Celestial Aviation Services Ltd v Unicredit Bank AG (London Branch)
| Jurisdiction | England & Wales |
| Judge | Mr Christopher Hancock |
| Judgment Date | 23 March 2023 |
| Neutral Citation | [2023] EWHC 663 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2022-000135 |
[2023] EWHC 663 (Comm)
Mr Christopher Hancock KC
Sitting as a High Court Judge
Case No: CL-2022-000135
CL-2022-000216
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building
Fetter Lane
London
EC1A 1NL
Mark Howard KC and Fred Hobson (instructed by Quinn Emanuel Urquhart & Sullivan) for the Celestial Claimant
Akhil Shah KC and Leonora Sagan (instructed by Quinn Emanuel Urquhart & Sullivan) for the Constitution Claimants
Rachel Barnes KC, James Sheehan and Genevieve Woods (instructed by RPC) for the Defendant
Hearing dates: 28 and 29 September 2022
Judgment Approved by the court for handing down
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 15:00 on Thursday 23 March 2023.
Mr Christopher Hancock KC
Sitting as a High Court Judge:
This is a Part 8 claim in two separate proceedings which have been heard together. In each case, the Claimants claim various forms of relief designed to assist in obtaining payment under standby Letters of credit which were confirmed by the Defendant, “UniCredit” the London branch of a German bank, which Letters of credit in turn confirmed Letters of credit issued by an entity called Sberbank Povolzhsky Head Office ( “Sberbank”).
UniCredit was the confirming bank under seven standby Letters of credit under which the Claimant in Action CL-2022-000135 (“ Celestial”) is the beneficiary. The Letters of credit were issued in 2017 and 2020 in relation to leases of aircraft to two Russian companies which were entered into between 2005 and 2014. The seven Celestial Letters of credit subdivide into: (i) the AAL Letters of credit (i.e. the four Letters of credit issued in relation to the leases entered into with AAL, as defined further below) and (ii) the Aurora Letters of credit (i.e. the three Letters of credit issued in relation to the leases entered into with Aurora, as defined further below).
In March 2022, Celestial made valid demands under the Letters of credit. It is common ground that – subject to the question of sanctions – UniCredit is liable to pay under the Letters of credit.
UniCredit is also the confirming bank under standby Letters of credit issued to the Claimants in Action CL-2022-000216, ( “Constitution”). Those Letters of credit were issued in relation to leases of aircraft as detailed below. Once again, valid demands were made under those Letters of credit, on dates set out below. Once again, it is common ground that – subject to the question of sanctions – UniCredit is liable to pay under the Letters of credit.
All of the Letters of credit are payable in US Dollars.
UniCredit refused to pay under the various Letters of credit, alleging that it is prohibited from making payment by reason of the operation of sanctions affecting Russia which were imposed by the UK, the EU, and the US in response to the conflict in Ukraine.
The Celestial leases.
Celestial is a company incorporated in the Republic of Ireland which provides services in connection with the leasing of aircraft. Celestial is a wholly-owned subsidiary of AerCap Holdings N.V. (“ AerCap”), a Dutch company which is the world's largest aircraft leasing company.
The Celestial case relates to a number of leases of aircraft which were entered into in the period from 2005–2014 between (i) certain subsidiaries of AerCap as lessors and (ii) two Russian lessees. The leases were the subject of certain novations and amendments. In their most recent form:
(1) Two aircraft were leased to AirBridge Cargo Airlines LLC (“ AAL”), which is a Russian company, under the following leases (the “ AAL Leases”):
(a) Celestial Aviation Trading Ireland Limited (“ CATIL”), a subsidiary of AerCap, and AAL were party to an Aircraft Specific Lease Agreement dated 21 December 2005 (as subsequently amended and novated). CATIL leased to AAL a Boeing 747-400ERF aircraft with serial number 35420 (the “ 35420 Lease”).
(b) CATIL and AAL were party to another Aircraft Specific Lease Agreement dated 21 December 2005, by which CATIL leased to AAL a Boeing 747-400ERF aircraft with serial number 35421 (the “ 35421 Lease”).
(2) Three aircraft were leased to JSC Aurora Airlines (“ Aurora”), a Russian company, under the following leases (the “ Aurora Leases”):
(a) Celestial Aviation Trading 33 Limited (“ CAT33”), a subsidiary of AerCap, and Aurora entered into an Aircraft Specific Lease Agreement dated 21 October 2013, by which CAT33 leased to Aurora an Airbus A319-100 aircraft with serial number 2222 (the “ 2222 Lease”).
(b) CAT33 and Aurora entered into an Aircraft Specific Lease Agreement dated 11 December 2013, by which CAT33 leased to Aurora an Airbus A319-100 aircraft with serial number 2243 (the “ 2243 Lease”).
(c) Celestial Aviation Trading 32 Limited (“ CAT32”), another subsidiary of AerCap, and Aurora entered into an Aircraft Specific Lease Agreement dated 15 August 2014, by which CAT32 leased to Aurora an Airbus A319-100 aircraft with serial number 3838 (as amended, the “ 3838 Lease”).
(d) These leases are referred to, together, as the “ Celestial Leases”.
The Celestial Letters of Credit
On 21 August 2017, Sberbank (who are a Russian bank) issued four irrevocable standby Letters of credit, two of which were issued in relation to the 35420 Lease and two of which were issued in relation to the 35421 Lease. These were the AAL Letters of credit. On 23 August 2017, UniCredit confirmed each of these Letters of credit. UniCredit is a German bank which, so far as relevant for the purposes of this claim, operates through its branch in London.
On 23 November 2020, Sberbank issued three irrevocable standby Letters of credit in relation to the 2222 Lease, 2243 Lease and 3838 Lease. These were the Aurora Letters of credit. On 25 November 2020, UniCredit confirmed each of these Letters of credit.
In relation to each of these Letters of credit:
(1) Celestial is the beneficiary under each letter of credit.
(2) Each of the Letters of credit is governed by English law.
(3) In relation to each of the Letters of credit, Celestial was entitled to draw on the letter of credit by making a demand in the required form as specified in the letter of credit. In summary, this required Celestial to state that it was drawing upon the letter of credit due to the failure of the lessee (i.e. AAL or Aurora) to comply with its obligations under the relevant lease.
(4) The making of a demand in the specified form crystallised the relevant payment obligation under each of the Letters of credit and UniCredit was required to make payment within four business days (in the case of the AAL Letters of credit) or five banking days (in relation to the Aurora Letters of credit) following receipt of a conforming demand.
(5) Each of the Letters of credit (i) stated that it created primary obligations which were independent from the underlying lease and (ii) was subject to and incorporated the Uniform Customs and Practice for Documentary Credits (2007 Revision, International Chamber of Commerce Publication no. 600) (“ UCP”).
The Celestial Demands for Payment
On 2 March 2022, Celestial made a written demand for payment on UniCredit in respect of the AAL Letters of credit. In summary, each of the demands stated that Celestial was drawing upon the relevant letter of credit due to AAL's failure to comply with its obligations under the relevant lease. The amounts demanded were in the total amount of USD44,527,383.98. The demands stipulated payment to an account held in London.
On 4 March 2022, Celestial made a written demand for payment on UniCredit in respect of the Aurora Letters of credit. Again, each of the demands stated that Celestial was drawing upon the relevant letter of credit due to Aurora's failure to comply with its obligations under the relevant lease. The amounts demanded were in the total amount of USD1,302,000. The demands stipulated payment to an account held in Dublin.
Initially two of the demands were not compliant but amended demands were submitted in the required form, as is common ground between the parties.
UniCredit was therefore required to pay USD 44,527,383.98 to Celestial within four business days of 2 March 2022 (i.e. 8 or at latest 10 March 2022) and USD 1,302,000 within five banking days of 4 March 2022 (ie 11 or at latest 14 March 2022).
Termination of the leasing of the aircraft
Events of Default under the Leases arose following the imposition of sanctions as a result of the conflict in Ukraine in February 2022. As a result, Celestial terminated the leasing of the aircraft on 3 and 4 March 2022. As at 19 August 2022, four of the five aircraft were located in Russia, but any continued use of or access to the aircraft is, as is common ground, without Celestial's consent (and in breach of the terms of the lease). One of the aircraft was outside Russia at the time of termination of its leasing and AerCap has been able to repossess it.
UniCredit's refusal to pay under the Letters of credit
On 7 and 11 March 2022, UniCredit informed Celestial that it refused to make payment of the amounts due under the Letters of credit. According to UniCredit, it was prohibited from doing so by reason of Regulation 28 of the Russia (Sanctions) (EU Exit) Regulations 2019 No. 855 (the “ UK Regulations”) as amended on 1 March 2022 by Regulation 4(2)(d) of the Russia Sanctions (EU Exit)...
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