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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Celestial Aviation Services Ltd v Unicredit Bank GmbH, London Branch [2024] EWCA Civ 628 (11 June 2024) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2024/628.html Cite as: [2025] 1 WLR 196, [2025] WLR 196, [2024] WLR(D) 314, [2024] EWCA Civ 628 |
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CA-2023-001005 |
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
CHRISTOPHER HANCOCK KC (SITTING AS A DEPUTY HIGH COURT JUDGE)
Royal Courts of Justice Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE SNOWDEN
and
LADY JUSTICE FALK
____________________
CELESTIAL AVIATION SERVICES LIMITED |
Claimant/Respondent |
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- and – |
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UNICREDIT BANK GMBH, LONDON BRANCH (FORMERLY UNICREDIT BANK AG, LONDON BRANCH) |
Defendant/Appellant |
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And Between: |
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(1) CONSTITUTION AIRCRAFT LEASING (IRELAND) 3 LIMITED (2) CONSTITUTION AIRCRAFT LEASING (IRELAND) 5 LIMITED |
Claimants/Respondents |
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- and – |
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UNICREDIT BANK GMBH, LONDON BRANCH (FORMERLY UNICREDIT BANK AG, LONDON BRANCH) |
Defendant/Appellants |
____________________
Fred Hobson KC (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the Celestial Respondent
Akhil Shah KC and Leonora Sagan (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the Constitution Respondents
Hearing dates: 14 and 15 May
____________________
Crown Copyright ©
Lady Justice Falk:
Introduction
The issues
(1) whether payment under the LCs by UniCredit would have been "in connection with" an arrangement the object or effect of which is the supply of aircraft to or for use in Russia, or to a Russian person, and so prohibited by reg. 28(3) of the Russia (Sanctions) (EU Exit) Regulations 2019, SI 2019/855 (the "UK Regulations");
(2) if that prohibition did not apply, whether UniCredit nonetheless has a defence under s.44 of the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA"), on the basis that its belief that it was complying with the UK Regulations was reasonable;
(3) whether the question of illegality under the US sanctions regime was engaged under the Ralli Bros principle (Ralli Bros v Compañia Naviera Sota y Aznar [1920] 2 KB 287) on the basis that effecting payment in US dollars required the involvement of a correspondent bank in the United States; and
(4) if the US sanctions regime was engaged, whether payment in accordance with the demands would have been illegal under that regime.
(1) an argument that there was no "arrangement" within reg. 28(3) since there was no prohibition on the supply of aircraft when they were supplied;
(2) as regards s.44 SAMLA, arguments that a) the judge should not have accepted that UniCredit had established the necessary subjective belief, and b) even if s.44 applied, it did not extend to statutory interest and costs;
(3) in respect of US law, arguments that it was irrelevant because a) no act of performance was required in the United States, b) payment could have been made in sterling or euros, or c) the payment obligations accrued before any prohibition came into effect, and in any event the relevant provisions did not prevent the payments and, further, UniCredit could not rely on US law because it had failed to take reasonable steps to obtain a licence.
SAMLA
"An Act to make provision enabling sanctions to be imposed where appropriate for the purposes of compliance with United Nations obligations or other international obligations or for the purposes of furthering the prevention of terrorism or for the purposes of national security or international peace and security or for the purposes of furthering foreign policy objectives…"
"44 Protection for acts done for purposes of compliance
(1) This section applies to an act done in the reasonable belief that the act is in compliance with—
(a) regulations under section 1...
(2) A person is not liable to any civil proceedings to which that person would, in the absence of this section, have been liable in respect of the act.
(3) In this section "act" includes an omission."
The UK Regulations
"Sanctions are intended to increase pressure on Russia to achieve the outcome of Russia ceasing actions which are destabilising Ukraine, or undermining Ukrainian sovereignty... The UK has…been clear that we need to hold Russia to account for its actions in Ukraine, and to encourage a change in Russian behaviour towards Ukraine…"
UniCredit also relies on the following statement in para. 13 of the report about trade sanctions:
"The trade measures in the Regulations are targeted and provide for the trade sanctions to be subject to a licensing framework that will be overseen by the Department for International Trade. The power to grant licences under this regime supports the reasonableness of imposing these sanctions measures, as it will mitigate any unintended negative consequences."
