Source: http://www.creditslips.org/creditslips/2015/03/ukraines-russian-problem-part-2.html
Timestamp: 2016-10-01 20:38:35
Document Index: 212447587

Matched Legal Cases: ['Art. 9', 'Art. 3', 'Art. 23', 'Art. 11', 'Art. 12', 'Art. 12']

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Russia is known for many things. Enthusiastically responding to foreign requests for judicial assistance is not one of them. The US doesn't even recognize Russia's accession to the Hague Evidence Convention, although apparently the UK does. Take Russia's general unwillingness to help foreign tribunals get information from Russian citizens. Multiply by ∞. That's how unwilling Russia will be to respond to a foreign court's request for information about Crimea. Although Russia will in no event respond to an English court's request for information about Crimea, it can defend the refusal as legitimate. The Hague Evidence Convention, for example, contemplates that requests for judicial assistance will be executed under the internal law of the executing country. Russian law won't allow the discovery, and that's that. (See Articles 9-12.) Even if Russia's refusal to provide information is viewed as wrongful, the English court won't necessarily respond by imposing serious litigation-related penalties against the SWF.
In any event, it seems to me that Ukraine has viable arguments on the merits, whether under impracticability or another doctrine. But I'm still not convinced that English disclosure rules provide significant extra leverage. March 30, 2015 at 11:34 AM
Mitu Gulati |
B. Rice |
March 30, 2015 at 04:06 PM
I have to agree with Mark that discovery into Russia's sensitive and embarrassing information is an extensive hurdle. Although I am not sure about UK's interpretation and use of the Hague Evidence Convention (HEC), under US law this convention is not the exclusive method through which to get discovery - FRCP could still be used. However, strategically, the HEC is often the most useful because it bypasses sovereignty concerns (if both countries are signatories), it does provide a basis to collect evidence from a 3rd party, and it allows for easier enforcement of that countries discovery rules were applied. With that said, the HEC cannot be compelled and I can't see the HEC being much help here even if we assume Russia's accession to the Convention. (While I am not an HEC expert) it is mainly because: 1) Art. 9 provides that the Convening Authority will collect the evidence under the laws of the receiving country. I can't imagine Russia's discovery laws being as relaxed as the US, particularly for the type of sensitive information being requested. 2) The HEC procedural rules themselves (Art. 3) requires more specificity in requests, requiring the requesting party to know what it is they are looking for. 3) Art. 23 allows for reservations of obtaining pre-trial discovery of documents. 4) Art. 11 provides that the person concerned by refuse to give evidence in so far as he has a privilege or duty to refuse to give the evidence, i.e. under the law of the State of execution. and finally 5) Art. 12 provides the major safeguard provision: a request may be reused to the extent that the State addressed considers that its sovereignty or security would be prejudiced thereby. Overall, the HEC can be convenient in many contexts, but I believe it lacks power when the party is attempting to obtain sensitive and highly political information from Russia. Therefore, UK discovery procedures would have to apply. Posted by:
Melinda Goralczyk |
March 30, 2015 at 04:15 PM
Melinda - Art. 12 is definitely a winner for Russia on the discovery issue. Posted by:
March 30, 2015 at 06:08 PM
Under English Law, the primary case seems to be Grupo Hotelero Urvasco SA v. Carey Value Added SL. In analyzing the MAC clause, the English High Court used a four element test:
In conclusion: I think we have a pretty strong argument for a MAC/MAE, if we can get a court to interpret the prospectus as such. The only problem is there is very little case law on the matter, both in the context of sovereign debt as well as in the context of an "implicit" MAC. I was wondering if you or Mitu could provide any guidance. I know courts are generally hesitant to enforce MAC/MAEs, since they do not want parties to back out of contractual obligations, but I feel as though a creditor seizing a vital revenue stream might fit the bill.
