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Quinn Emanuel achieves landmark victory for Ukraine against Russia before the UK Supreme Court in politically charged US$ 3 billion Eurobonds dispute

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The Law Debenture Trust Corporation p.l.c. v Ukraine

Quinn Emanuel achieves landmark victory for Ukraine against Russia before the UK Supreme Court in politically charged US$ 3 billion Eurobonds dispute

I. Background: Politics Sets the Scene

As the tragic events in Ukraine since February 2022 have underlined all too clearly, President Putin has long considered Ukraine as being within the Russian Federation’s ‘sphere of interest’, despite Ukraine’s independence since 1991. Both nations were expected to maintain close ties after the collapse of the Soviet Union, but there were growing tensions between the countries in the 1990s and early 2000s over trade, gas disputes, the use of Ukraine’s Sevastopol port (where the Russian Black Sea fleet came to be stationed) and its increased cooperation with NATO.

In 2009, the EU launched an Eastern Partnership aimed at forging closer ties with former Soviet countries, and discussions with Ukraine over an ‘Association Agreement’ began. After years of negotiations, the text of the Association Agreement was finalised and initialled by the chief negotiators for the EU and Ukraine during 2012, and other steps were then taken to prepare for the formal signing of the agreement, which was set to take place at a summit in Vilnius, Lithuania, on November 28-29, 2013. However, perceiving these moves as a direct threat to its strategic geopolitical interests, through 2013, Russia embarked on a campaign of intense economic and political threats and actions against Ukraine, including threats to Ukraine’s territorial integrity, with the objective of dissuading Ukraine from concluding that Agreement.

In the face of this severe sustained pressure, and following a series of in person meetings between the two Presidents during October and November 2013, President Yanukovych ultimately capitulated and abandoned the proposed EU Agreement. The Presidents of Russia and Ukraine agreed that, in exchange, Russia would lift the economic pressures it had imposed on Ukraine, lend Ukraine much needed finance of up to US$15 billion (international capital markets having become effectively closed to Ukraine as a result of Russia’s actions), and supply natural gas to Ukraine at a discount. On December 24, 2013, as the first tranche of that promised lending, Ukraine purportedly issued US$ 3 billion Eurobonds with a 2 year maturity period which were taken up as to 100% by Russia, in substance a sovereign-to-sovereign bilateral loan (the “Russian Bonds”).

President Yanukovych’s decision to abandon the EU Association Agreement and turn back towards Russia proved to be a watershed moment in Ukrainian history. Public protests had already begun in late November 2013 at Independence Square in Kyiv, when President Yanukovych’s decision was first announced. As the days passed, the protests – which became known as the ‘Revolution of Dignity’ – continued to grow and spread across Ukraine. By early 2014, the protests had turned violent and this came to a terrible head when, in mid-February, scores of civilians were killed on the streets of Kyiv by what are widely believed to have been Russian commandos in disguise and operating among the Ukrainian security services. President Yanukovych was reported to have abandoned his post and fled Kyiv on February 21, 2014, and to have been exfiltrated to Russia by Russian special forces. He was relieved of his duties by the Ukrainian Parliament.

With Mr Yanukovych gone, Russia swiftly cancelled its commitments of economic support for Ukraine. Even more seriously, Russia launched a full scale military invasion of Crimea, unlawfully occupying and purporting to annex that sovereign Ukrainian territory, as well as fuelling and supporting separatist elements in the Donbas region of eastern Ukraine. These actions caused huge damage to Ukraine, with tens of thousands of people killed or injured in the conflict, more than three million Ukrainian citizens displaced within Ukraine or abroad, and billions of dollars of damage done to Ukraine’s infrastructure, as well as through lost industrial capacity and production. Trade with Russia – Ukraine’s largest trading partner – reduced massively. Ukraine’s currency, the hryvnia, went into freefall and it had to seek emergency assistance from the International Monetary Fund.

