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Ukraine versus Russia, English Supreme Court

posted by Jay Lawrence Westbrook

Bailiffs for Gunboats is the title I have given to a short paper to be published in a Festschrift for the famous German scholar, Christoph Paulus, lately head of the law faculty at Humboldt, Berlin. It discusses a case remarkably overlooked despite its unusual facts, its major legal and political implications, and its role as a prelude to the horrors of the current war in Ukraine.

The case of Ukraine v. Russia (“Ukraine-Russia”), pending decision in the Supreme Court of England for more than three years, lies at the intersection of traditional public international law and private international law. It presents the question of court enforcement of a debt that is intertwined with sovereign political relationships. More broadly, it reflects the great power that private enforcement of a commercial instrument may nowadays give to a creditor that has goals beyond repayment. In the special context of a sovereign creditor of a sovereign debtor, the case reveals the potential role of privately enforceable debt in achieving the creditor’s political ends.

Ukraine issued a note for repayment of a multi-billion dollar loan that Ukraine accepted at Russia’s insistence in lieu of one being discussed with the EU. The note was in standard commercial form suitable for trading and was listed on the Irish Exchange. The note was governed by English law and provided that the English courts would resolve any dispute. This arrangement was unusual for a sovereign to sovereign loan. One thinks of sovereign loans as being in one of two forms: bonds sold to various private parties or loans made by one sovereign to another. The first sort is governed by the private law of some country and the parties often select a method of dispute resolution in the courts of some trusted jurisdiction. A sovereign to sovereign loan usually looks quite different. It may be that Russia envisioned being able to use private enforcement in London and other financial centers as a non-military source of pressure on Ukraine by seizing assets and blocking commercial transactions through enforcement of a money judgment—bailiffs instead of gunboats (or tanks). (It is notable that Russia did not take up the suggestion of the English Court of Appeals to take its case to the World Court.) 

When Ukraine stopped paying on the note, Russia sued for enforcement in the High Court in London. Ukraine claimed that creation of the obligation represented by the note, and perhaps its enforcement as well, should be subject to the defense of duress available in commercial transactions.  That is, Ukraine asserted that a sovereign lender that chooses a commercial form of obligation in order to use private law mechanisms for enforcement should be subject to a defense of duress as would be any commercial lender. That claim was sustained in the Court of Appeal and then was appealed to the English Supreme Court. The appeal was argued almost three years ago and then reargued on November 11, 2021 about a month before the Russian invasion. [https://www.supremecourt.uk/watch/uksc-2018-0192/111121-am.html]

The international trend in recent years has been to judicialize commercial cases brought against sovereigns, but I argue that a sovereign to sovereign loan presents a special case. When the courts of a state are asked by a sovereign creditor to enforce a debt owed by another sovereign, there is always the likelihood of a motive and a result beyond mere repayment. The courts of that state may wish to seek the advice of its political departments in determining whether the enforcement presents a nonjusticiable political question. It seems to me subsequent events have vindicated that position.

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