* Ukraine sold Russia $3 bln bond weeks before regime change
* Moscow at odds with Kiev's now pro-Western government
* Russia chooses public hearing over private arbitration
* London High Court hearing starts on Jan. 17
By Karin Strohecker
LONDON, Jan 13 A $3 billion dispute between two
adversarial governments will come to a head in an English court
on Tuesday when Russia and Ukraine meet for a first hearing in
their legal battle over a politically charged eurobond.
The debt at the heart of the dispute was sold in late
December 2013 by then-Ukrainian President Viktor Yanukovich to
Russia, less than two months before his Moscow-backed government
was ousted by street protests that the swept ex-Soviet republic.
Fast-forward through a pro-Western change of government in
Kiev, Russia's annexation of Ukraine's Crimea region and an
International Monetary Fund bailout for Ukraine involving a
restructuring of sovereign, hard currency bonds.
Those bonds, restructured to pull the near-bankrupt Ukraine
back from the brink, were chiefly held by private investors -
aside from $3 billion worth held by the Russian government.
Moscow insists the bond which matured in December 2015 is
sovereign debt and should never have been included in the
restructuring plan. Kiev refused to repay the bond, saying
Russia should have participated in the restructuring.
Russia, represented by Cleary, Gottlieb, Steen & Hamilton
LLP, filed a lawsuit in February 2016 demanding a full $3
billion repayment plus legal fees and interest, which according
to Moscow's finance ministry amounted to $75 million a year
The case, which will be heard at the High Court on Jan. 17,
is unusual in many ways, according to Mitu Gulati, a law
professor at Duke University in the United States.
"The most important big issue here is: Does Ukraine actually
owe money to a country that basically ran it as a vassal state
and invaded it and took its territory? And that is the kind of
question that courts usually don't ever decide," said Gulati.
The bond is unusual because countries do not generally lend
to each other under a third country's legal framework, opting
instead for direct bilateral agreements. Terms are often kept
If debt relief is needed, it tends to be agreed under the
framework of the Paris Club of creditor nations, of which Russia
is a permanent member.
This bond however was structured under English Law, and both
Russia and Ukraine had agreed from the outset that a British
court ought to decide on possible disputes, Gulati noted.
"Now a dispute is actually happening, and rather than
negotiating and resolving it on their own, they are bringing it
in front of a judge which means the judge is going to have to
decide on matters that affect international law, not just
Both Russia and Ukraine's government declined to comment.
UKRAINE SAYS BOND WAS ISSUED UNDER DURESS
Ukraine's defence, managed by Quinn, Emanuel, Urquhart &
Sullivan LLP, centres around a number of arguments. First, that
the bond had never been properly authorised by Ukraine's
parliament and government, was issued under duress and was
subject to a number of implied additional terms.
Kiev should also be allowed to take "counter-measures" in
response to actions taken by Russia, it argued, according to a
defence document seen by Reuters.
Russia's "illegal invasion and unlawful occupation" had
deprived Ukraine "of the entire purported economic benefit of
the transaction", the document states in its defence.
The hearing comes after Russia requested a summary
judgement, often used to speed up proceedings. This means the
court will look at each of Ukraine's defence arguments and
decide if they are likely to stand up in court. Following this,
it could allow the case to go to trial, or not.
Russia had the option of a private hearing at the London
International Court of Arbitration, according to the bond
prospectus, but the fact it chose to bring the case to a public
court shows it is confident of victory, legal experts said.
"Their choice was very interesting," said Peter Griffin at
Slaney Advisors, an expert in international arbitration and
foreign investment disputes.
"Russia's case seems to me very strong. And Russia has
played this one really intelligently from the beginning - it is
almost like they have been two steps ahead of Ukraine and
(Additional reporting by Natasha Zinets in Kiev and Andrey
Ostroukh in Moscow; editing by Mark Heinrich)