The English Court of Appeal has ruled1 in favor of Ukraine in its US$3 billion dispute over sovereign bonds issued to Russia. This ruling overturned an earlier first instance judgment against Ukraine. If not appealed, the Court of Appeal ruling will result in the dispute moving to a full trial.
Some key findings for investors in sovereign bonds governed by English law are:
- In certain circumstances, a sovereign may have a defense of duress where it enters into a contract with another state at a time when that state is exerting pressure upon it.
- The capacity of a foreign state recognized by the United Kingdom to issue bonds is not restricted by breaches of domestic law of the type described below.
- If a government or minister has breached the provisions of its own domestic laws by causing the sovereign to issue bonds, it may have lacked the authority to bind the sovereign. However, the sovereign can only avoid payment where a bondholder has actual or constructive knowledge of the breach.
- It is more difficult to imply terms into transferable debt instruments such as bonds than in the case of other types of agreement, even in circumstances where the bond was issued to and held by a single investor.
- There is no general rule that requires the implication of a duty not to impede the performance of another party.
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