Celestial Aviation Services Ltd. v. UniCredit Bank GmbH, London Branch [2024]

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Celestial Aviation Services Ltd. v.
UniCredit Bank GmbH, London Branch
[2024] EWCA Civ 628 [England]

Type of Lawsuit: Confirming bank appealed judgments in favour of standby beneficiaries.

Topics: Autonomy (Independence) Principle; Confirming Bank; Illegality; Licences; OFAC; OFSI; Sanctions; Standby LCs; Statutory Interpretation; UCP600 Article 2; UCP600 Article 4(a); UCP600 Article 7(c); UCP600 Article 8; UCP600 Article 10(a); UCP600 Article 15.

Parties:
• Appellant/Confirming Bank – UniCredit Bank GmbH, London Branch
• First Respondent/Celestial-Beneficiary – Celestial Aviation Services Ltd.
• Second Respondent/Constitution-Beneficiaries – Constitution Aircraft Leasing (Ireland) 3 & 5 Ltd.
• Issuer – Sberbank Povolzhsky Head Office
• Applicant – AirBridge Cargo Airlines LLC
• Applicant – JSC Aurora Airlines

Underlying Transaction: Lease of civilian aircraft by Irish lessors to Russian lessees.

LC: Twelve (12) UCP600 standby letters of credit issued by Russian bank and confirmed by London branch of German bank for approximate combined value of USD 70 million.

Decision: The English Court of Appeal (Civil Division), Males, Snowden and Falk, JJ., reversed.

Rationale: (1) Trial court erred in interpretation and application of UK Regulation 28(3)(c)(ii) as its broad text covered underlying lease arrangement of restricted aircraft and prohibited honour of standby demands; (2) UK Sanctions and AML Act 2018 (SAMLA) s.44 does not preclude award of interest or costs for action concerning recovery of debt; and (3) absent reasonable efforts to obtain US licence, confirming bank could not rely on US sanctions and illegality as basis for dishonour.

Factual Summary:

To support leases of civilian aircrafts, AirBridge Cargo Airlines LLC and JSC Aurora Airlines (collectively, “Applicants”), Russian companies, applied for and caused Sberbank Povolzhsky Head Office (Issuer) to issue seven standby letters of credit[[1]] in favour of Celestial Aviation Services Ltd. (Celestial-Beneficiary), an Irish aircraft lessor.[[2]] The standbys were later confirmed by UniCredit Bank GmbH, London Branch (Confirming Bank),[[3]] subject to English law and UCP600, and were payable in US dollars. Provided standby text from Issuer and Confirming Bank is reprinted below.

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Related Litigation:
• Celestial Aviation Services Ltd. v. UniCredit Bank, London Branch, [2023] EWHC 663 (Comm) (trial judgment for beneficiaries; confirming bank could not rely on UK or US sanctions to dishonour);
• Celestial Aviation Services Ltd. v. UniCredit Bank, London Branch, [2023] EWHC 1071 (Comm) [England] (beneficiaries awarded interest and costs; confirming bank had unreasonable belief that sanctions prohibited payment).

To support separate aircraft lease obligations, the AirBridge-Applicant again applied for and caused Issuer to issue five standby LCs[[4]] in favour of Constitution Aircraft Leasing (Ireland) 3 & 5 Ltd. (Constitution-Beneficiaries). These standbys were also subject to English law and UCP600. Confirming Bank added confirmations.

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Cases Referenced:
• Lonestar Communications Corp LLC v. Kaye, [2023] EWHC 732 (Comm) [England] (regarding default interest rate for USD Commercial Court awards);
• Libyan Investment Authority v. Maud, [2016] EWCA Civ 788 [England] (avoidance of guarantee payment citing sanctions and reasonable efforts to obtain licence);
• Ralli Bros v. Compañia Naviera Sota y Aznar, [1920] 2 KB 287 [England]N/A

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