Sriram Giridharan |
March 31, 2015 at 07:37 AM
March 31, 2015 at 01:05 PM
March 31, 2015 at 01:13 PM
This thought needs a lot of evolution, and even more criticism (Mark and readers please poke all the holes that you can), but may be something to work with. Posted by:
Great Post. I'm still not sold on the idea that if Russia tries to enforce the debt in English courts, Ukraine can use English procedural rules to demand sensitive information from Russia. Technically, Ukraine can and should try to demand discovery into Russia's sensitive and embarrassing information, but as you conceded, this will be difficult and a major hurdle. The issue of Russia being a third party, because it would likely be the Sovereign Wealth Fund that would try to enforce the debt in English courts and not Russia, is one big issue procedurally. Even if Ukraine is able to make a strong veil-piercing argument, Russia is likely to rebut this argument and frankly, as you said, will be unwilling to respond to a foreign court's request for information about Crimea. If these were private parties, the court could essentially "force" the parties to comply with discovery requests, but how would an English court force Russia, a sovereign nation, to provide sensitive information that would be used against them in court? Russia can just explicitly refuse to comply with an English court's request for information about Crimea, and there are many legitimate defenses it can raise. Russia can argue that it will not provide information about Crimea for national security concerns, or it can say that providing this information will cause a huge burden to find relevant information, or it can simply deny the existence of this information. Basically, Russia can raise many defenses to support its refusal and they could be viewed as perfectly legitimate. Additionally, as you pointed out Mark, even if Russia's refusal to provide information is viewed as wrongful, the English court won't necessarily respond by imposing serious litigation-related penalties against the SWF.
I also think that we are placing too much weight on the discovery of information that we think is sensitive and embarrassing to Russia. It's no secret that Russia was involved and planned the annexation of Crimea. On the anniversary of Russia's annexation of Crimea from Ukraine, Russian President Vladimir Putin even acknowledged that given Russia's annexation, there has been harm caused by Western sanctions. There is also news that speaks to Putin's popular image in Russia due to the annexation of Crimea, which many view to be a huge success that he accomplished. In Professors Gulati and Blocher's article, they also raise a point that even if we could show that Russia planned the annexation of Crimea, Russia could argue that Crimea was mostly a pro-Russian territory and there is no violation in a state wanting secession (in this case, no violation in Crimea wanting to be a part of Russia rather than Ukraine). We continue to believe Ukraine attempting to use English procedural rules to demand sensitive information from Russia is not a strong or reliable strategy. Ukraine should instead look for more viable defenses to an action to enforce the debt and without relying on information from Russia to assert them.
-Nirmal and Liz Posted by:
Liz Wangu |
April 01, 2015 at 08:03 AM
I want to address the use of impracticability. Specifically focusing on "Surely it is a basic assumption of a GDP-linked loan from Russia that Russia will not thereafter start a GDP-destroying war?" While I have recently been a proponent in finding a doctrine of contract law that Ukraine could use as a defense for payment I have now reached an impasse. My concern is the following:
If a court were to agree that this was a basic assumption (no war by Russia), and then use the impracticability defense to allow Ukraine to not honor their obligations, what would stop a court from using the same logic to a country that lends to a specific country and then imposes trade restrictions on that country? Or, if the country significantly altered business relations with that country? Russia is Ukraine's largest exporter (and importer), would a basic assumption to a GDP-linked loan to Russia be that Russia would not take steps to materially alter these trade relations? If Russia altered their trade relations, this would surely impact Ukraine's ability to pay back their loan. I am not aware of a scienter requirement for the use of the impracticability defense (but let's assume that Russia knew before the loan that they were going to stop all trade relations with Ukraine) I don not see how the doctrine would not apply based on your proposed usage. Impracticability is a result orientated doctrine (Prong (4) specifically requires that "the negatively-affected party didn't assume the risk of the event"), therefore it would be a logical interpretation of the proposed application ("Russia you started a war in Ukraine which destroyed their GDP") to say "Russia you significantly decreased your trade relations with Ukraine which destroyed their GDP." While I am not trying to analogize war with trade, it is merely to state that the results could potentially have the same outcome on GDP. The negatively-affected language requires a result that "negatively-affects" a party. If a court were to accept the war argument, I find it difficult to reconcile why the trade argument would not also be consistent.
Jackson Nye |
April 01, 2015 at 12:40 PM
BJN: In ordinary circumstances, I'd be inclined to agree that the defense presents the kind of slippery slope that concerns you. Not here, though, for two reasons. First, the GDP provision is absolutely integral to this loan (and so unusual in what is otherwise a relatively boilerplate document). Second, if Russia wanted to avoid these kinds of defenses - not uncommon in commercial loans - it had a simple mechanism available to it: ordinary bilateral credit. It decided to structure this as a commercial loan, seeking to benefit *both* from its official status and from ordinary contract protections and enforcement mechanisms. But it should take the good with the bad, and the bad includes ordinary contract defenses. And of course, ordinary commercial creditors can't typically wreck a borrower's GDP. Posted by:
April 01, 2015 at 03:09 PM