In this post, Karen Denny, Louis-Peacock Young and Kristyna Muhlfeitova, who all work with CMS and have a special interest in public international law, preview the decision awaited from the UK Supreme Court in the matter of The Law Debenture Trust Corporation plc v Ukraine, on which judgment is expected soon.

Between 9 December and 12 December 2019, the UK Supreme Court heard the joint appeals in the matter of The Law Debenture Trust Corporation plc v Ukraine. The matter stems from Ukraine’s non-repayment of $3 billion due under debt instruments, commonly called Eurobonds (the “Notes”), issued by Ukraine and subscribed to by the Russian Federation.

The appeal concerns the justiciability of Ukraine’s allegations of duress by the Russian Federation before the English Courts.  Such issues of justiciability require considerations of whether there is any “domestic foothold” for the allegations, and the application of the foreign act of state doctrine.  The appeal also includes arguments relating to contractual capacity, ostensible authority and the doctrine of countermeasures under international law. The Supreme Court ruling will be an important addition to the development of the foreign act of state doctrine and could have implications for contractual relationships with or between sovereign states.


On 24 December 2013 the Law Debenture Corporation p.l.c (the “Trustee”) entered into a Trust Deed, governed by English law, which constituted the Notes issued by Ukraine. The Notes are fully tradeable instruments listed on the Irish stock exchange. The Russian Federation became the sole subscriber to the Notes and has retained the Notes since they were issued.

On 21 December 2015 Ukraine refused to pay the last instalment of interest. The Trustee in its capacity as the trustee of the Notes, was directed by the Russian Federation to commence proceedings once Ukraine failed to make the payment. The Trustee applied for summary judgment.

Ukraine resisted the Trustee’s application on several grounds, including the grounds set out below which remain at issue in the Supreme Court:

  1. Ukraine, acting through the Cabinet of Ministers of Ukraine, exceeded legal limits on its capacity (as distinct from authority) to enter into the transaction under Ukrainian law and as a result the Notes were void and unenforceable against it (“Capacity Defence”);
  2. the Ukrainian Minister of Finance lacked the authority to enter into the transaction as the Notes issued exceeded the borrowing limits in Ukraine’s Budget Code (“Authority Defence”);
  3. the Russian Federation allegedly made threats to Ukraine’s territorial integrity and to use unlawful force and allegedly applied unlawful trade and economic pressure on Ukraine to enter into the transaction, the alleged pressure on Ukraine constituted duress under English law allowing Ukraine to avoid payment under the Notes (“Duress Defence”); and
  4. Ukraine was entitled to refuse to make the payment under the public international law doctrine of countermeasures as the Russian Federation was in breach of its obligations under international law not to use unlawful force against Ukraine and/or to refrain from intervening in Ukraine’s internal affairs (“Countermeasures Defence”).

The Trustee rejected Ukraine’s defences and maintained that even if the account put forward by Ukraine was accurate, this would not affect the Russian Federation’s rights under the Notes.

On 29 March 2017 the High Court awarded summary judgment in favour of the Trustee, holding that the defences put forward by Ukraine did not have a reasonable prospect of success at trial and there was no other compelling reason for the case to be disposed of at trial.

The Court of Appeal Decision

Ukraine appealed the decision to the Court of Appeal, which upheld the High Court’s decisions in respect of the defences put forward by Ukraine except the Duress Defence, holding that the Duress Defence was justiciable, and that Ukraine had an arguable case.

The Court of Appeal further considered that if it had held the Duress Defence to be non-justiciable, it would have ordered a stay of the proceedings. Ukraine applied for a “permanent” / “unlimited” stay unless and until Russia complies with its obligations under public international law. However, the Court of Appeal did not set out the conditions of the hypothetical stay that it would have granted.

The key findings of the Court of Appeal, relevant to the appeals before the Supreme Court, were:

