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
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blair |
| Judgment Date | 26 July 2017 |
| Neutral Citation | [2017] EWHC 1902 (Comm) |
| Date | 26 July 2017 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: FL-2016-000002 |
[2017] EWHC 1902 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
FINANCIAL LIST
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Blair
Case No: FL-2016-000002
Mark Howard QC and Oliver Jones (instructed by Norton Rose Fulbright LLP) for the Claimant
Bankim Thanki QC and Simon Atrill (instructed by Quinn Emanuel Urquhart & Sullivan, UK LLP) for the Defendant
Hearing date: 26 May 2017
Approved Judgment on consequential matters
Judgment in this matter was handed down on 29 March 2017 (see [2017] EWHC 655 (Comm), [2017] All ER (D) 07 (Apr)). Judgment on the Notes was given in favour of the Trustee, the outstanding principal amount of which is in the sum of US$3 billion.
There are a number of consequential matters that arise following judgment, as set out below. The hearing in respect of these matters took place on 26 May 2017. At the court's request, on 16 June 2017 the parties produced further written submissions on the subject of costs. The issues, and the court's decision on the issues, are as follows.
(1) Whether any condition should be imposed upon the stay of the judgment
The court has given Ukraine permission to appeal to the Court of Appeal against the judgment, and the parties have said that the appeal is provisionally listed for 22 January 2018. CPR 52.16 provides that an appeal shall not operate as a stay of any order or decision of the court unless the court orders otherwise. However, the Trustee realistically accepts that in this case a stay of the obligation to pay the judgment debt will be granted pending appeal. The first question for decision is whether Ukraine is entitled to an unconditional stay. It is not in dispute that the court has the power to impose a condition on the stay. The condition that the Trustee seeks as a condition of the stay (and of the appeal itself, which raises a discrete issue which is dealt with below), is that Ukraine should make a payment to the Trustee or into court of US$325 million to be held pending the appeal.
The sum of US$325 million has been calculated by determining how much interest would have been paid or accrued up to 26 May 2017 on new notes that the Russian Federation would have received in exchange for the Notes (i.e. the Notes the subject of these proceedings) had Russia participated in a restructuring. The restructuring is part of IMF support provided to Ukraine in 2015 by way of an Extended Fund Facility. On any basis, the Trustee argues, it is reasonable to require Ukraine to give security in this sum as a condition for granting a stay. Ukraine was prepared to incur a liability in this amount to Russia in the restructuring, and it should be required to pay this money into court because:
i) If Ukraine loses the appeal, it is clear (the Trustee submits) that Ukraine will not voluntarily satisfy the judgment debt, and will vigorously resist enforcement.
ii) It will be very difficult for the Trustee to enforce the judgment against Ukraine in Ukraine, or elsewhere.
iii) Ukraine plainly has the resources to allow it to prosecute the appeal, make its application for a stay, and so on.
iv) There is no reason to think that Ukraine cannot pay US$325m, or that a requirement that it pay this amount will stifle the appeal.
Ukraine resists the imposition of the condition because:
i) There is no valid comparison or connection to be made (Ukraine submits) between the Notes and the new notes Russia would have received had it participated in the restructuring, because if it had done so it would have taken the new notes with a haircut of 20%.
ii) As to payment generally, Ukraine says that there "are obvious difficulties in Ukraine providing a categorical reassurance of Ukraine's future actions in unknown and unpredictable circumstances". It also says that it would be problematic to make the payment from reserves.
iii) Payment of the US$325m would risk breaching the "Most Favoured Creditor Clause" in the new notes and entitle Ukraine's creditors to call a default accelerating the liabilities under the new notes, would infringe Ukrainian law including court injunctions, and would risk breaching the negative pledge in its financing arrangements with the World Bank.
iv) Imposing the condition would in effect improve the Trustee's position on enforcement, which is not the purpose of imposing a condition on a stay. Further, it may prejudice its position as to state immunity on enforcement, which is different from the jurisdictional waiver of immunity which it gave as a term of the transaction.
v) It is inappropriate, as a matter of international comity, to require a sovereign state to provide security from state funds in this way.
