High Court declines to vary interim payment order despite sanctions concerns

The High Court has rejected an application by a company, whose ultimate beneficial owner was a designated person under UK and US sanctions, to vary an interim payment order to delay payment until it obtained the necessary licences from UK and US sanctions enforcement agencies: Celestial Aviation Trading Ireland Ltd & Ors v Volga-Dnepr Logistics B.V. [2025] EWHC 1156 (Comm).

Although set in a non-financial context, the decision will be of interest to financial firms navigating payment issues relating to sanctioned entities. It illustrates the extent to which concerns about sanctions breaches will influence the court's decision whether to vary an interim payment order. It is a reminder that the court's discretion under CPR 25.20(6)(b) to vary such orders will only be exercised for principled reasons such as, for example: (i) a material change of circumstances since the original order; or (ii) where the original decision was based on a material misstatement of fact (innocent or otherwise).   

The decision reinforces that the courts will not easily allow sanctioned parties to use sanctions as a shield against compliance with court orders. It highlights the difficulty that sanctioned parties face in seeking a variation of a court order requiring payment if the court was already aware of their designation as a sanctioned person and the potential impact of sanctions on their ability to comply. Reiterating sanctions challenges, without new evidence or developments, is unlikely to persuade the court to exercise its discretion to vary the order. Additionally, the court will not favour delays by sanctioned parties in addressing their compliance obligations, such as obtaining the necessary licences from sanctions agencies like the UK Office of Financial Sanctions Implementation (OFSI) or the US Office of Foreign Assets Control (OFAC). The issue of obtaining the necessary licences should properly have been raised in relation to the initial application for the interim payment order, and not in a new application to vary the order.

We consider the decision in more detail below.

Background

The claim arises out of eight aircraft leases entered into between two Russian airlines in the Volga-Dnepr Group (the Airlines) and four lessors in the AerCap Group (Celestial). The leases were entered into between 2005 and 2021 and were supported by eight guarantees issued by the defendant, Volga-Dnepr Logistics B.V. (VDL), a Dutch company which was within the same group. Following Russia’s invasion of Ukraine in February 2022 and subsequent sanctions, the leasing of the aircraft was terminated by Celestial, on the basis of various events of default which had arisen under the leases. Celestial contends that the aircraft were then subject to events of loss under the leases, following which the Airlines were obliged to pay the value of the aircraft and rent owed. However, if Celestial were incorrect and the aircraft had not been subject to events of loss, the Airlines would still be liable to pay the value of the aircraft and rent owed because they failed to return the aircraft after the termination of the leasing. When the Airlines failed to make any payments under the leases, Celestial sought recovery from VDL under the guarantees. VDL did not pay the sums demanded.

In May 2022, Celestial issued proceedings and applied for summary judgment or, alternatively, for an interim payment under what is now CPR 25. The hearing of that application was delayed after the defendant’s original solicitors came off the record, and the defendant’s new solicitors raised purported difficulties caused by the designation of VDL’s ultimate beneficial owner, Mr Alexey Isaykin, under UK sanctions in June 2022. Those difficulties were said to restrict the defendant’s ability to pay legal fees. A specific OFSI licence was eventually granted in July 2024, and the application was re-listed for hearing in February 2025. In August 2024, Mr Isaykin was added to the list of US designated persons by OFAC.

At the February hearing, the judge ordered VDL to make interim payments totalling USD 200 million and an interim cost payment of GBP 50,000 by 25 February 2025 (the Interim Payment Order). On the day payment was due, VDL applied to vary the Interim Payment Order so that its payment obligations would only arise once it had obtained further licences from OFSI and OFAC. It did not however apply for those licences until 7 April 2025, four days before its application was heard.

VDL argued that the Interim Payment Order should be varied because it was "between a rock and a hard place": complying with it without such licences risked it breaching UK and US sanctions, but not complying with it risked it being held in contempt of court.

Decision

The court dismissed VDL's application to vary the Interim Payment Order.

The key issues which will be of interest to financial firms are examined below.

Exercise of discretion to vary an interim payment order

The court acknowledged that under CPR 25.20(6)(b) the court can at its discretion adjust any interim payment or vary or discharge an interim payment order. However, although CPR 25.20(6)(b) does not prescribe how this discretion should be exercised, it accepted that this discretion should be guided by principles relating to CPR 3.1(7) (which governs the court’s general power to vary or revoke orders made under the CPR).

