As the world focuses on the “divorce” between the U.K. and E.U., another divorce court hearing for two other former partners was handed down today in London.  In Ukraine vs. Russia on Wednesday, a U.K. court said Kiev still owes the Russians a cool $3 billion.

Setback for Kiev in London court over missed Russia bond payment

Ukraine’s defence for failing to repay deemed unfit to go to full trial !

Russia lent Ukraine the money in 2013 under former President Viktor Yanukovich in the form of a Eurobond governed by English law. The money was mostly set up for Gazprom to be paid by Naftogaz, Ukraine’s state run energy giant.

In his ruling today, British Judge William Blair said, “Ultimately this is a claim for repayment of debt instruments to which the court has held there is no justifiable defense. It would not be right to order the case to go forward to a full trial in these circumstances.”

The judge dismissed Ukraine’s four main defences — including that it did not have capacity to enter into the deal, that it suffered duress from Russia and that Russia’s military action in Crimea impeded Ukraine’s ability to meet its obligations. Ukraine also argued it was entitled to non-payment, given the effect of Russia’s interference in its country.

Judge Blair found against Ukraine in each of its four legal defenses.

The state argued that it didn’t have the capacity to sign off the bond issuance because the minister of finance at the time lacked authority, having broken domestic budget law. But Judge Blair ruled that the minister was seen as having requisite authority under English law.

Ukraine also argued that Russia’s actions amounted to duress under English law, which voided the bond contract terms. However, Judge Blair decided that assessing what Russia did to pressure Ukraine into pulling out of its agreement to join the EU was beyond the jurisdictional scope of English case law.

Additionally, the state claimed that Russia’s military aggression prevented Ukraine from meeting its obligations under the bonds, which violated an implied term of the bond contracts.

But the High Court said that the need for financial products to be easily transferable when traded limited the scope for “implied terms” within their contracts, ruling out Ukraine’s interpretation.

Finally, Ukraine argued that it was entitled under public international law not to pay out on the bonds as a result of severe Russian interference in its domestic affairs, but again Judge Blair ruled that deciding this matter was beyond the jurisdiction of the English courts.

The Law Debenture Trust is represented by Mark Howard QC and Oliver Jones of Brick Court Chambers and Norton Rose Fulbright.

Ukraine is represented by Bankim Thanki QC and Simon Atrill of Fountain Court Chambers, Malcolm Shaw QC of Essex Court Chambers and Quinn Emanuel Urquhart & Sullivan LLP

The case is The Law Debenture Trust Corporation PLC v. Ukraine, case number FL-2016-000002, in the High Court of Justice of England and Wales, Commercial Court, Queen’s Bench Division.

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