![CL-2022-000249 - [2025] EWHC 1156 (Comm)](https://backend.juristeca.com/files/emisores/logo_WAai98v.png){kind=logo}
Background
Background
In summary, two companies within the Russian Volga-Dnepr Group (“the Lessees”) operated as airlines and between them entered into leases for eight aircraft (“the Leases”) during the period from 21 December 2005 and 12 July 2021. Each Lease was on the terms of an aircraft specific lease agreement which incorporated the terms of an aircraft lease common terms agreement (“the Common Terms Agreement”).
The Defendant, a Dutch company within the group, executed deeds of guarantee and indemnity with each of the Claimants between 19 June 2017 and 17 August 2021 (“the Guarantees”) in order to guarantee the obligations of the Lessees under the Leases. Under the terms of the Guarantees, the Defendant guaranteed to the relevant Claimant, inter alia, the prompt payment and performance by the relevant Lessee of all its obligations under or in connection with the relevant Lease.
On 24 February 2022, Russia invaded Ukraine. As a result, sanctions were imposed by the United States, the United Kingdom and the European Union. The Claimants sought to terminate the leasing of each of the aircraft on 04 March 2022. The Claimants’ case is that either Events of Default or Events of Loss have occurred under the Leases and, accordingly, the Lessees are liable to pay various amounts by way of debt, indemnity or damages. The Lessees have not paid these amounts. So on 15 March 2022, the Claimants demanded payment of these sums from the Defendant under the Guarantees. The Defendant has not made any payment to the Claimants.
The Claimants issued the Claim Form in this action on 17 May 2022 claiming sums allegedly due under the Guarantees as a result of the Lessees’ failure to comply with their obligations under the Leases. On 03 October 2022, the Claimants issued an application for summary judgment on the claim and sought in the alternative an interim payment under what was then CPR 25.6 and 25.7 (“the Applications”).
In light of the delay between the issue of the Claim Form and the hearing of the Applications, I consider it does help to set out some of the relevant procedural history.
The Defendant was initially represented by solicitors, Grosvenor Law, but they came off the record one day before the Defence was due to be served. The Claimants say that it was in light of the Defendant’s failure to serve a Defence or otherwise engage substantively with the proceedings that the Claimants issued the Applications.
The Defendant’s ultimate beneficial owner, Mr. Alexey Isaykin was added to the consolidated list under the Russia (Sanctions) (EU Exit) Regulations 2019 (“the Russia Regulations”) on 16 June 2022.
The Defendant instructed Quillon as its new solicitors shortly before the scheduled hearing of the Applications on 04 November 2022. The Defendant applied on 31 October 2022 to adjourn that hearing on the basis that the Defendant had been unable to pay for legal representation as a consequence of Mr. Isaykin becoming a designated individual. Initially, the Defendant’s adjournment application suggested that the grant of a general licence for the payment of legal fees by OFSI should mean that subject to the Court granting the application, there would then be no delay in progressing the Defendant’s defence. However, by the time of the hearing, the Defendant’s position had changed and it asserted that no work could be carried out even under the OFSI general licence because it was likely that the Defendant’s legal fees would at some point exceed the cap in the general licence.
HHJ Pelling KC adjourned the hearing of the Applications to give the Defendant the opportunity to consider whether it needed a specific licence from OFSI and, if so, to make the necessary application.
The Defendant did make an application for an OFSI specific licence but that was not granted until July 2024. In the meantime, OFSI granted a new general licence in April 2023 confirming that work could be carried out even if it was expected that a party’s legal fees might in due course exceed the cap.
Mr. Isaykin was added to the list of designated persons by the US Office of Foreign Assets Control (“the OFAC Designation”) on 23 August 2024.
Following the grant of the specific licence, the Applications were then re-listed for a 1-day hearing on 11 February 2025. A timetable for the service of evidence by the Defendant in response to the Applications was agreed at that time but despite two agreed extensions of time, the Defendant did not serve any evidence prior to 11 February 2025. Very early on 11 February 2025, the Defendant served its application to adjourn the hearing. I pause to note that the Defendant made a contested application for a further extension of time to serve evidence in opposition to the Applications by an application notice dated 06 December 2024. Mr. Paul Stanley KC sitting as a Deputy High Court Judge dismissed the application for an extension by an order dated 20 December 2024. By the same order, he ordered the Defendant to pay the Claimants’ costs in the sum of £50,000 within 14 days. The Defendant has not paid those costs.
