Law Debenture Trust Corp. PLC v. Ukraine

In December 2013, Ukraine (defendant) issued $3 billion in notes to the Russian Federation (Russia). When Ukraine refused to repay the notes at maturity, Russia’s trustee, Law Debenture Trust Corporation plc (trustee) (plaintiff), brought an action against Ukraine. Ukraine responded that the notes were voidable for duress, alleging that Russia applied unlawful and illegitimate pressure to coerce Ukraine into accepting Russian financial assistance rather than entering into an association agreement with the European Union (EU). Ukraine claimed Russia exploited its financial vulnerability and dependence on stable trade relations with Russia to exert coercive pressure, including: (1) trade restrictions: banning imports from Ukrainian companies; (2) threats of further trade measures: warning that import bans would become permanent if Ukraine pursued the EU agreement; (3) energy threats: threatening to cut off natural-gas supplies; (4) financial intimidation: threatening to bankrupt Ukrainian manufacturers; and (5) security and territorial threats: stating that Russia would support the partitioning of Ukraine if it signed the EU agreement and could no longer guarantee Ukraine’s status as a state, warning that borders might need to be redrawn. Russian military force in support of Ukraine’s partitioning would almost inevitably involve violence against Ukrainian armed forces and civilians. Ukraine argued that these actions amounted to illegitimate or unlawful pressure because they were taken not for bona fide reasons but to coerce Ukraine’s political decision-making, and because they breached international law by threatening Ukraine’s sovereignty and territorial integrity. Ukraine asserted it had no practical choice but to accept the Russian financial package and issued the notes under the compulsion of these threats. The trustee moved for summary judgment, arguing that Ukraine’s duress defense was legally insufficient under English law. The high court granted the motion, and the court of appeal affirmed. Ukraine appealed.