Court of Appeal: Appeal by sanctioned Russian aircraft lessor ‘JSC’ dismissed at preliminary hearing

About this case:

• Citation:
  [2024] IECA 165
• Judgment:
  External link
• Court:
  Court of Appeal
• Judge:
  Mr Justice Seamus Noonan

Background

On 29 March 2022, a sanctioned entity owned by the Russian Federation and in the business of leasing aircraft and ships to commercial operators (JSC), entered pledge agreements with its Irish subsidiaries (GTLK) with the purported effect of granting JSC security in the form of charges over 37 aircraft which formed part of the assets of GTLK, on foot of advances allegedly made by JSC to GTLK.

The liquidators of GTLK did not learn of the pledges until they received correspondence from JSC on 29 September 2023 claiming that it was the owner of the aircraft pursuant to the pledge agreements, leading them to bring an application pursuant to s.631 of the Companies Act 2014 before the High Court to have the agreements declared void.

Prior to the hearing of the application, a letter was received from JSC’s legal representation in Moscow claiming that the validity of the pledge agreements fell within the exclusive jurisdiction of the Russian courts, and indicating inter alia that an application would be made in Russia for an anti-suit injunction in respect of any disputes concerning the agreements and JSC’s legal title to the aircraft.

Following an exchange of correspondence between the parties, the liquidators were informed that an interim injunction had been granted by the Russian court on 13 December 2023. After a series of adjournments, the liquidators’ application was heard in the High Court by Mr Justice Rory Mulcahy on 14 December 2023 with no appearance having been entered on behalf of JSC. Although a number of unidentified parties joined on the remote link to the hearing which was provided to JSC, it did not participate in the proceedings.

On 19 December 2023, Mr Justice Mulcahy delivered judgment declaring the pledge agreements void. Subsequently, Irish solicitors on behalf of JSC entered an unconditional appearance and served a notice of appeal containing 63 grounds of appeal.

The liquidators made preliminary objections on the basis that JSC could not maintain its appeal where it did not participate in the High Court application, or in the alternative, could not advance any grounds of appeal where none were considered in the High Court. The liquidators’ second objection was that by reference to JSC’s conduct in relation to the High Court application, it was estopped from maintaining the appeal. The liquidators also contended that having entered an unconditional appearance, JSC could not now object to the jurisdiction of the Irish court.

On 21 March 2024, the High Court delivered an ex tempore judgment refusing JSC’s application for a stay on the High Court order. On 19 April 2024, JSC’s application to the Court of Appeal for a stay on the High Court order was refused, with Ms Justice Caroline Costello directing a preliminary hearing of the liquidators’ objections.

The Court of Appeal

Mr Justice Noonan considered the affidavit of Mr Kadochnikof, director of JSC and former director of GTLK, filed on behalf of JSC which asserted that JSC did not participate in the High Court application as it had difficulties obtaining Irish legal representation.

The judge noted that it was apparent therefrom that the first attempt made by JSC to obtain representation in relation to the s.631 application was following the determination of that application by the High Court.

Recalling that the High Court had expressly directly that JSC be asked whether it wished to participate in the matter before it proceeded, Mr Justice Noonan emphasised that “it resolutely declined to do so, despite being afforded every opportunity by the High Court.”

The court also considered that “despite seeking remote access to the hearing, and it being availed of, no communication was made to the court or the Liquidators, either orally or in writing, to the effect that JSC wished to participate, wished to retain lawyers and wanted more time to do so”, noting that “Instead, JSC through its Russian lawyers made clear that not only would it not participate in the proceedings, but it was going to, and did in fact, seek an injunction before the Russian courts restraining the pursuit of those proceedings on pain of criminal liability on the part of the Liquidators.”

Satisfied that JSC had made a “deliberate choice to eschew participation in the proceedings” and expressing doubt that JSC had experienced the difficulties asserted, the court had regard to the judgment delivered by Ms Justice Costello refusing a stay of the High Court order, which referred to Compagnie de Bauxite et D’Alumine de Dian-Dian S.A. v GTLK Europe Designated Activity Company [2023] IEHC 324, a judgment in a case involving GTLK at a time during which Mr Kadochnikof was serving as a director of GTLK.

Observing that it was apparent from the judgment in Compagnie de Bauxite that even before lawyers for GTLK were instructed, GTLK displayed “significant knowledge of Irish jurisprudence, not just in the context of entering a conditional appearance to contest jurisdiction, but also the legal principles relevant to the appearance of a corporate entity before the courts in this jurisdiction”, which sat “very uneasily with Mr Kadochnikof’s averment that if JSC sought to participate in any way in the matter before the High Court without the benefit of Irish lawyers, it would prejudice its position that the Irish courts had no jurisdiction to hear the matter.”

Having been satisfied that JSC’s non-appearance “was the product of a deliberate decision, taken for tactical reasons to pursue proceedings before the Russian courts to enjoin the Liquidators from proceeding in the Irish courts”, Mr Justice Noonan considered the effect of Order 36, rule 33 of the Rules of the Superior Courts (RSC) and the jurisprudence in relation to same.

The judge opined that it would be an extraordinary state of affairs if a litigant who could not bring themselves within the provisions of the RSC concerning the setting aside of orders made in their absence, could nonetheless pursue an appeal before the Court of Appeal where all issues could be agitated and decided de novo for the first time.

In line with the reasoning in P.C. v The Minister for Health and Ors. [2020] IECA 28, Mr Justice Noonan found that JSC’s appeal was a manifest abuse of process.

Turning to the jurisdictional element of the liquidators’ objections, the court remarked that the usual procedure adopted where a defendant wishes to contest jurisdiction is to enter an appearance marked “conditional for the purposes of contesting jurisdiction” or to bring a motion prior to the entry of an appearance.

Mr Justice Noonan agreed with the views expressed by Ms Justice Costello on the stay application, “that the entry of an unconditional appearance by JSC in this case amounts to a clear and unequivocal submission to jurisdiction, which of necessity precludes JSC from thereafter purporting to challenge that jurisdiction.“

Considering JSC’s contention that it should be allowed to rely on its grounds of appeal where they were not dependent on any new evidence not already before the High Court, the Court of Appeal determined that JSC’s reliance on Lough Swilly Shellfish Growers Co-operative Society Limited & Anor. v Bradley and Anor. [2013] IESC 16 “does not get JSC very far in circumstances where no argument of any colour was advanced in the High Court on its behalf because it simply was not there.”

The court reiterated that “There is no “sensible flexibility” arising in the present circumstances that can be prayed in aid by JSC to, in effect, allow a first instance hearing to take place before this Court. The interests of justice could not be served by such a course.”

Conclusion

Accordingly, the Court of Appeal dismissed JSC’s appeal.

In the Matter of GTLK Europe DAC (in Liquidation) v Companies Act 2014 [2024] IECA 165