## Facts

- In December 2013, Ukraine issued US$3 billion notes (the “Notes”) under a trust deed governed by English law, with exclusive English-court jurisdiction.
- The Russian Federation was the sole subscriber and beneficial holder of the Notes; Law Debenture Trust Corporation plc acted as trustee and sued on Russia’s instructions.
- Ukraine alleged it accepted Russia’s financial package and issued the Notes because Russia applied unlawful and illegitimate pressure to stop Ukraine entering into an association agreement with the European Union.
- Ukraine pleaded a course of coercive conduct including: import bans affecting Ukrainian companies; warnings of further and permanent trade measures if Ukraine pursued the EU agreement; threats to cut off natural-gas supplies; threats aimed at destabilizing or bankrupting Ukrainian industry; and statements implying support for partition of Ukraine and that borders might be redrawn.
- Ukraine alleged that the partition/border statements amounted to threats to Ukraine’s territorial integrity and security and that any implementation would almost inevitably involve violence against Ukrainian armed forces and civilians and damage to Ukrainian property.
- Ukraine paid interest for a period but did not pay principal and final interest due at maturity in December 2015.
- In February 2016, the trustee began proceedings in the English High Court seeking about US$3.075 billion plus interest and costs.
- The litigation reached the Supreme Court on an application for summary judgment/strike out: whether Ukraine had a real prospect of succeeding on its pleaded defenses at trial.

## Issues

1. Whether Ukraine, as a recognized foreign state, lacked contractual capacity under English law to issue the Notes because of alleged limits in Ukrainian public law.
2. Whether the Notes and related steps were taken without actual or ostensible authority of Ukraine’s Minister of Finance and/or Cabinet of Ministers, so that Ukraine was not bound.
3. Whether Ukraine had a real prospect of establishing that the Notes were voidable for duress, and in particular whether alleged economic and political pressure could amount to “illegitimate pressure,” and whether alleged threats connected to force/physical harm could do so.
4. Whether English law recognizes a defense allowing non-payment of a contract debt on the basis that non-payment would be a lawful countermeasure under public international law.
5. Whether doctrines such as foreign act of state/non-justiciability prevented an English court from determining the factual allegations about Russia’s conduct for the purpose of Ukraine’s defenses.

## Decision

- The Supreme Court refused to grant summary judgment for the trustee because Ukraine had a real prospect of succeeding at trial on a duress defense, but only to the extent the alleged pressure consisted of threats connected to force or physical harm (including threats to persons or property).
- The Court held Ukraine’s case of duress based on economic and political pressure (including trade measures) was not reasonably arguable under English law and could not proceed.
- The Court struck out Ukraine’s defenses based on lack of capacity and lack of authority as unarguable.
- The Court struck out Ukraine’s defense based on public-international-law countermeasures as unarguable in this private-law debt claim.
- The case was remitted for trial only on the narrowed duress issue (threats of force/physical harm), and not on economic duress, capacity, authority, or countermeasures.

## Legal Principles

- For English law purposes, a foreign state recognized by the UK government is treated as a legal person with full capacity to contract; alleged internal-law constraints on borrowing do not, without more, negate that capacity in English proceedings.
- Where a state, through its organs, presents an official as having power to act in a transaction of this kind, English law will treat the state as bound on the basis of authority principles (including ostensible authority), even if internal rules are said to have been exceeded.
- Duress requires illegitimate pressure that causes the claimant to enter the contract and leaves no practical alternative; lawful tools commonly used between states (such as economic and trade measures) are not, on the pleaded case, enough to satisfy the illegitimacy requirement.
- Alleged threats connected to force, violence, or physical damage to persons or property are capable, if proved, of constituting illegitimate pressure for duress and can render a contract voidable.
- English common law does not provide a stand-alone contract defense permitting non-payment of a debt because withholding payment would be a lawful countermeasure under public international law.
- Foreign act of state/non-justiciability doctrines do not automatically prevent an English court from examining alleged wrongful foreign-state conduct where it arises incidentally in deciding a domestic-law defense; on these pleadings, the narrowed duress case could be tried.

## Conclusion

The Supreme Court held that Ukraine could resist summary enforcement of the Russian-held US$3 billion Notes only on a limited duress theory based on alleged threats connected to force or physical harm, while rejecting as unarguable Ukraine’s defenses based on lack of capacity, lack of authority, economic duress grounded in trade/financial pressure, and public-international-law countermeasures, and remitted the matter for trial solely on the narrowed duress issue.


Law Debenture Trust Corp. PLC v. Ukraine, [2023] UKSC 11 (2023)