II. The Fate of the Russian Bonds

December 21, 2015 marked the purported maturity date of the Russian Bonds. However, on December 18, 2015, Ukraine’s parliament passed a law imposing a moratorium on repayment and the Russian Bonds went into alleged “default”. The Government of Ukraine engaged Quinn Emanuel to marshal its defence of Russia’s inevitable legal claim.

III. Russia’s “Simple” Debt Claim

On February 16, 2016, the Russian Ministry of Finance directed the Trustee of the Russian Bonds, an English corporation called The Law Debenture Trust (“Law Debenture”), to initiate enforcement proceedings against Ukraine. A day later, Law Debenture commenced proceedings against Ukraine in the High Court of England & Wales seeking US$ 3.075 billion as principal, together with accrued interest and legal costs. The bonds contracts were governed by English law and subject to English court jurisdiction.

Law Debenture characterised Russia’s claim as a “simple debt claim”, relying upon the terms of the bonds documentation that (as is customary in such capital markets instruments) prohibit any counterclaims, set-offs or other defences to repayment. Law Debenture maintained that the factual backdrop to the Russian Bonds was irrelevant to the legal position, and it filed an application for a ‘summary judgment’ to be entered against Ukraine in the full amount, a process which is used to bypass the need for a trial where a claimant’s claim is very clear cut.

IV. Ukraine’s Defence of ‘Duress’

Ukraine advanced several novel defences. Principal amongst those was a defence of ‘duress’ which, if proven, renders a contract voidable under English law. In short, Ukraine’s position was that its purported consent to the debt contracts was vitiated by the unlawful and illegitimate threats and pressure exerted on it by Russia during 2013.

Law Debenture, on the other hand, argued that the English Court was precluded by the doctrine of Foreign Act of State (non-justiciability) from adjudicating on Ukraine’s duress defence as, in order to do so, the court would be required to consider and make rulings on the legality or otherwise under international law of the acts of one foreign sovereign State (Russia) towards another (Ukraine) on the international plane. Having regard to the decision of the UK Supreme Court in Belhaj v Straw ([2017] UKSC 3), Law Debenture argued that Ukraine’s defence lacked a ‘domestic foothold’ as it was not based on English law rights and duties, but matters between States under international law. Law Debenture’s position was that Ukraine’s duress defence would have no reasonable prospect of success at trial and therefore it should obtain summary judgment.

Ukraine, in response, advanced reasons why, under applicable principles, its duress defence was justiciable, and hence the matter should be sent to a full trial so that the English Courts could consider all the evidence in reaching its decision on the substance of the duress defence. Additionally, Ukraine argued that even if the duress defence were non-justiciable as Law Debenture claimed, the consequence of such a ruling should be a ‘stay’ (i.e. suspension) of the proceedings, and not the entry of a summary judgment against Ukraine.

Otherwise, Ukraine would be denied its right to a fair trial and suffer an adverse judgment without being allowed to run its defence.

V. The High Court Sides With Russia

In March 2017, Mr. Justice Blair (the brother of former Prime Minister Tony Blair) sitting as first instance Judge in the High Court decided against Ukraine and entered summary judgment in favour of Law Debenture. Whilst the Judge recognised the “deeply troubling circumstances” surrounding the Russian Bonds, stating that Ukraine’s case of duress “is plainly a strong one”, and that Russia’s “threat of the use of force in 2013 has to be seen against the actual use of force in 2014”, he nevertheless held in short that the Court was constrained by the applicable principles of English law, including the doctrine of Foreign Act of State, to hold that Ukraine’s defences did not stand a realistic prospect of success at trial. However, recognising the novelty and complexity of the issues at play, as well as the importance of the case, the Judge granted permission to appeal to the Court of Appeal, and imposed a stay of execution of the judgment in the meantime.

