Ukraine (Represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine) v The Law Debenture Trust Corporation P.L.C.

JurisdictionEngland & Wales
JudgeLord Justice David Richards,Lord Justice Sales,Lady Justice Gloster
Judgment Date14 September 2018
Neutral Citation[2018] EWCA Civ 2026
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A4/2017/1755
Date14 September 2018
Between:
Ukraine (Represented by the Minister of Finance of Ukraine acting upon the instructions of the Cabinet of Ministers of Ukraine)
Appellant
and
The Law Debenture Trust Corporation P.L.C.
Respondent

[2018] EWCA Civ 2026

Before:

Lady Justice Gloster

Vice-President of the Court of Appeal, Civil Division

Lord Justice Sales

and

Lord Justice David Richards

Case No: A4/2017/1755

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT FINANCIAL LIST

Mr Justice Blair

[2017] EWHC 655 (Comm)

Royal Courts of Justice

Strand, London, WC2A 2LL

Bankim Thanki QC, Ben Jaffey QC and Simon Atrill (instructed by Quinn Emanuel Urquhart & Sullivan (UK) LLP) for the Appellant

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

Hearing dates: 22–26 January 2018

Judgment Approved

Lord Justice David Richards

Lady Justice Gloster (Vice-President of the Court of Appeal, Civil Division), Lord Justice Sales and

Introduction

1

This is the judgment of the Court to which all members of the court have contributed. The judgment contains a number of substantive sections, for each of which one member of the Court took primary responsibility: capacity, authority and ratification (David Richards LJ); duress, stay and counter-measures (Sales LJ); and affirmation and implied terms (Gloster LJ). Nonetheless, each member of the court has contributed to, and concurs in, the entire judgment.

2

The state of Ukraine (acting by its Minister of Finance acting upon the instructions of the Cabinet of Ministers of Ukraine) appeals against an order for summary judgment for the payment of US$3.075 billion plus interest made by Blair J on 29 March 2017. The appeal is brought with permission granted by the judge.

3

The claimant, and respondent to the appeal, is The Law Debenture Trust Corporation p.l.c. (Law Debenture) as the trustee of Notes with a nominal value of US$3 billion and carrying interest at 5% pa (the Notes). The Notes were constituted by a trust deed dated 24 December 2013 (the Trust Deed) to which the named parties were Law Debenture and Ukraine. The Trust Deed is expressed to be governed by English law, with the English courts having exclusive jurisdiction. By the terms of the Trust Deed, Ukraine waived sovereign immunity. The judge helpfully summarised the material terms of the Trust Deed and ancillary documents in his judgment at [36] – [41] which need not be repeated here. The documentation included an agency agreement between Ukraine, Law Debenture 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). The Agency Agreement provided inter alia that Law Debenture might, by notice in writing to Ukraine, require Ukraine to pay all subsequent payments in respect of the Notes to or to the order of the Law Debenture and not to the Principal Paying Agent, once the Notes became due and payable.

4

The sole subscriber of the Notes was the Russian Federation (Russia), acting by its Ministry of Finance. The subscription monies of US$3 billion were received by Ukraine on 24 December 2013. Although the Notes were listed on the Irish stock exchange and were fully tradeable instruments, Russia has retained the Notes since their issue. Again, the judge helpfully summarised in his judgment at [9] – [18] the structure of the arrangement and the mechanics for the creation and issue of the Notes and for the payment of the subscription monies by Russia.

5

The interest on the Notes was payable biannually in arrears and, in the course of 2014–2015, Ukraine made three interest payments for the full amounts due on each occasion, totalling US$223,333,350. The principal amount of the Notes fell due for payment, together with the last instalment of interest, on 21 December 2015. Payment was not then made and Ukraine has since refused to make payment.

6

Law Debenture acts as trustee on behalf of the holder or holders of the Notes for the time being, and holds the benefit of the covenants, including the covenants to pay the principal of the Notes and interest, for such holder or holders. Russia has been the beneficial owner of the Notes at all times. Exercising powers conferred on it by the Trust Deed, Russia gave on 16 February 2016 a direction to Law Debenture to take enforcement proceedings in respect of the Notes. The present proceedings were issued by Law Debenture on 17 February 2016, claiming US$3.075 billion (being the principal and the last instalment of interest due on 21 December 2015) and continuing interest.

7

Ukraine has not challenged the jurisdiction of the English courts to determine the claim against it, but it served a defence and resisted the application for summary judgment on a number of grounds.

8

There is an important political background to the defences raised by Ukraine. As summarised by the judge in his judgment at [4], Ukraine's case as to the background to the subscription of the Notes by Russia was as follows:

4. “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.”

9

Further background is given by the judge at [19] – [20]:

“19. Ukraine's case is that the [Cabinet of Ministers of Ukraine'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.

20. 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.”

10

In its defence, Ukraine alleges that the claim against it “forms part of a broader strategy of unlawful and illegitimate economic, political and military aggression by the Russian Federation against Ukraine and its people aimed at frustrating the will of the Ukrainian people to participate in the process of European integration”.

11

The defences relied on by Ukraine in opposition to the application for summary judgment were analysed by the judge in his judgment at [32] as falling under four heads. In addition, Ukraine submitted that, irrespective of its prospects of success, there were compelling reasons to proceed to trial because “the claim is in reality a tool of oppression which includes military occupation, destruction of property, the unlawful expropriation of assets, and terrible human cost” which should be the subject of a trial.

12

In a careful and detailed judgment, the judge concluded that Ukraine had no real prospect of success on any of the defences advanced by it and that no other grounds existed for a trial of the claim. He accordingly entered summary judgment against Ukraine pursuant to CPR 24.2.

13

The judge reached his conclusion purely on issues of law. His conclusion was that, even if the alleged facts were true, they provided no sustainable defence to the claim as a matter of English law, being the law which the parties including Ukraine had agreed should govern the Notes and Ukraine's obligations under them. No purpose would therefore be served by a trial that investigated the facts alleged by Ukraine and there were no other compelling reasons for a trial.

14

Likewise, on this appeal, but only for the purposes of the appeal, the facts alleged by Ukraine are assumed to be true. Further, as before the judge, no point is taken on the appeal (but again only for the purposes of the appeal) that the claimant is Law Debenture but some of the defences concern the alleged activities of Russia.

Grounds of appeal

15

The grounds of appeal reflect the defences argued by Ukraine before the judge, and it is convenient to refer to them by reference to the grounds of appeal. Each ground will be examined in detail in the relevant section of this judgment.

16

The first ground relates to the capacity of Ukraine to issue the Notes and to enter into the arrangements concerning the Notes and to the authority of those ministers and officials who purported to act on behalf of Ukraine in those matters. This ground contains two alternative grounds of defence. First, Ukraine lacked legal capacity to issue the Notes which are therefore void and unenforceable. This was a question to be judged by Ukrainian law and the expert evidence showed that, under Ukrainian law, Ukraine did not have the requisite capacity. Second, even if the state had legal capacity, those ministers and officials who purported to act on its behalf in agreeing the issue of the Notes and the surrounding contractual arrangements lacked, to the actual or presumed knowledge of Law Debenture, the authority to do so.

17

The second ground relates to a defence of duress. Ukraine alleges that the issue of the Notes was procured by unlawful and illegitimate threats made, and pressure exerted, by Russia, such as to vitiate the consent of Ukraine and to constitute duress as a matter of English law. Ukraine alleges that it exercised its right to avoid the issue of the Notes and the arrangements giving rise to its liabilities under the Notes. The judge concluded that Ukraine could not succeed on this defence because it was non-justiciable in a domestic English...

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