The Supreme Court hands down a decision in Law Debenture Trust v Ukraine - Respondent's defence of duress | Fieldfisher
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The Supreme Court hands down a decision in Law Debenture Trust v Ukraine - Respondent's defence of duress


United Kingdom

After 16 months since the ultimate hearing, the Supreme Court ("SC") handed down a decision [1] in the dispute between Law Debenture Trust ("Claimant") against Ukraine.

The court held that Law Debenture Trust was not entitled to summary judgment and Ukraine should be permitted to defend the claim on the ground of duress resulting from Russia's alleged threats of the use of force. Ukraine's defences on the issues of capacity, authority and countermeasures were dismissed.

Background of the case

In 2013, Ukraine was preparing to sign an Association Agreement with the European Union. Due to political reasons, Russia successfully applied pressure to Ukraine in order to prevent this from happening. Russia also agreed to lend USD 15 billion and USD 3 billion would be the first tranche.

By the end of 2013, the Law Debenture Corporation and Ukraine entered into a Trust Deed governed by English law, which constituted the Notes worth USD 3 billion. Although they are fully tradeable instruments listed on the Irish stock exchange, Russia became the sole subscriber.

Ukraine paid interest three times in 2014 and 2015, but on 18 December 2015, the Ukrainian government suspended payments on the Notes.

On 17 February 2016, the proceedings were brought by the Claimant upon instructions of the Russian Ministry of Finance and soon after the Claimant filed an application for a summary judgment.

Throughout the proceeding, Ukraine advanced several defences; all but one failed. Ukraine contended in its defence that the Notes were procured by duress thus were voidable and had been avoided. The SC agreed and on this ground alone held that the Claimant was not entitled to summary judgment and Ukraine would be permitted to defend the claim at trial before the High Court.

Ukraine’s allegations fell into two categories that were considered separately since they raise distinct issues under the English law of duress - economic pressure and threats of the use of force.

The economic pressure

Ukraine's position is that duress was exercised by various forms of economic pressure such as the imposition of trade restrictions. While the Claimant did not dispute these allegations, it argued that such defence "does not amount to a defence of duress under English law".

The High Court ruled that the defence of duress lacked any real prospect of success since trade restrictive measures fell within the scope of the doctrine of foreign act of state, as explained in Belhaj v Straw and therefore were non-justiciable (cannot be resolved by a municipal court). The Court of Appeal decided that it "should not be struck out as being unarguable" and should be explored further at trial "both as an independent aspect of the defence of duress and as a relevant background".

The SC acknowledged that the English courts have never considered a case of alleged duress arising from such actions. It considered two issues (1) whether such economic pressure was inherently illegitimate or unacceptable for the purposes of the English law of duress, and, if not, (2) whether the pressure illegitimate or unacceptable for the purposes of the English law by virtue of their being  in breach of international law.

The imposition of trade restrictions in order to exert pressure upon other states "has been part of the armoury of the state since classical times" and such measures have never been treated as duress in English law.

The court reiterated a general rule that international law, unless incorporated into domestic legislation, cannot be interpreted by English courts. Whether or not Russia imposed pressure on Ukraine which was illegitimate according to English law and there would be no need to resort to international law to determine that.

The SC concluded that economic duress is not illegitimate under English law and cannot establish defence of duress thus Ukraine would not be able to pursue this argument in the High Court further. At the same time, the SC noted that economic pressure is "relevant as a forming part of a combined strategy with the alleged threats of violence, or at least as part of the factual context in which those threats are alleged to have been made".

The threat of use of force

The second category comprises threats of the use of force. Ukraine relied on various statements made by a high-rank adviser to the Russian President that if Ukraine signed the Association Agreement, Russia could no longer guarantee its status as a state and could possibly intervene the country.

Just as with the economic pressure above, the High Court ruled that the defence of duress based on threat to use force fell within the scope of the doctrine of foreign act of state. The Court of Appeal reached a different conclusion by relying on the public policy exception to the rule of the foreign act of state doctrine and decided that Ukraine was entitled to rely on Russia's threats of the use of force and such arguable defence should be explored at trial.

The SC ruled that although the UK courts have not considered whether threats to the safety of a state’s citizens or armed forces can constitute duress of the person, the SC could do so.

The court reasoned that the use of force by Russia would inevitably involve the use of violence against Ukrainian armed forces that would defend their country, and against Ukrainian civilians.

A threat to the person may amount to duress and have always been treated as illegitimate. Such threats need not to be directed at the contacting party and in this case "threats directed against a state, a government could hardly be indifferent to threats to the safety of its own citizens or the members of its armed forces, given its responsibilities towards them". If pressure to enter into a contract is illegitimate, there is no difference in principle whether it is exerted by a private individual or body, or by a state.

As regarding to justiciability of such allegations, the SC followed the English law rules concerning acts of foreign state explained in Belhaj v Straw. It was confirmed that English courts recognise and will not question effect of a foreign state's legislation and acts of its executive bodies in relation to any acts that take place or take effect within the territory of that state. Moreover, since the threats of use of force were made towards persons within the territory of Ukraine, those rules are not applicable. The court will not adjudicate on the lawfulness of extraterritorial acts of foreign states in their dealing with the other states. The act of state doctrine applies only if the issues cannot be resolved without determining it. Duress of the person under the English law is illegitimate pressure in itself and therefore does not require a ruling on the legality of Russia's conduct under international law.

The SC concluded that Ukraine's defence of duress based on the threats to use physical violence towards Ukraine’s armed forces and civilians, and the threats of damage or destruction of Ukrainian property, which were allegedly made by high-rank state officials on behalf of Russia, cannot be determined without a trial. Ukraine will have to amend its pleadings to exclude allegations of international law breaches since they are not material for the defence.

Dissenting opinion of Lord CARNWATH

The SC resolved this issue of duress by the majority. Lord Carnwath in his dissenting opinion noted that the defence of duress should to trial on a broader basis as pleaded by Ukraine. He noted that while subsequent events (apparently referring to Russia's invasion of Ukraine in February 2022, soon after the last hearing held in November 2021) were not considered, the court "cannot realistically ignore them" and "they certainly do nothing to diminish the force of the pleaded defence".

Lord Carnwath disagreed with the majority's approach to separate economic duress and threat of violence and treat the formed only as a background while in fact both were "parts of a single concerted course of action".

He also criticized the exclusion of allegations of illegality that were based on the international law. The cited English case law on duress had entirely different context and circumstances and relates to relationships between private parties and cannot be freely applied to relations between the states: "I find it hard to see why, in judging on the domestic plane whether the conduct of one sovereign state to another is “illegitimate” for the purposes of the law of duress, the court should treat as wholly irrelevant the legal standards which govern their international relationship".


This was the first time ever when the SC considered application of the doctrine of duress in a situation where such duress had been exercised by one state towards another one. A future decision may become an important precedent for the development of case law of the act of state and duress doctrines.

The SC provided detailed guidance to the parties and the High Court how to approach the allegation of threat of violence and set out a narrow scope of issues that would need to be addressed by the parties during the further proceedings.

A decision in favour of Ukraine may also have implications for the English financial market of sovereign borrowing in cases where transactions between states is structured using a local financial service company.  

[1] The Law Debenture Trust Corporation plc v Ukraine [2023] UKSC 11

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