"Financial services and funds relating to restricted goods and restricted technology
28. (1) A person must not directly or indirectly provide, to a person connected with Russia, financial services in pursuance of or in connection with an arrangement whose object or effect is—
(a) the export of restricted goods,
(b) the direct or indirect supply or delivery of restricted goods,
(c) directly or indirectly making restricted goods or restricted technology available to a person,
(d) the transfer of restricted technology, or
(e) the direct or indirect provision of technical assistance relating to restricted goods or restricted technology.
(2) A person must not directly or indirectly make funds available to a person connected with Russia in pursuance of or in connection with an arrangement mentioned in paragraph (1).
(3) A person must not directly or indirectly provide financial services or funds in pursuance of or in connection with an arrangement whose object or effect is—
(a) the export of restricted goods to, or for use in, Russia;
(b) the direct or indirect supply or delivery of restricted goods to a place in Russia;
(c) directly or indirectly making restricted goods or restricted technology available—
(i) to a person connected with Russia, or
(ii) for use in Russia;
(d) the transfer of restricted technology—
(i) to a person connected with Russia, or
(ii) to a place in Russia; or
(e) the direct or indirect provision of technical assistance relating to restricted goods or restricted technology—
(i) to a person connected with Russia, or
(ii) for use in Russia.
…
(6) Paragraphs (1) to (3) are subject to Part 7 (Exceptions and licences).
(7) A person who contravenes a prohibition in any of paragraphs (1) to (3) commits an offence, but—
(a) it is a defence for a person charged with an offence of contravening paragraph (1) or (2) ("P") to show that P did not know and had no reasonable cause to suspect that the person was connected with Russia;
(b) it is a defence for a person charged with the offence of contravening paragraph (3) to show that the person did not know and had no reasonable cause to suspect that the financial services or funds (as the case may be) were provided in pursuance of or in connection with an arrangement mentioned in that paragraph."
The terms of the LCs and the demands
"The above Issuing Bank has opened [an] Irrevocable Transferable Standby Letter Of Credit in your favour, a copy of which is enclosed. This copy forms an integral part of the Irrevocable Transferable Standby Letter Of Credit.
We herewith confirm this Irrevocable Transferable Standby Letter Of Credit and undertake to honour drawings under the above mentioned Irrevocable Transferable Standby Letter Of Credit up to and not exceeding the amount of USD 3,600,000.00 provided that the documents are presented in strict conformity with the terms and conditions of this Irrevocable Transferable Standby Letter Of Credit.…
This Irrevocable Transferable Standby Letter Of Credit is subject to Uniform Customs and Practice for Documentary Credits (2007 Revision International Chamber of Commerce Publication no.600."
"This standby letter of credit however creates primary obligations on us and is independent from the lease."
"On the instructions of the applicant and for its account, we, Sberbank … hereby establish this irrevocable transferable standby letter of credit to authorise the beneficiary as lease manager of the aircraft to draw on [UniCredit London branch] (the 'confirming bank') an amount or amounts not exceeding a total of US dollars 3,600,000-00 … by signed written demand certificate in the following format (with the bracketed sections and the blanks completed):
Quote.
On behalf of (insert the name of the current beneficiary), the undersigned hereby draws upon irrevocable transferable standby letter of credit no. 105911705406b dated 21.08.2017 issued by Sberbank and confirmed by [UniCredit London branch], due to [AAL] having failed to comply with its obligations under an aircraft specific lease agreement, dated December 21, 2005 (as amended modified or novated from time to time) made in respect of one Boeing 747-400ERF aircraft with serial number 35420, and instructs you to transfer USD ..... (say: United States Dollars ........) to (insert appropriate bank details) immediately.
Unquote.
Drawings under this standby letter of credit will be honoured upon receipt of such a demand certificate by mail, courier service or by hand at the counters of the confirming bank and the confirming bank will make payment to beneficiary's account specified in the demand certificate, value date no later than close of business on the 4 (fourth) succeeding Russia/London /USA business day following receipt of the demand certificate. If any drawing hereunder does not conform with these terms, confirming bank shall promptly notify you of that, state the reason(s) why and hold the document(s) presented at your disposal (or return them to you if you so request).
…
This standby letter of credit constitutes an obligation to make payment against strictly complying documents."
"We shall remit the proceeds value 2 (second) Russia/London/USA business day following the date of our receipt of yr authenticated Swift message confirming that credit complying documents were presented to yr counters by the beneficiary."
The judge's decisions
Reg. 28(3)
"126. I have come to the clear conclusion that UniCredit was not relieved of the obligation to make payment to the Claimants under the various Letters of credit by reason of Regulation 28. I reach this conclusion for the following reasons.
