Can the international law doctrine of countermeasures in response to an internationally wrongful act justify non-payment of sums due under a contract?
Ukraine was the Appellant. The Respondent was a trustee.
The Respondent is a company incorporated in England and Wales. It is the trustee of Notes with a nominal value of US $3 billion. The Notes were issued by the Appellant and constituted by a trust deed to which the parties were the Appellant and the Respondent.
The trust deed is governed by English and Welsh law. The courts of England and Wales have exclusive jurisdiction, subject to an arbitration clause that was not exercised.
The Russian Federation is the sole subscriber of the Notes and has retained them.
In December 2015, the principal amount of the Notes and the last instalment of interest was due. The Appellant refused to make payment.
In February 2016, the Respondent issued proceedings against the Appellant claiming the principal amount, interest and costs. The Respondent was acting on the instruction and for the benefit of the Russian Federation.
The Appellant filed a defence disputing the validity and enforceability of the Notes. One of five grounds within the defence was that, in light of the Russian Federation’s alleged breach of its obligations to the Appellant not to use force against it, and not to intervene internally in the affairs of it, the Appellant was entitled to rely on the public international law doctrine of countermeasures to decline to make payment.
In July 2016, the Respondent applied for summary judgment on all five grounds, including that the Appellant could not rely on doctrine of countermeasures. The Appellant took issue with the application and submitted that there were other compelling reasons for the dispute to be subject to a full, public trial.
At first instance, the application was allowed on the five grounds put forward by the Respondent, no other compelling reason for a trial was found and summary judgment was entered. It was held that countermeasures were not justiciable by this jurisdiction. General and unconditional permission to appeal was granted.
On first appeal to the Court of Appeal, the Appellant’s appeal against summary judgment was allowed in part, but refused insofar as the doctrine of countermeasures was not available as an arguable defence, and there was no other compelling reason for a trial. It was held, however, that the doctrine of countermeasures operates only at the level of international law; absent a domestic foothold, courts in this jurisdiction have no proper role in examining it or pronouncing upon its merits. Permission to appeal was granted, including on the issue of countermeasures.
On second appeal to the Supreme Court, no request was made for consideration of subsequent events. This included Russia’s invasion of Ukraine in 2022.
There were five issues.
This case summary only considers the last – and the most novel.
Is the Appellant entitled to respond to internationally wrongful actions on the part of the Russian Federation with a proportionate countermeasure directed towards the Russian Federation by non-performance of an obligation of the Appellant otherwise due, with a view to inducing the Russian Federation to desist from its internationally wrongful conduct?
The conduct complained of was the invasion and annexation of Crimea.
Lords Reed, Lloyd-Jones and Kitchin JJSC gave judgment for the majority.
The following were set to one side.
First, that countermeasures are limited to the non-performance of international obligations of the state taking them and they may only be adopted against a state which is the author of an internationally wrongful act. Secondly, that the obligation in contract is not owed to the Russian Federation but to an English corporation. Thirdly, that countermeasures have a temporary character, which must as far as possible be reversible in their effects in terms of future legal relations between the two states concerned.
The objection to domesticating the doctrine of countermeasures was more fundamental.
Application by this jurisdiction of rules of international law is clearly restricted by domestic, constitutional principles. This includes the principle of non-justiciability.
Further, it is preferable to regard customary international law (including the doctrine of countermeasures) as a source of the common law on which this jurisdiction may draw as appropriate; as opposed to automatically part of the common law. The presumption, however, should be in favour of its application.
The majority held that: “First, English law does not recognise a defence reflecting the availability of countermeasures on the international plane. The parties selected English law as the law governing their contracts and the exclusive jurisdiction of the English courts and the asserted defence has no foothold in domestic law [which] in itself is a complete answer to Ukraine’s plea founded on countermeasures. Secondly, the subject matter of such inter-state disputes is inherently unsuitable for adjudication by courts in this jurisdiction. If the availability of countermeasures at the level of international law were accepted as giving rise to a defence in domestic law, national courts would become the arbiter of inter-state disputes governed by international law which is not their function.”
Lord Carnwath JSC wrote a powerful dissent.
First, the criteria for lawful countermeasures appear to be satisfied.
Secondly, longstanding authority holds that the common law has not been afraid to use principles of international law to develop the common law.
Thirdly: “The reasons given by the majority for not following that lead in the present context seem with respect unconvincing. … it is not explained why those principles should not be applied when those same states choose to conduct their affairs within the framework of domestic law. It is said that there is currently no applicable rule of common law which can be adapted for the purpose, but that begs the question why an appropriate rule cannot be fashioned by reference to a clearly established principle of international law, as the common law has been able to do in the past.”
Fourthly and finally, the majority held that the subject matter is inherently unsuitable for adjudication by a domestic court under various principles, however the majority also recognised that those principles may be departed from in an exceptional case, such as in response to a clearly established breach of international law, that is uniformly condemned by the international community. Why should the Appellant be prevented from seeking to make good this case at trial?
The doctrine of countermeasures was not an arguable defence.
The appeal was dismissed.
Written by Dominic Bright