Last month the Court of Appeal handed down judgment in a case which will be of significance to all those involved in the movement, financing, and insurance of goods around the world. In Celestial Aviation Services Limited v Unicredit Bank GmbH, London Branch the Court has considered the application of Russian sanctions in the context of payment obligations under standby letters of credit, scrutinising the operation of such legally distinct contracts, including guarantees, trade finance products and reinsurance, in the context sanctions.
Background
The claimants, Celestial Aviation Services Limited (Celestial) and Constitution Aircraft Leasing (Ireland) 3 Limited / Constitution Aircraft Leasing (Ireland) 5 Limited (Constitution), were Irish-incorporated aircraft lessors.
Both were seeking payment as the beneficiaries of standby letters of credit (LCs) issued in respect of aircraft leases agreed with Russian companies between 2005 and 2014. The standby LCs were payable in US dollars and governed by English law. The Russian bank, Sberbank Povolzhsky Head Office (Sberbank), issued the LCs between 2017 and 2020, and the London branch of the Defendant, UniCredit Bank AG (UniCredit), confirmed them.
As the confirming bank, UniCredit had agreed to perform the principal duties of Sberbank and it was common ground between all parties that the demands for payment made by the claimants in March 2022 were valid. However, UniCredit withheld payment on the grounds that Russian sanctions imposed by the UK, EU, and US prevented them from honouring the claims.
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