A court in London has rejected UniCredit's claim that it need not pay interest to aircraft leasing company Celestial Aviation Services for late payment of a debt because the payment put it at risk of breaching of UK sanctions against Russia.

In March, the commercial court in London gave judgment in favour of Celestial in its case against UniCredit after determining that the aircraft lessor made valid demands under letters of credit (L/Cs) last year while UniCredit's view that the demands were invalid was wrong.

The German unit of Italy's UniCredit was thus wrong to withhold US$68 million in payment guarantees owed to Irish company Celestial whilst claiming that it was prohibited from making payments because of sanctions imposed on Russia by the EU, the UK and US following Russia's invasion of Ukraine (DC World News, 27 March 2023).

UniCredit refuses Celestial's interest claim

Celestial subsequently demanded payment of interest arising from the late payment but UniCredit refused to pay and Celestial sued.

The bank argued that it was not required to pay interest on the late payment because of its "reasonable belief" that its decision not to pay the L/C was in compliance with UK sanctions.

Court rejects UniCredit's argument

But in May 2023, the commercial court decided that this was not a reasonable belief because UniCredit's obligation to pay was a wholly independent obligation owed to Celestial.

The obligation to pay was not conditional upon receipt of funds from Sberbank, which as a Russian bank had been subject to UK asset freeze since April 2022, and it was unaffected by Russian sanctions.

The decision of the England and Wales High Court (Commercial Court) in respect of UniCredit's obligation to pay interest on its late payment to Celestial can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.