Ukraine and Russia are at war, both in eastern Europe and, at least metaphorically, in the English courts. In ruling on an ongoing dispute between them concerning an alleged $3 billion debt, the Supreme Court emphasised that a contract entered into under illegitimate pressure may not be worth the paper it is written on.
Shortly before Russia invaded Crimea in 2014, Ukraine entered into transactions whereby it issued interest-bearing bonds to its larger neighbour with a nominal value of $3 billion. In substance, that amounted to a loan of $3 billion from Russia to Ukraine. Ukraine did not repay that sum when the bonds matured in 2015.
Acting through a trust corporation, Russia launched proceedings against Ukraine in London with a view to recovering its investment. Following a hearing, a judge found that Ukraine had no viable defence to the claim and summarily ordered it to pay the sums due under the bonds. In subsequently reversing that decision, however, the Court of Appeal found that Ukraine had an arguable defence of duress.
Ruling on Russia’s challenge to the latter decision, the Supreme Court noted that the appeal was heard prior to Russia’s wholesale invasion of Ukraine in February 2022. It had not been asked to consider matters arising from the invasion or subsequent events.
It was Ukraine’s case that it undertook the transactions following massive economic and political pressure from Russia. The latter’s aim was said to be to induce Ukraine not to enter into an association agreement with the European Union, but to instead accept Russian financial support in the form of the bonds. Ukraine further asserted that Russia had threatened to use force to undermine its territorial integrity and independence.
The Court found that the exertion of economic pressure, including Russia’s alleged imposition and threat of trade restrictions, was not by itself sufficient to amount to duress. Trade sanctions, embargoes and protectionism are, it observed, normal aspects of international statecraft which cannot be regarded as inherently illegitimate or contrary to public policy.
Russia’s alleged threats to use force to destroy Ukraine’s security and territorial integrity, however, fell into a different category. Under English law, such threats would arguably be regarded as illegitimate pressure on Ukraine to enter into the transactions. Opening the way for Ukraine to defend the claim, the Court found that the duress issue could only be resolved following a full trial.