Ukraine can suspend debt service on a contested loan from Russia. This was confirmed by the British Supreme Court on March 16, 2023. The bond was placed in 2013 under the administration of President Viktor Yanukovych, which maintained close ties with Russia. Russia had acquired the entire USD 3 billion bond.
In 2014, Yanukovych was overthrown amid the Euromaidan uprising and fled to Russia. After Russia’s occupation of Crimea and the start of the war in Donbass, Ukraine refused to service the bond. Since it had been issued in US dollars under British law, Russia has since been seeking to enforce debt service through the London courts. In 2017 and 2018, the High Court dismissed Ukraine’s claim. These decisions have now been overturned by the Supreme Court.
However, this does not mean that the claim is generally no longer valid. In fact, the High Court is now bound by the higher court’s decision to conduct proceedings on the basis of Ukraine’s rejection.
Precedent for contesting illegitimate debt?
In the initial proceedings, Ukraine had argued that the claim should have been included in a debt restructuring agreement reached in 2015 with all other bondholders. In contrast, Russia sees it as a de facto intergovernmental liability that, if anything, should be restructured in the Paris Club. However, Ukraine’s formal argument was evidently no longer central to the Supreme Court’s decision. Instead, the real—and far more intriguing—issue was whether debt must be repaid when the creditor has effectively imposed it on the borrower. The current Ukrainian government considers this to be a given, as the loan was effectively Russia’s reward for Yanukovych’s refusal to sign the already negotiated bilateral agreement with the EU.
History is full of examples of these so-called “offers that borrowers could not refuse.” From the early 19th-century loans provided by British banks to help the young Republic of Haiti pay compensation to former French slave owners, to the largest loan in IMF history granted to Argentina in 2018. Under pressure from the US administration at the time, the Trump-aligned Argentine President Macri received this loan to finance comprehensive election gifts ahead of the upcoming presidential elections. Macri lost the election nonetheless, and the successor government is struggling to service a loan that Argentina neither wanted nor needed.
A victory for Ukraine in the forthcoming High Court case could mark a significant precedent for contesting other potentially illegitimate debts.