(1) I accept the Claimants' contention that the starting point is to identify the purpose of the regulation. Here that purpose is clear. Plainly, the intention of the legislature was to ensure that financial assistance was not provided to Russian parties in relation to, inter alia, the supply of aircraft.
(2) That regulation, as would normally be expected, operated prospectively and not retrospectively. It therefore looked to the time at which financial assistance was provided to the relevant party. Here, the issuance of a letter of credit to enable the supply of aircraft to a Russian party after the date on which the Regulation came into force would plainly come within the prohibition, as both parties accepted.
(3) That is not, however, this case. Here, the aircraft had been supplied long before the prohibition came into effect, at a time when it was perfectly lawful to make such a supply. Likewise, the provision by UniCredit of financial services to the Russian lessees was made when they issued the Letters of credit which served as a mechanism for the satisfaction of the payment obligations of the lessees; and again, at the time of the provision of the services, that provision was perfectly lawful.
(4) All that remained to be done, as at the time that the prohibition in Regulation 28 came into effect, was for the obligation undertaken long before to be fulfilled. The fulfilment of that obligation benefitted the Claimants. Although this fulfilment may also have had the collateral result of discharging the independent obligations of the lessees and Sberbank towards the Claimants, that was a wholly collateral matter. Moreover, because UniCredit remained able to claim against Sberbank, Sberbank were not benefitted; and nor were the lessees, since they remained liable to Sberbank.
(5) Finally, in this regard, I do regard the autonomy principle as of importance. The claim on the Letters of credit was a claim by the Claimants against UniCredit, pursuant to an obligation which had been undertaken by UniCredit wholly independently from any of the other elements of the transaction. Whilst a letter of credit transaction involves various interconnected strands, those strands all involve independent contractual obligations.
127. I also accept the Claimants' submission that it is important to take a step back in this regard and ask whether the fulfilment of an independent obligation owed by a German bank to Irish companies can be said to be intended to benefit the Russian entities who happen to be involved in other elements of the overall transaction. In my judgment, the answer to this question is quite clear – it cannot.
128. Nor, lastly, do I accept UniCredit's submission that the Regulation should be read broadly on the basis that any vagaries that such a reading might lead to can be assuaged by the use of the licensing system. Indeed, the extracts from the guidance relied on by UniCredit seem to me to militate against such an approach. Those extracts suggest that the licencing authorities may take the view that prohibited transactions may nonetheless be licenced if they are thought to be "consistent with the aims of the sanctions"; but that in turn indicates that a licence may be granted in relation to transactions even though they are prohibited on a proper reading of the sanctions, not that the sanctions should be regarded as all embracing, subject only to the licencing regime."
Section 44 SAMLA
"In particular, in my judgment, what should have been clear was that the obligation to pay the Claimants, which was a wholly independent obligation owed to the Claimants and not in any way dependent on receipt of funds from Sberbank, was unaffected by Regulation 28."
US sanctions
"174. In my judgment, [Libyan Bank] is authority for the proposition that where a dollar payment is required under the contract, then the customer is entitled to demand such payment in cash. That is so whether or not performance of the obligation by tender of cash involves an unlikely situation. I would reject the argument that the terms of the letter of credit preclude an obligation to pay in cash. Clearly the Letters of credit anticipate that payment will be made through a correspondent bank. However, that does not mean that the bank is entitled to insist on making payment in this way, despite the fact that such a payment cannot in fact be made or lawfully made.
175. UniCredit's further argument is that [Libyan Bank] turned on the fact that a demand was made for payment in cash, whereas here no such demand was made, at least at the outset. In my judgment, this is to confuse the trigger for the obligation (the demand) with the manner in which that obligation (to make payment) may have to be fulfilled. It may be that the demand made upon UniCredit assumed that payment would be made through a correspondent bank. However, that did not mean that UniCredit could not choose to perform in any other way, including via the tender of cash. Where the fundamental obligation is to make payment, and where it is possible to make such payment, then the bank must do so."
Interest and costs
Regulation 28(3)(c)
The parties' submissions in summary
Discussion
"The courts in conducting statutory interpretation are 'seeking the meaning of the words which Parliament used': Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591, 613 per Lord Reid. More recently, Lord Nicholls of Birkenhead stated: 'Statutory interpretation is an exercise which requires the court to identify the meaning borne by the words in question in the particular context.' (R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd [2001] AC 349, 396). Words and passages in a statute derive their meaning from their context. A phrase or passage must be read in the context of the section as a whole and in the wider context of a relevant group of sections. Other provisions in a statute and the statute as a whole may provide the relevant context. They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained. There is an important constitutional reason for having regard primarily to the statutory context as Lord Nicholls explained in Spath Holme, 397: 'Citizens, with the assistance of their advisers, are intended to be able to understand parliamentary enactments, so that they can regulate their conduct accordingly. They should be able to rely upon what they read in an Act of Parliament.'"