VI. The Court of Appeal Vindicates Ukraine’s Position

The Court of Appeal heard the case at the end of January 2018 and, on September 14, 2018, delivered its judgment. Deciding in favour of Ukraine, the Court reversed the High Court’s decision on Ukraine’s duress defence, finding that there is a clear “domestic foothold” for the English Court to adjudicate the defence. The Court of Appeal ruled that English courts are well capable of construing and applying treaty obligations arising under international law, particularly so given the choice of English court jurisdiction in the Russian Bonds contracts, the clear condemnation of Russia’s acts by the UK government (as well as the EU) and Russia’s refusal to take up Ukraine’s offer of having the dispute determined before the International Court of Justice. The Court of Appeal judges held that it was desirable for the case to go to trial “to allow the whole pattern of alleged threatening behavior by Russia to be assessed in its full context”.

Further, the Court of Appeal held that, even had it agreed with the High Court that the duress defence was non-justiciable, it would as a consequence have ordered a permanent stay of the proceedings since it would be contrary to the requirement of natural justice and fairness for Ukraine to be denied the opportunity to defend itself before the Court and yet face an adverse judgment.

Again recognising the importance and complexity of the case, however, the Court of Appeal granted permission for a final appeal, to the UK Supreme Court.

VII. The Supreme Court delivers its landmark verdict

The Supreme Court heard the appeal over two hearings, the first in December 2019 (lasting four days, an exceptionally long hearing before the Supreme Court), and the second in November 2021 (a further day dealing with a specific aspect of the law of economic duress, known as ‘lawful act duress’). Finally, on March 15, 2023, more than 7 years after the case was first filed by Law Debenture with the English Court, the Supreme Court handed down its much anticipated Judgment.

In a highly significant victory for Ukraine, the Supreme Court rejected Law Debenture’s appeal and found unanimously that it is not entitled to summary judgment, with the result that there will be a full public trial before the English High Court of Ukraine’s defence of duress resulting from Russia's alleged threatened use of force.

In that regard, the Supreme Court held that Ukraine need show only that the alleged threats “were a reason (not the reason, or the predominant reason, or the clinching reason)” for Ukraine’s decision to enter into the contracts for the bonds, and that “[t]he onus will be on the Trustee to establish that those threats contributed nothing to Ukraine’s decision”. Further, the Court made clear that “[t]he alleged economic pressure, and threats of further economic pressure, are relevant as forming part of a combined strategy with the alleged threats of violence, or at least as part of the factual context in which those threats are alleged to have been made. If they accentuated the impact of the threats of violence, that is a factor which strengthens, not weakens, Ukraine’s case”. Whilst the Supreme Court explained that it had not been asked to consider events subsequent to the hearing of the appeal, which was concluded before Russia’s invasion of Ukraine in February 2022, Lord Carnwarth (who would have allowed Ukraine’s case to proceed to trial on broader grounds that the other Justices) said that those subsequent events cannot realistically be ignored.

In respect of Law Debenture’s argument that these issues raised matters that lacked a “domestic foothold” to be determined by the English Court, the Supreme Court found that it was simply unnecessary for it to consider and make a determination on whether the alleged pressure applied by Russia occurred in breach of international law. The applicable test was whether the pressure was illegitimate under English law.

The Supreme Court’s decision reinforces the integrity and sophistication of English law, and the preeminence of the English courts in adjudicating the most important, complex and sensitive disputes of an internationalist nature. Following this landmark decision, and assuming that Russia continues to prosecute its claim, the case will now go for a full public trial in the English High Court. The Court will be called upon to assess the detailed evidence and legal arguments relating to Russia’s egregious conduct towards Ukraine in 2013 and thereafter, and to determine Ukraine’s duress defence on the merits. This will provide a hugely important opportunity for Ukraine to have Russia’s conduct subjected to impartial and transparent judicial scrutiny, a major achievement in the face of Russia’s every effort to prevent that day from coming to pass.


If you have any questions about the issues addressed in this memorandum, or if you would like a copy of any of the materials mentioned in it, please do not hesitate to reach out to:

Alex Gerbi
Phone: +44 20 7653 2227

Jagdish Menezes
Phone: +44 20 7653-2014

April 11, 2023