Russia and Ukraine head for $3 bln debt showdown in English court

A $3 billion dispute between two adversarial governments will come to a head in an English court on Jan. 17 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 swept the ex-Soviet republic.

Fast-forward through a pro-Western change of government in Kyiv, 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 ago.

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...