Bryan J. heard the Applications on 11 February 2025 together with the application by the Defendant to adjourn them. The Defendant was represented by solicitors and counsel for the hearing of the Defendant’s adjournment application. Having heard that application, Bryan J. adjourned the summary judgment application and the interim payment application based on liability being found on the summary judgment application, but refused to adjourn the interim payment application of the Claimants predicated on the Claimants’ submission that they would obtain judgment for a substantial sum of money (other than costs) against the Defendant and that an interim payment should be made under what was then CPR 25.7(1)(c) (“the Interim Payment Application”). After Bryan J. heard the adjournment application and refused to adjourn the Interim Payment Application, the Defendant’s legal representatives withdrew from the hearing as they did not have instructions to attend the Interim Payment Application. Having heard from the Claimants’ counsel on the Interim Payment Application, Bryan J. made the Interim Payment Order requiring, inter alia:
That by 1600 hours on 25 February 2025, the Defendant shall make interim payments to the Claimants in sums totalling USD 202,811,264 (“the USD Payment Obligation”) in respect of its liability under the Guarantees; and
That by 1600 hours on 25 February 2025, the Defendant shall make a payment to the Claimants on account of their costs of the Interim Payment Application in the sum of £50,000 (“the GBP Payment Obligation”).
Two points arise in relation to the withdrawal of the Defendant’s legal representatives from the hearing on 11 February 2025 before the hearing of the Interim Payment Application.
The scope of the Defendant’s instructions to its legal team on 11 February 2025 was to attend the adjournment application only. The reasons for the limited scope of the instructions are very likely privileged. Mr. McLaren KC invited me to infer that the reason for the instruction were the difficulties which the Defendant had in paying its lawyers. However, it does not seem to me that the evidence allows me to go that far. I do accept the submission, however, that I should not draw any conclusion that the Defendant chose for self-serving reasons not to attend the hearing of the Interim Payment Application.
The Defendant also submitted that there is no evidence that the question of whether the Interim Payment Order required or risks requiring the Defendant to breach sanctions was considered at the hearing of the Interim Payment Order and so I should infer that the issue was overlooked. I do not consider that I can draw any such inference. The third witness statement of Ms. McKinney of Quillon and the third witness statement of Mr. Solovov of the Defendant deal at some length with the impact of the fact that Mr. Isaykin is a designated person and the difficulties this posed for the Defendant in making payments either in sterling or in dollars under UK and US sanctions. While I accept that this evidence was given principally to deal with the position regarding payment of legal fees, it is clear that Bryan J. was aware of the fact that Mr. Isaykin was a designated person and the restrictions that UK and US sanctions introduced for payment of those fees. Accordingly while I accept that the evidence before Bryan J. about the effect of US and UK sanctions did not specifically address restrictions on the Defendant’s ability to make payments more widely, this is not a good basis on which to infer that the effect of US and UK sanctions on the Defendant’s ability to pay the sums required under the Interim Payment Order was overlooked by the Judge. On the contrary, I think it more likely that Judge was aware when hearing the Interim Payment Application that the UK and US sanctions regimes might create difficulties for the Defendant in making payments in sterling or US dollars more generally.
It is common ground between the parties that:
The only assets apparently available to satisfy the Defendant’s obligations under the Interim Payment Order are funds presently held in a bank account with ING Bank in the Netherlands (“the ING Funds”), which are subject to the control of the Dutch courts as they are subject to a form of garnishee order preserving the funds.
Due to the risk of otherwise breaching the US sanctions legislation, ING Bank’s current position is that it is not prepared to release the funds without an OFAC licence permitting their transfer.
The Defendant made this application on 25 February 2025, the date by which payment was to be made under the Interim Payment Order.
On 07 April 2025, the Defendant applied for licences from OFAC and OFSI to permit payment of the sums due in accordance with the terms of the Interim Payment Order. There is, however, an issue as to whether the applications have been made on the correct basis.