Redcliffe Partners has scored a courtroom victory for the Nordic Investment Bank (the “Bank“), the international financial institution of the Nordic and Baltic countries, at the Grand Chamber of the Supreme Court, whose ruling in this case sets one of the most resounding and important court precedents in the context of cross-border finance deals. The case concerned the recognition of the Bank’s suretyship claim in the insolvency proceeding against PJSC “Dniprovsky Iron and Steel Works” (“DMK“), a large Ukrainian steel mill.
By way of background, in 2008, the Bank disbursed a USD 40 million term loan to a Cypriot company for the purpose of on-lending to PJSC “Alchevsk Iron and Steel Works” (“AMK“), both companies being affiliates of the Industrial Union of Donbass group, to finance the purchase and installation of a combined cycle gas turbine at the AMK’s production facilities. The loan was secured by an English law-governed suretyship issued in favour of the Bank by AMK, DMK and several other companies of the Industrial Union of Donbass group as sureties. At some point, the Cypriot borrower stopped making interest payments and failed to repay the loan. All four sureties subsequently went into insolvency administration. The demands were served by the Bank on AMK and DMK to recover the principal and accrued interest but to no avail.
In November 2020, the Bank filed applications for recognition of its USD 59 million claim in the insolvency proceedings against AMK and DMK. While the AMK case application is still under consideration, the DMK case has quickly progressed to the Supreme Court. In the DMK case, the court of first instance and the court of appeal refused to recognise the Bank as a legitimate creditor, holding mainly that (i) no primary evidence of the loan disbursement, in particular payment instructions, had been provided, (ii) the applicable rules of English law had not been proved so the Ukrainian rules were applicable, and (iii) the suretyship had expired as a matter of Ukrainian law.
The case was ultimately heard by the Grand Chamber of the Supreme Court, which ruled in favour of the Bank and ordered the insolvency administrator to include the Bank to the register of creditors. This decision is a landmark precedent in Ukraine relevant to all foreign lenders relying on English law-governed loan documentation: it affirms the duty of Ukrainian courts to apply foreign law as agreed by the parties in the relevant loan documents, and establishes the balance of probabilities as the standard of proof for such cases.
Most notable findings of the Grand Chamber of the Supreme Court
For example, in this case, the term of the disputed suretyship deed was formulated as lasting “until the secured obligations have been fully paid and the obligations of the sureties have been finally discharged and released by the Bank”. Applying the Ukrainian legal rules on suretyship as “mandatory”, the lower courts held that the DMK suretyship, which contained such wording (as is quite common for English law guarantees), did not stipulate the clear term of its validity and, as such, had expired, since no claim was made against DMK within six months following the Cypriot borrower’s default. By contrast, under English law selected by the parties to govern the DMK suretyship, a creditor can present a demand or file a claim against a surety within a general limitation period of 12 years applicable to instruments executed as deed.
The Redcliffe Partners team advising on this case included Sergiy Gryshko, Partner, and Yaroslav Petrenko, Senior Associate, from the insolvency litigation side and Olexiy Soshenko, Managing Partner, and Evgeniy Vazhynskiy, Senior Associate, from the banking & finance side.Download PDF