Celestial Aviation Services Limited v Unicredit Bank AG, London Branch

Section 44 of the Sanctions and Anti Money-Laundering Act 2018 requires proof of both a subjective belief that payment was prohibited and the objective reasonableness of that belief. An independent payment obligation under a confirmed letter of credit is not displaced merely because sanctions may affect reimbursement arrangements.

For US dollar awards, US Prime is the default interest rate. An uplift requires evidence, unless the claimant’s general characteristics make a higher borrowing rate obvious. Indemnity costs require conduct or circumstances taking the case outside the norm. An interim costs payment must reasonably estimate likely recovery, allowing a margin for error.

The judgment concerned consequential matters following the principal judgment in two Part 8 claims by aircraft lessors against UniCredit Bank AG, London Branch. The claims concerned payments under confirmed letters of credit connected with aircraft leases involving Russian entities.

The court considered whether UniCredit could rely on section 44 of the Sanctions and Anti Money-Laundering Act 2018, the appropriate rate and period for interest, the basis of costs assessment, and interim payments on account of costs.

1. UniCredit established that it subjectively believed that Regulation 28 of the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations prohibited payment. However, the belief was not objectively reasonable. The obligation to pay the beneficiaries under the confirmed letters of credit was independent of any receipt of funds from Sberbank and was unaffected by Regulation 28. The section 44 defence therefore failed.

2. Interest was awarded in US dollars at the US Prime rate, without uplift. The court accepted the principles summarised in Lonestar Communications Corp LLC v Kaye, including that a higher rate requires evidence unless it is obvious from the claimant’s general characteristics. Interest was to run until and including the date of payment.

3. Indemnity costs were refused. Applying Excelsior Commercial and Industrial Holdings Ltd, the case did not involve conduct or circumstances taking it outside the norm. UniCredit had acted in good faith, although unreasonably, and had sought to err on the side of caution regarding sanctions.

4. Under CPR r. 44.2(8), an interim payment must be a reasonable estimate of likely recovery, subject to a margin for error. Applying Excalibur Ventures LLC v Texas Keystone Inc, the court assessed likely recovery at about 65% of the costs claimed and allowed a 10% margin, ordering interim payments of £550,000 to Celestial and £570,000 to Constitution.