In mid-September the Court of Appeal of England and Wales handed down its judgment in Ukraine v The Law Debenture Trust Corporation P.L.C. (‘Ukraine v Law Debenture’), in which it decided Ukraine’s appeal against an order for summary judgment for the payment by Ukraine of just over USD 3 billion. The application for summary judgment followed Ukraine’s decision to stop making payments under notes it issued in 2013, which are held exclusively by Russia. Law Debenture Trust Corporation plc (‘Law Debenture’), a trustee acting at the direction of Russia, made the application on the basis of the trust deed by which the notes were constituted, which is governed by English law and which empowers the Russian Ministry of Finance to direct Law Debenture to take enforcement proceedings against Ukraine. The domestic nature of the claim notwithstanding, Ukraine argued, inter alia, that Russia violated international law and that this provided grounds to refuse payment under the notes. It is on the Court of Appeal’s approach to these arguments that this post focuses.
Ukraine’s arguments and international law
It is in relation to two of Ukraine’s arguments – a defence of duress; and entitlement to refuse payment on the basis that it was taking a countermeasure against Russia – that Russia’s compliance with international law was called into question. The significance of Russia’s compliance with international law to the latter argument is clear. The relevance of international law to the former argument resulted from Ukraine’s claim that the issuance of notes ‘was procured by unlawful and illegitimate threats made, and pressure exerted, by Russia, such as to vitiate the consent of Ukraine…’ (Ukraine v Law Debenture para 17). More specifically, Ukraine alleged that Russia made threats which violated, inter alia, the prohibition on the threat of force and relied also on the imposition of and threat of allegedly unlawful restrictive trade measures as further evidence of duress (ibid para 166).
According to Blair J, neither the defence of duress nor the countermeasure-based argument could be considered on their merits, since the foreign act of state doctrine renders them both non-justiciable. ‘Ukraine’s case to the contrary has no real prospect of success’ (see here, paras 295, 308 and 365). While the Court of Appeal also dismissed Ukraine’s countermeasure-based argument, it did so for a different reason: the absence of a domestic legal basis which permits or requires an English court to ‘examin[e] it or pronounc[e] upon [its] merits’ (ibid para 189). In relation to the defence of duress, however, which has a domestic legal basis and to which, in the court’s view, Russia’s compliance with international law is relevant, the court held Ukraine to have ‘a good arguable case’ that the foreign act of state doctrine is inapplicable (Ukraine v Law Debenture, para 181).
Duress, international law and non-justiciability
The Court of Appeal identified three issues it had to consider in relation to the defence of duress (ibid para 155):
Issue (1): Is there a domestic foothold … which requires or permits the court to embark upon an examination of Ukraine’s case that Russia made threats against it which were unlawful as a matter of international law or otherwise illegitimate?
Issue (2): If there is a domestic foothold, is the issue nonetheless beyond the competence of the English courts to resolve? And
Issue (3): If there is a domestic foothold but the issue is beyond the competence of the English courts to resolve, should the court grant an unlimited stay of proceedings or strike out Law Debenture’s claim (which is a claim to vindicate Russia’s rights as lender under the Notes), because as a result its claim under the Notes cannot fairly be tried?
In addressing the first issue, it is clear, according to the court, that, as a matter of English law, ‘duress does not turn on breach of domestic law as the criterion of illegitimate pressure’. In the court’s view, the ‘reasonably determinate standards of conduct’ set by international law could, in the present case, provide an appropriate test of illegitimate pressure for the English law of duress (ibid para 160). There was, therefore, ‘a domestic foothold’ for the court to determine whether Russia violated its international legal obligations.
The second issue centred on the foreign act of state doctrine. In this regard, the court focused on the alleged threats of force, which were, in its view, ‘[t]he strongest aspect of Ukraine’s case’, even though it saw no reason why Russia’s trade-related conduct should not also be considered at trial, including ‘as independent aspects of the defence of duress’ (ibid para 167). The court readily stated that the foreign act of state doctrine:
‘has prima facie application in the present case. The acts of Russia upon which Ukraine seeks to rely … were acts of high policy by Russia in the sphere of international relations in the exercise of sovereign authority’ (ibid para 173).
Ukraine’s defence could, however, be heard on its merits, since, according to the court, the public policy exception to the relevant rule of the foreign act of state doctrine applies. In this regard, the court identified ‘six points … which have cumulative effect.’ They were as follows.
