Factual and Procedural Background
The case concerns a US$3 billion Eurobond issued to State A in December 2013. The notes are held on trust by Entity A for the benefit of State B. State A alleges that the loan was procured as part of a concerted campaign of economic, political and military pressure designed to prevent its rapprochement with a regional trading bloc. After the 2014 removal of Individual A from office, State B allegedly occupied Region A and fomented armed conflict in the eastern regions of State A, causing significant loss and displacement.
Entity A, acting at the instruction of State B, sued in the courts of The Country to recover principal and interest. At first instance, Judge Blair struck out State A’s defences as non-justiciable under the foreign act-of-state doctrine. The Court of Appeal reversed, holding that the “public policy exception” arguably applied. The matter came before the Supreme Court, where the majority again struck out most defences. In this separate, partly dissenting opinion, Judge Carnwath agrees that most defences should fall, but would permit the defences of duress and countermeasures to proceed to trial.
Legal Issues Presented
- Whether the foreign act-of-state doctrine (“third rule”) renders the allegations concerning State B’s conduct non-justiciable in the domestic courts of The Country.
- Whether the public-policy exception to that doctrine allows consideration of alleged breaches of peremptory norms, including the prohibition on the threat or use of force.
- Whether State A pleads an arguable defence of duress, embracing both economic pressure and threats of force, and if international illegality is relevant to determining an “illegitimate” demand.
- Whether a novel common-law defence based on lawful countermeasures, derived from international law, can justify State A’s non-payment under the notes.
Arguments of the Parties
Defendant’s (State A’s) Arguments
- The loan agreements were procured through unlawful economic pressure, trade restrictions and threats to territorial integrity, amounting to duress.
- Subsequent military actions by State B deprived State A of any benefit from the transaction.
- Withholding payment constitutes a lawful countermeasure proportionate to State B’s continuing internationally wrongful acts.
- The public-policy exception removes any bar to adjudication imposed by the foreign act-of-state doctrine.
Plaintiff’s (Entity A’s) Arguments
The opinion does not contain a detailed account of the plaintiff’s legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|
| Case 1 [2017] AC 964 |
Defines the “third rule” of the foreign act-of-state doctrine and recognises a public-policy exception. |
Relied on to frame the non-justiciability debate and support the availability of a public-policy exception. |
| Case 2 (Nos 4 and 5) [2002] 2 AC 883 |
Illustrates circumstances where the public-policy exception overrides act-of-state immunity. |
Cited as an example supporting application of the exception to egregious breaches of international law. |
| Case 3 (No 3) [1982] AC 888 |
Established the doctrine that certain international disputes are inherently unsuitable for domestic adjudication. |
Majority used it to resist a countermeasures defence; the dissent viewed the present facts as an exceptional case. |
| Case 4 [1995] QB 282 |
Obiter discussion of countermeasures in private litigation. |
Offered limited persuasive value; dissent noted its factual differences but found no obstacle to the defence. |
| Case 5 |
Addresses duress between private parties. |
Held not to illuminate what counts as “illegitimate” between sovereign states. |
| Case 6 |
Modern statement of English law on economic duress. |
Majority relied on it to separate economic pressure from threats of force; dissent argued the separation is artificial. |
Court's Reasoning and Analysis
Non-Justiciability and Public Policy: Both the Court of Appeal and the dissent take the view that, although State B’s acts are “high policy,” the public-policy exception applies because those acts allegedly violate a peremptory norm prohibiting the use of force. Having chosen a contract governed by the law and courts of The Country, State B must accept that domestic law will be informed by international-law standards.
Duress: The majority would isolate threats of force from economic pressure and exclude allegations of international illegality. Judge Carnwath rejects that approach, reasoning that the campaign was single and concerted, and that determining whether a demand is “illegitimate” necessarily entails reference to international norms when the parties are sovereign states. Accordingly, the entire pleaded duress defence should proceed.
Countermeasures: Drawing on the International Law Commission’s Draft Articles, the dissent finds that withholding payment is (i) non-forcible, (ii) directed solely at the responsible state, (iii) reversible, (iv) proportionate, and (v) not in breach of peremptory norms. Historical willingness to incorporate international law into the common law supports recognising such a defence. The exceptional facts, including a widely condemned breach of international law, make the matter suitable for adjudication despite concerns under Case 3.
Holding and Implications
Holding: Judge Carnwath would have allowed both the duress and countermeasures defences to proceed to trial without amendment.
Implications: Had this view prevailed, State A could test its full factual case at trial, potentially justifying permanent or temporary non-payment. The dissent signals openness to integrating international-law countermeasures into domestic contract doctrine, but no binding precedent is created because it did not command a majority.