A court in London gave judgment last week in favour of Celestial Aviation Services 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 commercial court found that a German unit of Italy's UniCredit was wrong to withhold US$68 million in payment guarantees owed to Celestial 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.

Bank refusal

Sanctions imposed by the EU in response to the invasion required lessors operating in the union, including Ireland where Celstial's parent company Aercap is based, to terminate aircraft leases entered into with Russian lessees.

UniCredit refused to make payment to aircraft lessors under L/Cs opened in relation to the lease of aircraft to Russian companies because, the bank argued, that it would be unlawful to make payment under UK and US sanctions.

Invalid objections

The commercial court however found that sanctions did not suspend UniCredit's obligation to pay for two main reasons.

It determined that the payment did not breach the UK's Russia sanctions regulations because it was not the provision of funds in connection with the supply of aircraft to Russia, it was a separate obligation to pay predating those regulations.

The court also decided that even if payment in dollars breached US sanctions, it would have been possible for UniCredit to pay by other means, for example by cash.

Lessor's L/C tribulations

Last year Aercap said it was pursuing a US$45.8 million claim against Unicredit after the Italian bank rejected the world's biggest aircraft lessor's payment requests in respect of certain L/Cs at several banks related to failed lease agreements with lessees in Russia (DC World News, 22 April 2022).

AerCap submitted claims for its L/Cs related to Russian lessees during the first quarter of 2022 and received most of the proceeds shortly thereafter according to chief financial officer, Peter Juhas (DC World News, 6 March 2023).

The decision of the England and Wales High Court (Commercial Court) in respect of Celestial Aviation and Unicredit can be found here.

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