The court's conclusion on this question is as follows:
i) Rightly, the Trustee did not strenuously oppose the giving of permission to appeal to Ukraine: this is clearly a case in which the threshold conditions for giving permission to appeal are satisfied.
ii) As to the applicable legal principles, it is correct to say that the authorities as to the imposition of a condition on permission to appeal are also relevant to the imposition of a condition on granting a stay. They are set out in the White Book at CPR 52.18.4, and more generally are explained in Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2001] EWCA Civ 2065 (reviewed recently in Merchant International Company Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy [2016] EWCA Civ 710). Among the factors to be balanced are the possibility of a condition stifling the appeal, as against (for example) failure to comply with previous orders of the court, or good reason to believe that the judgment will be unsatisfied if the appeal is unsuccessful.
iii) Again rightly, the Trustee has not sought to require payment into court of the outstanding principal amount of the Notes in the sum of US$3 billion as a condition of the stay. Though it is possible to see such a condition being imposed in the (exceptional) case in which permission to appeal against judgment on debt instruments of this kind is given, in the realities of this case, such a condition would have rendered permission to appeal nugatory.
iv) That said, and whilst respecting Ukraine's evidence to the contrary, the risks of the negative consequences emphasised by Ukraine do not seem very likely. Whilst it is possible that compliance with a condition of payment of US$325m might breach the Most Favoured Creditor Clause in the new notes, and/or the Ukrainian court injunctions, and/or the World Bank negative pledge, the attendant consequences seem manageable in practice. The action brought by the Trustee on the Notes is very public already, and it seems improbable that international institutions (or creditors) would invoke these provisions on the basis of Ukraine's compliance with a court order of this kind in the course of the action. As for the injunctions, even accepting Ukraine's point that it has no direct control over these proceedings, it is not unreasonable to suppose that the Ukrainian court would seek to avoid an outcome that placed its Government in breach.
v) However, the premise of the Trustee's US$325m figure does not seem compelling either. It is not disputed that had Russia participated in the restructuring, this sum would have accrued, and would either have been paid, or be due—but Russia did not participate (on the grounds that it is an official not a private creditor, and that it considered the terms to be inadequate). There is no real link for the purposes of setting a condition between the obligations in dispute in these proceedings, and the restructuring terms.
vi) Taking the factors mentioned above, this is not a case in which Ukraine is in breach of court orders. On the other side of the balance, it seems improbable that ordering a payment into court of US$325m would stifle an appeal. As to the important question of compliance with the judgment should the appeal fail, whilst Ukraine has not given the explicit assurance sought by the Trustee, it has at least gone some way to put before the court evidence to the effect that giving such an assurance is not politically feasible in current circumstances. Ukraine has not said that it will not respect the court's judgment should the appeal fail.
vii) This is not an altogether straightforward decision, because this is a judgment on transferable notes. It is entirely appropriate to think in terms of conditions. However, for the court, the decisive factor is that the imposition of the condition sought might, or possibly even might likely, lead to satellite proceedings between the parties, raising in effect the very questions to be decided on appeal, in circumstances in which the appeal will come on soon, and against a background which for reasons that are well known is particularly difficult. This would not be a desirable state of affairs (c.f. Micula v Romania [2017] EWHC 1430 (Comm) at paragraph 23(ii) for a situation on very different facts).
viii) In balancing the factors, it is also of some relevance that as a state, Ukraine's assets will remain amenable to enforcement to the extent that they are now. In that sense, the Trustee is not prejudiced by the delay in enforcement should the appeal fail and the judgment remain unpaid, as might be the case with a company. For these reasons, in its discretion, the court will not impose the condition on the stay.
(2) The appropriate rate of interest on the amounts owed by Ukraine to the Trustee, both pre and post judgment
There are a number of questions that arise on the construction of the Trust Deed that will determine...
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