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Crimea river: Russia and Ukraine in bond case

Jason Rix

In Ukraine v Law Debenture, the Court of Appeal refused to imply terms into a trust deed and an agency agreement that Ukraine’s obligation to repay some Eurobonds wouldn’t arise if Russia, the sole noteholder, hindered repayment.

Law Debenture (at the direction of Russia) sought summary judgment against Ukraine for non-repayment of Eurobonds. Part of Ukraine’s defence was that implied terms in the trust deed and in the agency agreement meant that Ukraine did not have to repay if Russia prevented it from doing so.  For example where Russia “was in breach of its obligations towards Ukraine under public international law not to use force against Ukraine and/or not to intervene internally in the affairs of Ukraine”.

The Court of Appeal rejected this argument.

  1. The notes were tradeable instruments.  The fact that Russia was the current holder was irrelevant. Any implied terms had to derive from documentation available to subsequent holders, not just Russia as initial and current holder. Russia was not, in any case, a party to the documents in question. The implied terms would make the notes untradeable. No-one would buy notes subject to the whims of Russian foreign policy.
  2. The implied terms were unnecessary.  The question is not whether the implied terms create a commercially coherent result but rather whether the terms are so necessary or obvious that, without such terms, the contract would lack commercial or practical coherence.
  3. Ukraine’s express repayment obligations were clear.
  4. The proposed implied terms were too vague.  For example they did not specify the link between the use of force against Ukraine and how that would impact on Ukraine’s ability to pay.
  5. The proposed implied terms were not obvious.

On this blog, we often point out how hard it is to imply terms into a contract. This is an extreme example. It also shows that the test is even tougher for traded instruments.

Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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