- First, given the structure of its loan relationship with Ukraine, Russia ‘chose to submit by any claim by Law Debenture to the jurisdiction of the English court’.
- Second, in this case ‘comity points in both directions’. Although it may be contrary to comity vis-à-vis Russia to assess the legality of its conduct, it would be contrary to comity vis-à-vis Ukraine to refrain from doing so.
- Third, it remains within Russia’s power to prevent the court’s consideration of Ukraine’s defence, either by ensuring the withdrawal of Law Debenture’s claim or by agreeing to a stay of that claim.
- Fourth, ‘there is nothing inherently non-justiciable or unmanageable in the legal standards which the English court would be called on to apply…’
- Fifth, it would not ‘usurp or cut across the proper role of the executive government’ for the court to assess Ukraine’s defence on its merits.
- Sixth, there was ‘an especially strong [English] public policy … that no country should be able to take advantage of its own violation of norms of ius cogens.’ (see ibid paras 174–181)
The third issue arose from Ukraine’s argument – an alternative argument to the defence of duress – that proceedings should be stayed if its defence of duress or any of its other defences were deemed non-justiciable. Given the court’s findings in respect of the second issue, it did not have to decide whether proceedings should be stayed. It nevertheless provided two reasons why they should, if Ukraine’s defence of duress cannot be assessed on its merits. Firstly, it would, according to the court, be unjust to allow Law Debenture’s claim to proceed without Ukraine being able to raise a possible defence which has ‘a domestic foothold’ (ibid para 183). Secondly, Russia could opt to litigate the international legal issues relating to Ukraine’s defence of duress in other fora, including the International Court of Justice (Ukraine having ‘undert[aken] to accept the jurisdiction of the ICJ in relation to the issues of alleged breach of international law by Russia as raised in its defence’). In the court’s view, this would allow ‘for fair resolution of the contract claim’, presumably because the English court could then rely on the international court’s finding and thus consider Ukraine’s defence on its merits (ibid para 185).
In short, the Court of Appeal decided that Law Debenture is not to obtain an order for summary judgment. Law Debenture’s claim should be considered at trial, with proceedings in this regard to continue only insofar as Ukraine’s defence of duress can be assessed on its merits, which, in the court’s view, is possible, even though it involves determining whether Russia violated its international legal obligations. For both Blair J and the Court of Appeal, whether the case should proceed to trial turned on the applicability of the foreign act of state doctrine; and, so, given also that Law Debenture has reportedly appealed the Court of Appeal’s decision, some brief remarks on the court’s approach to this issue may be worthwhile.
The application of the foreign act of state doctrine in the light of Belhaj
In determining whether the foreign act of state doctrine is engaged, the court seemingly considers the relevant rule to have a wide scope of ‘prima facie application’, arguably broader than that accepted by the Supreme Court in Belhaj and another v Straw and others and Rahmattulah (No 1) v Ministry of Defence and others (‘Belhaj’), the latter providing the latest authoritative statement on the doctrine. In that case, Lord Neuberger, whose view represented that of the majority, held that the rule ‘almost always only will apply to actions involving more than one state’ and which ‘will normally involve some sort of comparatively formal, relatively high[-]level agreement [between two States]’ (Belhaj, para 147; see also ibid para 167). In this regard, the Court of Appeal is perhaps more closely tracking Lord Sumption’s view, who held that the rule prevents English courts from ‘adjudicat[ing] on the lawfulness of the extraterritorial acts of foreign states in their dealings with other states or the subjects of other states’ (ibid para 234).
The court seems to follow the majority in Belhaj quite closely in relation to the scope of the public policy exception. Like in Belhaj (see ibid para 168), significant weight is accorded to the peremptory character of the norm allegedly violated. It is noteworthy in this regard that the Court of Appeal considers the prohibition on the threat of force a peremptory norm (Ukraine v Law Debenture, para 165). Nevertheless, again following Belhaj (Belhaj, para 168), the Court of Appeal does not consider the alleged violation of a peremptory norm necessary for the exception to apply, since it is, in its view, at least arguable that the exception would apply in respect of Russia’s trade-related acts (Ukraine v Law Debenture, para 167), in relation to which no violation of a peremptory norm was alleged. It nevertheless remains unclear whether, in the court’s view, all the other five ‘points’ it identified are then necessary for the exception to apply.
These are matters which may or may not be considered more fully in a trial; and, more generally, it remains to be seen whether Law Debenture can make good its claim and the circumstances in which it might be able to do so.