  1. The Capacity Defence. Matters of Ukrainian law did not affect whether Ukraine had capacity to enter into the transaction. The Court of Appeal considered that a state’s capacity to enter into a contract is not analogous to that of a corporation or a natural person but is in its own separate category. A sovereign state, once recognised as such by Her Majesty’s Government (which recognition, presumably, would in turn be based on recognition of the state in international law) has sui generis legal personality as a matter of English common law. Capacity flows from personality, and this therefore granted Ukraine unlimited capacity to perform all operations attaching to legal personality under English law, including borrowing. Ostensible authority depends on a representation or the holding out by a person who has actual authority to make such a representation. The Court of Appeal concluded that the due appointment of the Minister of Finance and the Cabinet of Ministers granted the ministers actual authority. The Trustee was not on notice of any breach that deprived ministers of actual authority, therefore those ministers had ostensible authority regarding the issue of the Notes binding Ukraine.
  2. The Duress Defence. The Duress Defence is the key issue in the current appeal to the Supreme Court, as it is the only defence that was considered viable by the Court of Appeal and because it carries with it important arguments relating to justiciability and the act of state doctrine.
    1. Domestic Foothold. The Court of Appeal held that there was a domestic foothold, under lex fori, the law of England & Wales in this case, for the Duress Defence as duress is a defence under English law that Ukraine should be able to rely on. The court reasoned that for an act to constitute duress, it has to be either an act that is unlawful under English law or is “otherwise illegitimate”. The court provided that the criterion of “otherwise illegitimate” does not depend on standards under English law. Standards of conduct set out under international law could provide an appropriate test for what constitutes an act that is “otherwise illegitimate”. Therefore, the court reasoned it could apply international law to decide whether Russia’s actions constituted “illegitimate pressure” for the purposes of the Duress Defence.
    2. Competence of the English Courts. It was considered whether, despite there being a domestic foothold, the issue was beyond the competence of the English courts. The Court of Appeal explained that the prohibition on use of force is a part of jus cogens, accepted rules of international law that cannot be displaced, and that it was desirable for jus cogens violations to be explored at trial. It was held that Ukraine had an arguable defence of duress by reference to a breach of jus cogens and there was no further matter which would make Ukraine’s case unarguable on the facts or on the law.
    3. Act of State. The Court of Appeal considered that the acts by Russia upon which Ukraine relies for the purposes of the Duress Defence were acts of high policy (per Lord Neuberger’s ‘third rule’ in Belhaj v Straw [2017] UKSC 3). Therefore, prima facie the issue would appear to be non- justiciable under the act of state doctrine. However, the Court of Appeal concluded that the public policy exception applied, citing considerations including: Russia had voluntarily submitted to the jurisdiction of the English Court by entering into a contract governed by English law rather than dealing with Ukraine pursuant to a treaty governed by international law; the English courts would not be usurping the role of the executive as HMG had not intervened in the proceedings and had publicly condemned Russia’s actions in Crimea and Eastern Ukraine; and there was an especially strong public policy consideration that no country should be able to take advantage of its own violation of norms of jus cogens.
  3. Stay of Proceedings. The Court of Appeal held that if the Duress Defence was non-justiciable then it would have ordered a stay of the proceedings, reasoning it would be unjust to permit the Trustee to proceed without Ukraine being able to make use of any defence under English law. It was noted that Russia could agree to have the international law aspects of the Duress Defence determined by International Court of Justice (the “ICJ”), with any ruling used in the English proceedings to determine the claim. However, Russia has indicated that it would not submit to ICJ jurisdiction, despite Ukraine undertaking to accept the ICJ’s jurisdiction. Therefore, the Court of Appeal considered that the only available forum for the dispute would be an English court.
  4. The Countermeasures Defence. The Court of Appeal considered that the countermeasures doctrine only operates at the international level and does not have any domestic foothold. Therefore, it concluded that it is not the role of an English Court to examine the issue.

The Trustee’s Submissions

The Trustee has appealed  to the Supreme Court arguing that there is no “domestic foothold” for the Duress Defence and the application of the foreign act of state doctrine makes the defence non-justiciable before the English Courts, and that the Court of Appeal erred in holding that if the defence of duress is justiciable the claim ought to be stayed.

The Trustee’s arguments included:

  • To constitute duress under English law, behaviour must be either unlawful or otherwise illegitimate based on English law standards. Ukraine’s case relies solely on breaches of international law not on breaches of English law.
  • International law is irrelevant to the court’s consideration of the Duress Defence; the court should not be considering international law standards to judge whether conduct is ‘otherwise illegitimate’, in the same way that the court should not consider international law as standard for what is ‘unlawful’, as they would be incorporating international law into English law.
  • The Duress Defence would require an English court to determine the lawfulness of an act of a foreign state which is not appropriate for a municipal court to consider. There are ongoing talks in the political sphere between Russia and Ukraine, it is inappropriate for an English court to intrude in the political domain.
  • The countermeasures doctrine is non-justiciable as it has no domestic foothold and even if it did, it is only relevant to a state refusing to comply with international law not a state refusing to comply with a contract under domestic law as opposed to international law.

Ukraine’s Submissions

Ukraine has appealed in respect of the Court of Appeal’s decision on the Capacity Defence, the Authority Defence and the Countermeasures Defence. Ukraine further argues that, in any event, there are compelling reasons within the meaning of CPR r24.2(b) for the matter to proceed to trial.

Ukraine agreed with the Court of Appeal’s decision on duress. It further emphasised that Russia chose to contract with Ukraine under English municipal law and therefore should be taken to accept that an English court will apply the English law on duress. Ukraine countered the Trustee’s submission that the Duress Defence relies solely on breaches of international law, by providing that it is possible for the court to consider whether threats of force are illegitimate as a matter of English law without having regard to the position under international law. Ukraine agreed with the Court of Appeal stating that a stay should be granted if the issue of duress is not justiciable as it would be unfair to proceed if Ukraine could not argue its defence. Ukraine applied for a “permanent” / “unlimited” stay pending Russian compliance with Russia’s obligations under public international law, however, the Court of Appeal did not set out the conditions of the hypothetical stay that it would have granted.

Ukraine countered the Trustee’s argument in relation to its Countermeasures Defence. Ukraine argued that, contrary to the Trustee’s submission, the doctrine of countermeasures is not restricted to a breach under international law – a state may make use of the countermeasures doctrine under a municipal law contract. For example, if a state’s territory is annexed by a neighbouring state, it may stop the shipment of arms under a municipal law contract as a countermeasure. Ukraine submitted that it cannot be right for the state to have the right to use armed force as self-defence in such a circumstance (per Article 51 of the UN Charter) but not the right to breach a contract under municipal law.


This case falls in an area of potential conflict between competing English law principles of justice and the courts’ traditional reluctance to engage in areas of high policy. This judgment will see the Supreme Court considering the extent to which acts by sovereign states may inform decisions at English law, and in doing so consider the boundaries of the foreign act of state doctrine and the public policy exception to it. Either way the court decides, the parties may end up seeking recourse in the international sphere.