Ukraine’s Strange Defence, to Russia’s $3 Billion Debt Claim

In parallel with Ukraine’s extraordinary decision to bar Mikhail Gorbachev from travelling to Ukraine, Ukraine has filed what is legally speaking an equally extraordinary Defence to the Claim Russia has brought against Ukraine in London’s High Court.

Russia brought its claim because Ukraine refuses to repay $3 billion it borrowed from Russia in 2013.  Since the loan took the form of a purchase by Russia of a $3 billion eurobond the court with jurisdiction to decide the case is the High Court in London. 

Russia issued the claim on 17th February 2016.  It has taken a while for Ukraine to file its Defence.  As is usual in court cases Russia granted Ukraine at least one extension of time to enable it to do so.  The reason given for the delay was apparently the change of government in Kiev following the forced resignation of Ukraine’s previous Prime Minister, Arseny Yatsenyuk.

In the event the Defence Ukraine has filed is one that has no precedent in legal proceedings of this sort.  Ukraine claims it should be relieved of paying the debt because Russia’s alleged military aggression against Ukraine means Ukraine should be under no obligation to pay it.

The first thing to say about this Defence is that it essentially admits the debt.  Ukraine is no longer saying the debt itself does not exist because it was a collusive arrangement – a bribe if you will – paid by Russia to Ukraine’s former President Yanukovich.  Nor is Ukraine claiming the debt should not be repaid because it is intrinsically onerous.

These defences, if they were ever considered, essentially collapsed the moment the IMF recognised the debt as valid and said it was public debt – ie. debt owed by Ukraine to Russia as a sovereign state – not debt akin to that which Ukraine also owes to its private (mainly Western) creditors.  Since the debt has been recognised as valid by the IMF Ukraine is no longer able to dispute it.

Read more: Ukraine’s Strange Defence, to Russia’s $3 Billion Debt Claim