Successfully managed litigation will consider a range of factors, from commercial to personal, in addition to the black and white legal arguments that are to be put forward in court. This concept is being tested to its limits in a series of claims involving Russia and Ukraine which show how factors outside legal technicalities have the ability to influence and distort dispute resolution.

Russian Debt
Russia has recently issued a debt action in the English courts against the Ukraine for $3bn in unpaid bonds.

As Ukraine’s economy has worsened, it has struggled to service its sovereign debts. In late 2015, it reached a deal with the majority of its creditors to write down and extend the maturity of much of this debt. However, Russia (which issued the $3bn eurobond in 2013) has refused to be part of this agreement and has demanded repayment in full.

Russia had hoped that it could put pressure on Ukraine by denying it IMF funding. Under the old IMF rules, a debtor nation could not receive further assistance from the IMF while it was in default with an official creditor. Unfortunately for Russia, the IMF changed its stance in late 2015 so that Ukraine can still receive assistance despite being in default as long as the need for financial aid is urgent, good faith restructuring attempts have been made and there is no undue detriment to future official financing efforts.

In both the English debt claim and arguments over the ‘good faith’ sections of the new IMF rule, it is difficult to conclude that the poor relationship between Russia and Ukraine will not colour legal proceedings. Similarly with the Ukrainian dependence on Russian gas and Russia’s attempt to gain US/EU guarantees of the debt, the ongoing debt negotiations will go further than mere legal obligations.

Ukrainian Action over Crimea
A number of Ukrainian investment vehicles have launched arbitration claims against Russia for breaches of a 1998 bilateral investment treaty (“BIT”) between it and Ukraine. The BIT prohibited the nationalisation or expropriation without compensation of assets belonging to Russian or Ukrainian investors which were located in the other country’s territory. The annexation of Crimea has (at first glance) caused Russia to breach this obligation.

However, in addition to the usual legal arguments that will be put forth, the claimants will have to consider the wider political position.  The UN has issued, in response to the annexation, a resolution calling on all states and international bodies to refrain from all actions that may be seen as recognising the altered status of Crimea.

The obligation in the BIT is to protect the assets belonging to one country’s investors that are located in the other country’s territory. For the claims to succeed against Russia, it will need to be shown Crimea is now part of Russia. Therefore, any arbitral body or national court which rules in favour of this would be recognising the annexation of Crimea and thus breach the UN’s resolution. 

It would seem that the Ukrainian backed claimants could hurt their country’s political prospects by pursuing their claims.

Conclusion
The situation between Russia and Ukraine is an extreme example of where legal processes must take account of external factors. Whether the litigants are private companies or sovereign nations, all factors should be considered to ensure the conclusion to dispute resolution is satisfactory.

 

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