[2025] EWHC 1430 (Comm)

The EU’s sanctions against Russia are primarily contained in EU Regulation No. 833/2014. Fidelis contends that Articles 3c(2) and 3c(4)(b) of that Regulation prevent it from providing cover. Those Articles provide:

(2)

It shall be prohibited to provide insurance and reinsurance, directly or indirectly, in relation to goods and technology listed in Annex XI to any person, entity or body in Russia or for use in Russia.

…

(4)

It shall be prohibited to:

…

(b)

provide financing or financial assistance related to the goods and technology referred to in paragraph 1 [viz goods and technology suited for use in aviation or the space industry, as listed in Annex XI] for any sale, supply, transfer or export of those goods and technology, or for the provision of related technical assistance, brokering services or other services, directly or indirectly to any natural or legal person, entity or body in Russia or for use in Russia.

Articles 3c(2) and (4) were added to Regulation No. 833/2014 by Regulation No. 328/2022 dated 25 February 2022. The recitals to Regulation 238/2022 provide, in part:

(3)

On 24 January 2022, recalling the December 2021 European Council conclusions, the Council reiterated that any further military aggression by Russia against Ukraine would have massive consequences and severe costs.

(4)

In view of the gravity of the situation, on 25 February 2022 the Council adopted Decision (CFSP)2022/327, amending Decision 2014/512/CFSP and imposing further restrictive measures in various sectors, particularly defence, energy, aviation and finance.

…

(7)

Furthermore, Decision (CFSP) 2022/327 introduces an export ban covering goods and technology suited for use in aviation and space industry and prohibits the provision of insurance and reinsurance and maintenance services in relation to those goods and technology. It also prohibits the provision of technical assistance and other related services as well as financing and financial assistance in relation to the goods and technology subject to this prohibition.

On 25 February 2022 the Council of the EU issued a press release, explaining the new measures introduced by Regulation No. 238/2022. It said, in part:

Swiftly implementing the European Council conclusions of 24 February, the package of sanctions adopted today includes:

…

Transport Sector

The EU introduced an export ban covering goods and technology in the aviation and space industry, as well as a prohibition on the provision of insurance and reinsurance and maintenance services related to those goods and technology. The EU will also prohibit the provision of related technical and financial assistance.

This ban on the sale of all aircrafts, spare parts and equipment to Russian airlines will degrade one of the key sectors of Russia’s economy and the country’s connectivity, as three quarters of Russia’s current commercial air fleet were built in the EU, the US and Canada.

The European Commission has published ‘Consolidated FAQs on the implementation of Council Regulation No. 833/2024 and Council Regulation No. 269/2014’, which was apparently last updated on 5 September 2024. In Part C (Finance and Banking), Section 12 (Insurance and Reinsurance) Question 4 states:

4.

When items listed under Annex XI of Council Regulation 833/2014 are being retained in Russia against the will of their non-Russian owner, is it prohibited to provide insurance and reinsurance for them, or to execute an insurance settlement with Russian insurers?

Last update: 21 December 2022

Insurance and reinsurance of the goods and technology in Annex XI are not “for a person in Russia or for use in Russia”, where it is provided for the benefit of the non-Russian owner of those goods and not for the benefit of the actual user or operator of the goods. This applies also when the items remain in Russia against the will of their non-Russian owner and despite the latter’s demand for their return (including “lost aircraft”).

I did not understand there to be any significant dispute as to the principles of construction which should be adopted in interpreting the relevant EU Regulation. The court should give effect to the words used, but having regard to the objectives and purposes of the legislation, taking into account its recitals and other principles referred to in the body of the regulation and the recitals.

Applying this approach, it appeared to me clear from the terms of Regulation No. 2022/238, including its recitals, that it was intended to impose or contribute to ‘massive consequences and severe costs’ for Russia as a result of its invasion of Ukraine. The 25 February 2022 press release confirms, what would in any event be apparent both from the general purpose which I have referred to, and the fact that a specific ban was imposed in relation to goods and technology suited for use in aviation, that a particular purpose was to ‘degrade one of the key sectors of Russia’s economy and the country’s connectivity.’

Having regard to the purpose of the legislation, as well as its wording, I consider that, for the purposes of Article 3c(2) and 3c(4)(b), insurance of the type with which this case is concerned and which is provided to non-Russian lessors is not insurance (or other financing or financial assistance) provided ‘to any person, entity or body in Russia or for use in Russia’.

This conclusion is confirmed by the terms of the FAQs which I have quoted above. There was some debate about the legal relevance of those answers. The FAQs themselves state:

This document is a working document drafted by the Commission services to give guidance to national authorities, EU operators and citizens for the implementation and the interpretation of Council Regulation (EU) No. 833/2014. … Only the Court of Justice of the EU is competent to interpret EU law. National authorities and economic operators may make use of this guidance based on the text, context and purpose of the aforementioned regulations, to achieve the uniform application of sanctions across the EU.

Fidelis raised essentially two arguments against the construction of the Regulation which I have given. The first was to say that it was conducive to the purpose of the Regulation, even if that was taken to be the infliction of adverse consequences and costs on Russia and the degradation of a key sector of Russia’s economy, for Article 3c to be read as extending to the provision of insurance of the type with which these cases are concerned to non-Russian lessors. The argument was that, if such insurance was enforceable, lessors would have another source of recourse and might be less determined to pursue the lessees for the aircraft. I found that argument unconvincing. There is no indication that that was regarded as being a purpose of the Regulation. In any event, if insurers were obliged to indemnify lessors, they would doubtless be subrogated to rights against the lessees, and in relation to the aircraft. I do not think they would be significantly less motivated to pursue such lessees than the lessors themselves would have been; and certainly there is no evidence that they would be.

Fidelis’s other main argument was that the interpretation of the Regulation should be consistent with that put on the UK Sanctions regulations by the Court of Appeal in Celestial Aviation Services Ltd v Unicredit Bank GmbH [2024] EWCA Civ 628. In that case, the Court of Appeal considered Regulation 28(3)(c) of the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855), as amended by the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2022 (SI 2022/195) and held that payment under letters of credit provided as part of the leasing arrangements of certain aircraft would have been ‘in connection with’ an arrangement the object or effect of which was the supply of aircraft to or for use in Russia or to a Russian person.

I have to say that this submission struck me as back-to-front. The issue with which I am concerned is what is the effect of the relevant EU Regulation, which came into force, as regards aircraft, before the UK Regulation, and is not in the same terms. One particular difference is that, under the EU Regulation, there is no procedure for licences or authorisations to be given in relation to Article 3c matters. Accordingly, the EU Regulation is unlike the UK Regulations, which the Court of Appeal in Celestial considered to be ‘a relatively blunt instrument’ which ‘risks catching arrangements that may not be seen to be within the overall mischief’. The solution adopted by the UK government is a licensing regime and legislative exceptions in Part 7 of the UK Regulations (paragraph [66]). In the case of the EU Regulation, where there is no licensing ‘solution’, a purposive construction tends to narrow the meaning to be attached Article 3c, rather than accepting that it is a ‘blunt instrument’.

With these features is to be taken the fact that Celestial dealt with letters of credit, not with insurances taken out by lessors. Further, there is the express statement in the FAQs quoted above that the Commission does not consider insurances of the type at issue here to fall foul of the EU Regulation. In all these circumstances, I do not consider that Celestial is persuasive as to the correct construction of the EU Regulation insofar as insurances of the present type are concerned, and am of the view that the CJEU would not do so either.

For these reasons I reject Fidelis’s defence based on EU Sanctions.