On March 29, the London High Court of Justice decided to prioritize the consideration of Russia’s case against Ukraine regarding the Eurobonds for $3 billion, without conducting full-scale legal proceedings as requested by Russia.
The essence of the case is as follows. Ukraine received a loan of $3 billion from Russia in December 2013 during Yanukovych’s presidency. Russian President Vladimir Putin promised Yanukovych $15 billion, but due to Ukrainian revolution, he gave only $3 billion. In October 2015, after negotiations which lasted almost half a year [Ukraine insisted that the debt be recognized as commercial, with its consequent restructuring and partial debt relief], the holders of 13 of the 14 Ukrainian Eurobond issues to the total value of $14,36 billion and €600 million supported the restructuring of the debt. Approval was not attained only for Eurobonds of $3 billion with a repayment deadline of December 20, 2015, which were purchased by Russia for the National Wealth Fund at the end of 2013. Russia refused to discuss a restructuring of the general conditions, insisting on the inter-governmental and not commercial nature of the debt.
In December 2015, the Ukrainian government introduced a moratorium on the payment of the debt for these Eurobonds. On January 1, 2016, Russia announced that Ukraine had failed to pay the total amount of 3,075 billion USD, and was thus defaulting. The Russian authorities turned to the Law Debenture Corporation PLC, which initiated a lawsuit at the London High Court to recover the debt from Ukraine. For every day of delay, Ukraine is fined $683 000. The International Monetary Fund has recognized the loan as a state debt, but retains the option of continuing to finance Ukraine, despite its default on this debt.
The Ukrainian side has advocated full-scale legal proceedings, which would include an inquiry into the political aspects of this matter. In its objections, Ukraine specified that the loan contract, signed in December 2013, is invalid and unenforceable for a number of reasons, including violation of internal legislation and the standard established Ukrainian processes for issuing Eurobonds for $3 billion, which were subsequently purchased by Russia, and likewise the pressure from Russian throughout 2013 to stop Ukraine from signing an association agreement with the EU. The objection also cites evidence of the Russian military invasion of the territory of the Crimea and subsequent illegal annexation of the peninsula. Russia’s actions to destabilize the situation in Eastern Ukraine, support of separatists in this region, and military actions were listed separately. However, Judge William Blair threw out the arguments that the debt securities were instruments of political pressure on Ukraine. Effectively this means that Ukraine borrowed money from Russia and must repay it. Nevertheless, the court has allowed for this ruling to be appealed.
“This is the first stage. Ukraine has received the court’s permission to appeal,” Ukrainian Finance Minister Oleksandr Danylyuk told reporters. According to him, at the request of the Ukrainian lawyers, the court has agreed to postpone the ruling until the next session, which will take place “no earlier than the end of April”.
“The decision does not recognize the validity of Ukraine’s position and arguments in this matter. We respect this decision, but we have grounds to believe that it does not take into consideration the economic and military aggression from Russia,” Danylyuk emphasized.
The Russian Ministry of Finance insists that the ruling of the High Court is final and that no additional hearing on this matter is expected.