Drawing on Tibbles v SIG plc [2012] EWCA Civ 518 and Orb a.r.l v Ruhan [2016] EWHC 850 (Comm), the court highlighted that it can exercise its discretion to vary an interim payment order in limited and principled circumstances—normally: (i) where there has been a material change of circumstances since the original order; or (ii) where the original decision was based on a material misstatement of fact (innocent or otherwise). Also, in deciding whether to exercise its discretion, the court will consider why the matter was not raised at the time of the original order and whether there was any delay in making the application.

Applying these principles to the present case, the court said it did not consider it appropriate to vary the Interim Payment Order. There was no evidence that the Interim Payment Order had been made without regard to the impact of sanctions or that there was otherwise a material change of circumstances, misstatement or mistake since the Interim Payment Order was made. Although VDL’s legal team had withdrawn from the hearing of Celestial's interim payment application before the application was argued, the sanctions context had already been discussed earlier that day in relation to VDL’s last minute application to adjourn the hearing, which set out in detail the difficulties which VDL had been experiencing in paying its legal fees because of said sanctions. The court was satisfied that the judge who made the Interim Payment Order was aware of the designation of VDL’s ultimate beneficial owner and the potential effect of UK and US sanctions on VDL’s financial position when he made the Interim Payment Order. There was no basis to infer that the sanctions implications for compliance with the Interim Payment Order had been overlooked.

The court also considered VDL’s delay in both applying for the necessary licences and seeking a variation. Although VDL had identified the potential need for further OFSI and OFAC licences, it did not apply for these licences until 7 April 2025 — over six weeks after the 25 February 2025 deadline for compliance with the Interim Payment Order.

In the absence of any material change or misstatement, and given the delay and lack of any compelling explanation for failing to raise the issues earlier, the court concluded that the application to vary the order must fail.

Accordingly, the court dismissed VDL's application to vary the Interim Payment Order.

Impact of sanctions

The court underlined that even it had been appropriate to consider exercising its discretion to vary the Interim Payment Order, it would have declined to do so.

In its view, the mere absence of a licence, or difficulty obtaining one, even by the date that the payment obligation crystallised, did not necessitate a variation. Reaffirming PJSC National Bank Trust v Mints [2023] EWCA Civ 1132 (see our blog post), the court noted that UK sanctions legislation does not preclude the making of a monetary judgment or order against a designated person. While compliance may require a licence, that does not bar the court from making the order, nor does it necessitate deferral of enforcement.

The court also rejected the idea of paragraph 215 of Mints establishing a general principle that orders must be varied where licences are not obtained by the date payment is due. That paragraph, it explained, concerned OFSI’s licensing powers in the context of adverse costs orders, and did not support a rule that the absence of a licence compels variation of an order. The need for a licence is simply one factor among many in the court’s overall discretionary assessment.

Further, the court reiterated that the risk that the Interim Payment Order might require VDL to make a payment to Celestial in breach of either UK or US sanctions, while relevant, is not determinative and does not override other considerations (as per O v C [2024] EWHC 2838 (Comm) (see our blog post)).

Anyway, in the present case, the sanctions risk was mitigated by a number of factors:

• UK sanctions: VDL is a Dutch entity, and the Russia (Sanctions) (EU Exit) Regulations 2019 apply only to conduct within UK territorial jurisdiction. VDL's only assets were in an account with a Dutch bank, ING. The court said that VDL giving a payment instruction to ING outside the UK would not breach Regulation 11. It also was not convinced that mere receipt of funds into a UK bank account would amount to prohibited “dealing” under Regulation 11, particularly where the account would be frozen pending an OFSI licence. Also, it was not persuaded that Celestial or their legal representatives could be guilty of encouraging or assisting a sanctions breach under section 45 of the Serious Crime Act 2007. The court also factored into its analysis the fact that the funds in the ING account, which were in US dollars, were insufficient to pay the US dollar interim payment amounts within the Interim Payment Order. This meant that UK sanctions legislation was of limited relevance, because payment was unlikely to ever be made in respect of the GBP costs order.

• US sanctions: It was common ground that ING would not release the funds in VDL's account without an OFAC licence. The funds were also subject to the Dutch court, by virtue of a garnishment that Celestial had previous obtained. Accordingly, the court found that any sums paid under the Interim Payment Order would only be made in circumstances where the transfer of those funds will not contravene US sanctions.

Finally, the court noted that although VDL was technically in breach of the Interim Payment Order, Celestial had expressly assured the court they would not pursue contempt proceedings. That, together with the context of sanctions and the Dutch garnishee order, reinforced the court’s conclusion that variation was neither necessary nor appropriate.