the Vilnius Summit on 28 November 2013, and to accept Russian financial support instead. The Notes were to be the first tranche of that support. Ukraine's case, opposed by the Trustee, is that the borrowing resulted from that pressure, and that for this and other reasons, its non-payment of the Notes is justified, and that in any event summary judgment is not appropriate.


Evidence has been filed in the form of witness statements by:

i) Julian Robert Mason-Jebb, Director of The Law Debenture Trust Corporation plc;

ii) Galina Danylivna Pakhachuk, Head of the Debt Policy Department of the Ministry of Finance of Ukraine;

iii) Olena Mykolaiivna Zubchenko, Partner in the Finance and Banking Law Department of the Ukraine law firm Lavrynovych & Partners (which advised the Ministry of Finance of Ukraine);

iv) Oleksandr Oleksandrovych Danyliuk, the Minister of Finance of Ukraine;

v) Volodymyr Andriiovych Pasichnyk, Head of the Division for Budget and Tax Policy, the CMU Secretariat;

vi) Alexander Joseph Gerbi, Partner in Quinn Emanuel Urquhart & Sullivan UK LLP, acting for Ukraine in these proceedings


In addition, Ukraine filed Expert Reports on Ukrainian law by Professor William E. Butler, the John Edward Fowler Distinguished Professor of Law, Dickinson School of Law, Pennsylvania State University.


In addition to the evidence, each party filed written submissions and a chronology.


As regards the facts:

i) Some of the facts, for example as to the documentation relating to the transaction in issue, are not in dispute.

ii) Other facts, for example those maintained by Ukraine in its defence, are or may be in dispute.

iii) Disputed issues of fact are not normally capable of determination on a summary judgment application such as is before the court.

iv) With some exceptions, the Trustee accepts that the court will proceed on the basis of Ukraine's factual case, whilst stating, "This is not to say, however, that the Trustee does not have very serious concerns about the plausibility or veracity of many of the matters advanced by Ukraine".

The factual framework


The full facts are set out elsewhere in this judgment. The following is the factual framework relating to the issuance of the Notes.


On 17 December 2013, President Putin of Russia and President Yanukovych announced Russia's intention to subscribe for up to US$15 billion of Ukrainian sovereign debt before the end of 2014. This included an initial tranche of US$3 billion in the form of Eurobonds having a maturity of two years and a fixed interest rate of five per cent per annum. These are the Notes which are the subject of these proceedings. There was also to be a substantial reduction in the price of gas to be supplied by Russia to Ukraine.


On 18 December 2013, there was a meeting of the CMU which adopted or purportedly adopted Decree No.904 concerning the borrowing of the US$3 billion. The facts concerning this meeting form an important part of Ukraine's capacity defence (see below).


On 24 December 2013, a Trust Deed was (or was purportedly) entered into between Ukraine and the Trustee as part of a transaction by which Ukraine issued US$3 billion notes (the "Notes") due on 20 December 2015 carrying interest at 5% payable bi-annually.


According to the evidence, such instruments governed by English law are often constituted by a trust deed. The issuer appoints a trustee to represent the interests of the holders, for the time being, of the instruments, with the practical consequence that litigation generally has to be brought via the trustee. In fact, the claimant in these proceedings is the Trustee, not the Noteholders.


The Notes were constituted by the Trust Deed, which is governed by English law, the English courts having exclusive jurisdiction. By the terms of the Trust Deed, Ukraine waived sovereign immunity. Jurisdiction is not at issue in this case.


It is not in dispute that instruments of this kind are tradable instruments, though Russia acquired the entire issuance, and Ukraine's case is that Russia had no intention of transferring the Notes.


On 20 December 2013:

i) Ukraine's Minister of Finance signed a Subscription Agreement with VTB Capital plc, part of the Russian investment banking group, as Sole Lead Manager for the issuance of the Notes.

ii) The Prospectus for the issuance of the Notes was published by Ukraine. The Prospectus states that it was approved by the Central Bank of Ireland. It was required so that the Notes could be listed on the Irish Stock Exchange.

iii) Both parties have referred to and relied on the Prospectus. It includes a section on "Risk Factors Relating to Ukraine", including a reference to the possibility of "punitive measures" by Russia should Ukraine sign in the future the Association Agreement with the EU.


The transaction came into effect on 24 December 2013. On that day:

i) Ukraine's Minister of Finance signed the Trust Deed and other documentation relating to the Notes issue.

ii) This documentation included an Agency Agreement between Ukraine, the Trustee and Citibank, N.A., London Branch ("Citibank") and others, pursuant to which Citibank would act as Principal Paying Agent and Registrar in respect of the Notes (the "Agency Agreement").

iii) The Notes were issued. The Russian Ministry of Finance was the sole subscriber—in other words, Russia bought and paid for all the Notes. None of the Notes have since been transferred by Russia, which remains the only noteholder.

iv) The subscription money for the Notes was paid by Russia, and Ukraine received payment in the amount of US$3 billion into the foreign currency accounts of the Treasury.

v) The Notes were listed on the Irish Stock Exchange.


There are full explanations of the structure of the transaction in the evidence of Mr Mason-Jebb for the Trustee, and in Ukraine's evidence, particularly that of Ms Zubchenko. In summary, the issuer of the Notes was Ukraine, the trustee was The Law Debenture Trust Corporation plc, the Paying Agent was Citibank, and the Notes were acquired by Russia on issuance.


Ukraine's case is that the CMU's decision on 21 November 2013 to suspend preparation for Ukraine's signing of the EU Association Agreement resulted in mass protests in the Ukrainian capital, Kyiv. Following President Yanukovych's decision not to sign at the Vilnius Summit on 28 November 2013, these protests grew significantly in size. President Yanukovych is reported to have fled Kyiv on 21 February 2014.


Shortly afterwards, Russia invaded Crimea. In addition to the invasion, Ukraine's case is that Russia has also fuelled and supported separatist elements in, interfered militarily in and succeeded in destabilising and causing huge destruction across eastern Ukraine.


During this period, Ukraine made payments under the Notes. Three bi-annual interest payments under the Notes totalling US$233,333,350 were paid by Ukraine during 2014 and 2015.


The Trustee relies on these payments in support of its case on ratification/ affirmation. Ukraine disputes this case on various grounds, including continuing and increasing duress.


On 18 December 2015, that is, shortly before the Notes on their face were due, the CMU approved a moratorium proposed by the Ukrainian Government to suspend payments of the Notes. This was pursuant to a Moratorium Law adopted by the Verkhovna Rada (the Ukrainian Parliament) which became effective on 31 May 2015.


The Notes were not repaid on 21 December 2015 which was the due date (20 December 2015 being a Sunday). No payment has been made since then. On 21 December 2015, the Notes were...

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    ...Odious Debt in International Law: A Restatement(Cambridge: CUP,2016).172 For example Ukraine vThe Law Debenture Trust Corporation PLC [2017] EWHC 655 (Comm).173 C. Lumina, ‘An assessment of the human r ights impact of international debt relief initiatives’ (11June 2013) UN Doc A/HRC/23/37; ......

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