David Quest KC in successful appeal in Russian sanctions dispute (Celestial v Unicredit)
The Court of Appeal has today handed down judgment in Celestial Aviation Services v Unicredit Bank AG, one of the Lawyer’s Top Ten Appeals of 2024. The dispute arose out of the non-payment by Unicredit of standby letters of credit issued in connection with aircraft leases to Russian airlines. Unicredit contended that payment was prohibited by UK sanctions (principally reg. 28(3) of the Russia (Sanctions) (EU Exit) Regulations 2019 as amended in 2022) and US sanctions. At first instance, the judge held that Unicredit was not entitled to refuse payment and that the UK sanctions did not apply in circumstances where the aircraft had been supplied before the sanctions came into force and where the obligation under the credits was an autonomous one. That decision was overturned by the Court of Appeal. Falk LJ said that the purpose of the regulation was not simply to prevent further aircraft going to Russia by preventing financing arrangements that facilitate that. Rather it was a “relatively blunt instrument that is intended to cast the net sufficiently wide to ensure that all objectionable arrangements are caught, such that the overall purpose of putting pressure on Russia is achieved”. Whilst that approach risks catching arrangements that might not be seen to be within the overall mischief, the solution that the UK government has adopted is to provide for a licensing regime. Falk LJ said that, even where goods only became sanctioned in March 2022, there was no support in the statutory language for reading reg. 28 as capturing only future supplies of such goods. Unicredit was therefore right to refuse payment.
The Court held that the US sanctions relied on by Unicredit did not provide it with a further defence to payment; and the Court also addressed the effect of section 44 of the Sanctions and Anti-Money Laundering Act 2018, which applies where a person acts (or omits to act) in the reasonable belief that he is complying with sanctions.
David Quest KC was instructed by Davina Given of RPC. David was leading Rachel Barnes KC, Three Raymond Buildings, and James Sheehan KC, Essex Court Chambers.
Read the full decision.
