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BREAKING: Russia wins Judgment against Ukraine in London High Court

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

The High Court in London this morning granted Russia’s request for an expedited hearing (ie. summary Judgment) of its claim against Ukraine arising from Ukraine’s non-payment of the $3 billion loan Ukraine owes Russia.

This is not the final Judgment in the case.  That is however probably no more than a few weeks away.  Reports say the High Court rejected all of Ukraine’s arguments that it should not be required to pay the loan for political reasons, and this together with the High Court’s decision to grant Russia an expedited hearing makes it now a virtual certainty that the High Court will shortly decide the case in Russia’s favour, and declare Ukraine in default on its loan.

As those who have followed my writings on this question will know, this is what I have argued was likely to happen from the start.  Indeed on strict legal principles it is difficult to see what other possible Judgment the High Court could have made.

Ukraine is saying it will appeal today’s Judgment, presumably to the Court of Appeal and, if it loses there, presumably ultimately to the British Supreme Court.  In English law an appeal does not however automatically delay implementation of a Judgment, and since today’s decision is procedural I cannot see what grounds for appeal there are, and I expect Ukraine’s appeal to be refused.

This means that a final Judgment in the case may now be no more than weeks away.

The big question therefore is what will happen when the High Court finally decides the case in Russia’s favour, and finds Ukraine in default of its $3 billion loan to Russia, as it is now almost certain to do.

Will the IMF recognise that this is a legal declaration from the world’s most powerful commercial court that Ukraine is in default to Russia, which since Russia is a member of the Paris Club should mean that any further IMF lending to Ukraine must cease according to the IMF’s own rules?  Or will the IMF find some way to ignore its rules so that it can continue lending to Ukraine despite the High Court in London declaring Ukraine in default?

My guess is the former, and my guess also is that it was the pending decision made today by the High Court in London rather than Ukraine’s transport blockade of the Donbass which caused the IMF Board on 20th March 2017 to postpone its decision on further lending to Ukraine.  See my full discussion here.

The political implications – and the potential economic consequences for Ukraine – of the country being declared in default and being cut off from all external funding, including IMF funding, are however immense, and Western governments which have invested so heavily in supporting Ukraine will be increasingly anxious.

POSTSCRIPT: Since writing the above the High Court in London has published the High Court’s Judgment granting Russia summary Judgment in the case of Ukraine’s $3 billion Eurobond.  The full Judgment, together with an executive summary, can be found here.

It is clear from the Judgment that the judge – Mr. Justice Blair, who is incidentally former Prime Minister Tony Blair’s brother – gave consideration to every part of Ukraine’s Defence.  As I expected he also accepted without qualification Ukraine’s claims about Crimea’s “annexation by Russia” and about “Russia’s aggression against Ukraine”.  However in the end – as I predicted – he had no hesitation deciding that these “defences” are non-justiciable (ie. they lie outside the jurisdiction of the High Court) and decided the case in Russia’s favour.  The words, which best summarise the whole Judgment are arguable these at the very end of the full Judgment

……ultimately, this is a claim for repayment of debt instruments to which the court has held that there is no justiciable defence. It would not be right to order the case to go forward to a full trial in such circumstances.

Though the Judge’s discussion is very detailed and makes many references to case law, those familiar with my previous discussion of the case should be able to follow it.

It is clear from the Judgment that Russia has in fact been granted Summary Judgment.  In other words the High Court has decided the case in Russia’s favour and against Ukraine.  There are some technical issues still left to be decided but essentially, unless Ukraine succeeds in getting the Judgment set aside on appeal (which I think is extremely unlikely) the case is over, Ukraine has lost, and Russia has won.

The one thing the Judge did do for Ukraine is grant Ukraine a 1 month’s stay of execution of the Judgment.  Presumably this is to allow Ukraine time to appeal and in order for the Court to deal with the remaining issues (eg. decide the exact amount Ukraine owes and the legal costs it must pay).  These will apparently be decided in late April, at which point unless an appeal is granted Ukraine will formally be in default.

The ball has now been passed to the IMF.  It now has a difficult decision to make, deciding what it must now do.  On balance I expect it to accept that Ukraine is in default to a member of the Paris Club and to stop lending to Ukraine.  As I have said previously, the legal implications of the IMF not doing so are awesome, and despite the political pressures I suspect there will be too many people in the IMF bureaucracy who counsel against it for it in the end to happen.  However I could be wrong, and since the IMF’s decision is ultimately a political one rather than a legal one, it cannot at this stage be predicted with absolute certainty.

Back in June Ukraine was saying that the case in the High Court would “take years”, and undoubtedly it was Ukraine’s tactic all along to try to drag out the case for as long as it could.  I always doubted Ukraine would be successful in doing this given how clear the case is, and in the event Russia has obtained Summary Judgment less than a year since Ukraine was saying that, and just a few months after Ukraine filed its Defence.


The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

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