Commercial Disputes Weekly – Issue 15628 March 2023

Sanctions
Unicredit were the confirming bank for a number of standby letters of credit that confirmed letters of credit issued by Sberbank, a Russian bank. The beneficiaries were Celestial and Constitution. The letters were issued in 2017, 2018 and 2020 in relation to leases of aircraft to Russian airlines between 2005 and 2014 and were payable in US dollars. Celestial and Constitution made valid demands for payment in March 2022 due to the lessee’s failure to comply with obligations under the leases. Unicredit refused to pay on the basis that it was prohibited from doing so by the UK, EU and US sanctions in response to the Ukraine conflict. The UK Commercial Court held that Unicredit was not prohibited from paying because the aircraft supply and confirmation of the letters took place before the sanctions’ prohibitions came into effect. Payment by Unicredit was discharge of an obligation undertaken long before the sanctions. Further, payment did not discharge Sberbank’s obligations as they were still liable to Unicredit, nor did it involve dealing with Sberbank’s property, nor did it benefit the Russian entities involved in other elements of the overall transaction.
Celestial Aviation Services Limited and Constitution Aircraft Leasing (Ireland) 3 Limited and another v Unicredit Bank AG (London Branch) [2023] EWHC 663 (Comm), 23 March 2023

Contract Interpretation
The claimant agreed to provide a vessel for geotechnical surveys offshore Cameroon. The vessel was unable to start work for three months because the defendants had not obtained a licence extension in time. The contract provided that the claimant was not responsible for timely delivery of materials, services and facilities provided by the defendant and that any delays in such provision would require the defendant to pay standby charges. The Court of Appeal held that this clause included security, permits and licences. As a result, the defendant was liable for standby charges incurred during the delay caused by its failure to secure the necessary licence extension and to provide security.
Geoquip Marine Operations AG v Tower Resources Cameroon SA [2023] EWCA Civ 304, 21 March 2023

Maritime
An arbitral tribunal held that a vessel was unseaworthy because it did not have the up-to-date large-scale chart onboard and was therefore in breach of Article III.1 of the Hague Rules. It grounded on a charted rocky shoal whilst entering the port of Chaozhou, China. The cause of the grounding was negligence by the compulsory pilot. The lack of proper chart meant that the crew did not know the limits of the dredged channel and could not alert the pilot to his errors, but it was not an effective cause of the grounding. The tribunal also rejected the owners’ claim that the port was unsafe because of the pilot’s incompetence. It was a one-off mistake by an otherwise competent pilot and not a defect of the port itself.
London Arbitration 2/23, (2023) 1129 LMLN 2 (the decision is not publicly available)

Insurance
A WWII bomb was found on the University of Exeter’s grounds and had to be exploded by a controlled detonation as it could not be safely removed. The explosion caused some damage to the university buildings and the university sought to claim the loss from its insurance cover. The court held that the proximate cause of the loss was the dropping of the bomb which fell within the war exclusion under the policy. The human intervention in detonating the bomb did not alter the causative chain. The presence of the bomb led to both the need for the detonation and the inevitability of the damage. The passage of time since the bomb was dropped did not affect the danger posed by the bomb. The loss therefore fell with the war exclusion and was not covered by the insurance policy.
Allianz Insurance Plc v University of Exeter [2023] EWHC 630 (TCC), 22 March 2023

Should you wish to discuss any of these cases in further detail, please speak with a member of our London dispute resolution team below, or your regular contact at Watson Farley & Williams: