The Law Debenture Trust Corporation PLC v Ukraine, Represented By the Minister of Finance of Ukraine Acting Upon the Instructions of the Cabinet of Ministers of Ukraine (Rev 1)

A recognised sovereign state has unlimited capacity under English law to borrow. Restrictions in its domestic law may concern the authority of the officials acting for it, rather than the state’s capacity, and cannot of themselves make a borrowing void.

Foreign act of state principles may render allegations concerning inter-state economic pressure, threats of force and unincorporated treaties non-justiciable. Such matters cannot found a defence of duress or countermeasures in an English contractual debt claim. Terms implied into transferable financial instruments must be ascertainable from the contractual documents and must not undermine transferability.

The claimant trustee sought summary judgment for Ukraine’s failure to repay US$3 billion notes issued in December 2013. Ukraine resisted enforcement on the grounds of lack of capacity or authority, duress arising from Russian economic and political pressure, implied terms preventing enforcement after Russian interference, and public international law countermeasures.

The court proceeded largely on Ukraine’s factual case for the purposes of the application. The central questions were whether the defences had a real prospect of success, whether they raised issues unsuitable for summary determination, and whether there was any other compelling reason for trial.

1. Summary judgment. The applicable test under CPR rule 24.2 was whether Ukraine had no real prospect of successfully defending the claim and whether there was no other compelling reason for trial. The court could decide points of law, provided they did not require detailed factual investigation.
2. Capacity and authority. A recognised sovereign state has unlimited capacity to borrow under English law. The alleged breaches of Ukraine’s domestic borrowing limits and procedures concerned the exercise of power by state organs and therefore authority, not capacity. The Minister of Finance had usual authority to enter into the transaction. His signature on all 31 previous Ukrainian debt issuances in which the Trustee had acted established that authority. Summary judgment was therefore granted on this issue. Ratification was unsuitable for summary determination because it required a mini-trial concerning Ukraine’s subsequent conduct and the effect of continuing Russian military pressure.
3. Duress. Ukraine had established a sufficient factual foundation showing substantial Russian economic pressure and threats. However, determining whether the trade restrictions were unlawful or illegitimate would require adjudication upon dealings between sovereign states and interpretation of unincorporated treaties. Those matters were non-justiciable under the foreign act of state doctrine. Threats of force likewise concerned aggression and armed conflict between states. The public policy exception did not make those allegations justiciable. The duress defence therefore had no real prospect of success. Affirmation was unsuitable for summary determination.
4. Implied terms. Although a term may generally be implied preventing a party from obstructing performance, the proposed terms were inconsistent with transferable financial instruments. Potential transferees had to ascertain the obligations from the contractual documents. The terms would make the Notes effectively untradeable, were unnecessary for business efficacy, insufficiently clear and, insofar as based on international law, non-justiciable.
5. Countermeasures. The proposed countermeasures defence depended on the same non-justiciable inter-state conduct as the duress defence. Following Westland Helicopters Ltd v Arab Organisation for Industrialisation, the court held that it could not determine the public international law issues.
6. The Trustee was entitled to summary judgment. The court rejected Ukraine’s submission that the wider circumstances constituted a compelling reason for trial.

First-instance decision. No earlier decision in the same proceedings was stated.