Aercap Ireland Ltd v. AIG Europe SA & others [2023] EWHC 144 (Comm)
Industry press has been reporting widely on the ongoing legal battles between a number of aircraft leasing companies and their insurers and reinsurers with regard to payouts for ‘lost’ aircraft and aircraft parts that have remained with their lessees in Russia since international sanctions were enacted against Russia.
The lessors argue that they are unlikely to get these aircraft and aircraft parts back. The amounts involved run into several billions of pounds. While some insurers have reportedly settled claims, others are denying coverage and ‘mega trials’ are expected later in 2024 and 2025.
In the meantime, the litigation has thrown up disputes regarding various procedural matters. In this particular case, the question was whether a third party broker would be breaching UK sanctions regulations if it provided documents requested by the claimant aircraft lessor. The Court said that there would be no such breach and made an order for disclosure.
The background facts
The claimant in these proceedings is the world’s largest aircraft leasing company and is based in Dublin. Following the Russian invasion of Ukraine, the EU and UK imposed sanctions that effectively prohibited the leasing of aircraft and aircraft parts to Russian airlines. The claimant was one of a number of aircraft lessors that issued notices terminating their leases with Russian airlines and requesting that their aircraft and aircraft engines be returned.
The requests were mostly not complied with. Instead, Russia issued a legislative decree granting the Russian aviation authorities permission to issue their own certificates of airworthiness and the aircraft have reportedly since been re-registered in Russia where they are said to be in use.
The claimant issued proceedings in the English Court under its insurance policies. It is claiming a total loss of 116 aircraft and 23 engines in the amount of US$3.5 billion under the all risks cover in its contingent and possessed policy. Five insurers are named as defendants.
The claimant has made separate claims in respect of the same aircraft and engines under operator insurance and reinsurance policies obtained by the Russian lessees from Russian underwriters. Those claims are made on the basis that the claimant claims to be an additional insured under the operator insurance policies and/or on the basis of a ‘cut through clause’ in the operator reinsurance policies.
The broker’s role
From 2 November 2020, McGill acted as a reinsurance placing broker for a local Russian insurance and reinsurance producing broker, Sealine. In 2021, Sealine acted as the reinsurance producing broker for three Russian insurance companies for the placement of various aviation-related reinsurance policies, which were a sub-set of the operator reinsurance policies in question. In turn, Sealine, as producing broker, instructed McGill as placing broker to place certain of the operator reinsurance policies.
The reinsurance requirements of the Russian reinsureds on the relevant operator reinsurance policies were communicated to McGill by Sealine, and then reinsurances were placed by McGill on Sealine’s instructions. Those reinsurances were placed with various non-Russian reinsurers, including London market and international reinsurers.
The application
The claimant sought an order for third party disclosure by McGill of copies of documents relating to the contracts of insurance and reinsurance under the relevant operator policies, as well as any notices and correspondence relating to the amendment or cancellation of cover.
Since June 2022, McGill had not agreed to provide the documents voluntarily because it thought that to do so might amount to the provision of insurance intermediation services or services auxiliary to insurance contrary to Regulation 29A of the Russia (Sanctions) (EU Exit) Regulations 2019 (‘the Regulations’).
In June 2022, the claimant had referred McGill to updated guidance from the Foreign, Commonwealth and Development Office (FCDO) to the effect that the Regulations did not prohibit the provision of insurance services in circumstances ‘where the insurance is for the benefit of the non-Russian owner of the items, rather than their user or operator. Nor does it apply where the items either remain in Russia as a result of the termination of a lease and against the lessor’s will; or are being flown out of Russia in the process of returning them to their owner’.
Furthermore, in September 2022, the Export Control Joint Unit (ECJU) stated that, in its view, providing copies of contracts to prove that insurance was in place was not an act of providing insurance/reinsurance and was, therefore, not likely to fall within the scope of Regulations 28 and 29A. However, the ECJU recommended seeking independent legal advice, including as to whether this was a licensable activity.
In April 2023, in separate, but related proceedings, the same Court had granted an unopposed application for disclosure of lessee airline contracts of insurance and reinsurance. Nonetheless, McGill maintained its concerns. It did not dispute that the requirements for a third party disclosure order were met, but contended that compliance might contravene the Regulations.
The Regulations
In general terms:
- Regulation 28 prohibits the direct or indirect provision of financial services and funds related to restricted goods and restricted technology to a person connected with Russia or for use in Russia.
- Regulation 29 is a prohibition against the provision of brokering services with regard to the provision of restricted goods and restricted technology to a place in Russia or to someone connected with Russia.
- Regulation 29A prohibits the provision of insurance and reinsurance services relating to aviation and space technology to a person connected with Russia or to a place in Russia.
Restricted goods and technology within these provisions include aviation and space goods/technology pursuant to Regulation 21.
The Commercial Court decision
In the Court’s view, disclosure pursuant to such a third party disclosure order was not the ‘provision of financial services’, within Regulation 28, or the ‘provision of brokering services’ within Regulation 29 or the ‘provision of insurance or reinsurance services’ within Regulation 29A. Giving disclosure pursuant to such an order did not constitute the provision of any ‘service’ or ‘services’, but was, instead, compliance with an order of the Court made for the purposes of the fair disposal of proceedings before it.
The Court also considered whether there would be any contravention of the Regulations if such disclosure was given without a court order having been made. Its determination on this issue would be of assistance to other brokers facing disclosure requests of this type.
It concluded that the provision by an insurance broker who had placed insurances on behalf of Russian lessees of operator policy documents to a non-Russian lessor, such as the claimant, for the purposes of establishing the extent of that lessor’s coverage under the insurance, would not contravene the Regulations. In particular, any services being provided were to the claimant or another non-Russian lessor, not to a person connected with Russia.
The position of reinsurance brokers, such as McGill, was no different. There would still be no breach of the Regulations. Among other things, the provision of the documents to a non-Russian lessor would not constitute the provision, directly or indirectly, of an insurance or reinsurance service to a person connected with Russia. The documents would not be provided in fulfilment of any obligation owed by the Russian insurers to provide documents to lessors in order to make, or establish whether they could make, a claim against those insurers or their reinsurers. They would be provided, instead, because they were potentially relevant to an action which had been brought in court, and the reinsurance broker, though not a party, held those documents.
The order was, therefore, granted.
Comment
The Court construed the Regulations in the context of their purpose, which was to exert pressure on Russia to cease its activities in Ukraine. Viewed in the light of that purpose, the Regulations would not be contravened by the broker supplying the requested documents in the situation that arose in this case.
The English Court has so far taken a commercial and pragmatic approach to its interpretation of UK sanctions regulations, particularly where they may be used as a convenient excuse not to comply with legitimate contractual or procedural obligations.
For further information, please contact:
Siiri Duddington, Partner, Hill Dickinson
siiri.duddington@hilldickinson.com