"(3) A person must not directly or indirectly provide financial services or funds in pursuance of or in connection with an arrangement whose object or effect is—
…
(c) directly or indirectly making restricted goods or restricted technology available—
(i) to a person connected with Russia, or
(ii) for use in Russia…"
"A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the issuing bank or the beneficiary.
A beneficiary can in no case avail itself of the contractual relationships existing between banks or between the applicant and the issuing bank."
Section 44 SAMLA
Reasonable belief
Scope of s.44: "liable to any civil proceedings" and "in respect of"
"(2) A person is not liable to any civil proceedings to which that person would, in the absence of this section, have been liable in respect of the act."
Under s.44(3) an act includes an omission.
"This section ensures that a person who may have been liable to civil proceedings as a result of compliance with the regulations contained within the Act is not liable if they reasonably believe that they were acting in compliance with regulations in place at the time. It aims to protect people from any adverse results generated by compliance (for example, a breach of a contract to supply goods that are prohibited from export by sanctions)."
"(1) No person shall be liable, whether on the ground of want of jurisdiction or on any other ground, to any civil or criminal proceedings to which he would have been liable apart from this section in respect of any act purporting to be done in pursuance of this Act or any regulations or rules made under this Act ... unless the act was done in bad faith or without reasonable care.
(2) No civil proceedings shall be brought against any person in any court in respect of any such act without the leave of the High Court;. ..."
Interest
"(1) Subject to rules of court, in proceedings (whenever instituted) before the High Court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and—
(a) in the case of any sum paid before judgment, the date of the payment; and
(b) in the case of the sum for which judgment is given, the date of the judgment."
Costs
Conclusion
The Ralli Bros issue
"… documents are presented in strict conformity with the terms and conditions of this Irrevocable Transferable Standby Letter Of Credit" (see [29] above).
"There is no room for documents which are almost the same, or which will do just as well."
US sanctions: reasonable efforts
"[The Claimant] directed my attention to a number of authorities where licences have been in issue. On their face these appear to show that (absent contrary agreement) where a supervening prohibition may be lawfully circumvented by obtaining a licence, a party is not excused from performance of a contractual obligation affected by that prohibition unless and until they make reasonable efforts to apply for and are refused a licence, or prove that, even had such efforts been made, a licence would actually have been refused. It does not suffice for the non-performing party to show that it reasonably believed a licence would have been refused had such efforts been made: see Dalmia Dairy Industries Ltd v National Bank of Pakistan [1978] 2 Lloyd's Rep. 223 at 253 per Kerr J; and G.H. Treitel, Frustration and Force Majeure (3rd ed.) at paragraphs 8-051 and 8-054."
"If a person has promised to perform a certain obligation, whether it be to pay money or deliver goods, and fails to do so, the burden is on him to show that he was prevented from doing so by some cause for which he is not responsible. In this case, therefore, but for article 12(2), it would have been for Mr. Maud to show that the imposition of sanctions prevented him from performing his obligation and in order to do so he would have had to show that he could not have obtained the necessary licence from the Treasury. That was not a burden that he ever attempted to discharge."
"On behalf of our client, UniCredit Bank AG, London Branch (herein "UniCredit"), we respectfully request a specific license authorizing Wells Fargo Bank, N.A., and any other U.S. persons as required, to engage in all activities necessary and ordinarily incident to process four US-Dollar payments from PJSC Sberbank of Russia ("Sberbank") to UniCredit via its U.S. correspondent account. The payments are owed to UniCredit as confirming bank on four letters of credit issued by Sberbank in 2017 for the benefit of an Irish aircraft leasing company, which has recently terminated its underlying lease agreement with a Russian lessee. UniCredit seeks authorization to receive payments so that, pending any requisite U.K. and/or EU regulatory approvals, it can forward the funds to the non-sanctioned beneficiary pursuant to the LCs."
"For these reasons, we respectfully suggest that OFAC's policy objectives and the broader equities would be served by approving the requested license and permitting UniCredit to receive and forward to AerCap the payments owed by Sberbank."
Conclusion
Lord Justice Snowden:
Lord Justice Males: