On 29 March 2017, Mr Justice Blair (the Judge) in the Commercial Court gave summary judgment for US$3 billion in proceedings relating to a Eurobond issue. The issuer was Ukraine, and the sole noteholder was the Russian Federation. The decision dealt with complex issues regarding conflicts of laws and non-justiciability. The Court dismissed Ukraine's arguments on capacity and alleged duress. That judgment attracted considerable attention.
Judgment was handed down in July 2017 in relation to a number of consequential matters. This judgment is significant in relation to its consideration of the appropriate rate of interest on the amounts Ukraine was ordered to pay to Law Debenture (the Note Trustee), and it highlights the importance of how the default interest provision is drafted. In case of late payment, the trust deed governing the relevant notes (the Trust Deed) specified interest, both before and after judgment, at 5 per cent or (if higher) the rate of interest on judgment debts for the time being provided by English law (presently 8 per cent). Ukraine argued that the judgment obtained by the Note Trustee was denominated in US dollars, and that there is no judgment rate in relation to foreign currency judgments, the question of the appropriate rate of interest being at the court's discretion. On that basis, Ukraine argued that it should only be ordered to pay 5 per cent. The Judge found that, by the clause as drafted, the parties had agreed to apply the judgment rate for sterling judgments to a non-sterling sum, and the court should enforce that bargain. On that basis, the Judge ordered that the higher rate of 8 per cent was applicable both pre and post judgment. In his reasoning, the judge acknowledged that Ukraine's point would have been valid, and the court's discretion would have come into play, had the clause not been drafted as it was.
The Judge took a contrasting approach to an unpaid coupon which fell outside the drafting of the default interest clause in the Trust Deed. Here, the court used its discretion to determine the appropriate rate of interest (held to be US dollar three-month LIBOR plus 2 per cent).
The decision, and the marked contrast between the rate of interest arrived at by using the contractual drafting as compared with the rate determined by the Judge at his discretion, illustrates the practical importance of drafting default interest clauses carefully. The court granted permission to both sides to appeal and the appeal is due to be heard in January.