Liquidators face off with Russian sanctioned entity over jurisdictional dispute

Overview

In this case, the Irish Court of Appeal considered whether the appellant — a sanctioned entity that was part of the Russian transport ministry — could appeal a decision even though it had failed to participate in the proceedings before the High Court. The proceedings related to the validity of pledge agreements with certain Irish subsidiaries that have since been placed into liquidation. The sanctioned entity chose not to participate on the basis that the Russian courts had exclusive jurisdiction over the matter, but sought to appeal when the High Court ruled that the pledge agreements were void. The Court of Appeal dismissed the appeal, finding that the non-appearance by the sanctioned entity was the product of a deliberate and tactical decision, and that the appeal was accordingly an abuse of process.

Background

The appellant Joint Stock Company “State Transport Leasing Company” ("JSC") is a corporate entity wholly owned by the Russian Federation and is in effect part of the Russian transport ministry. Its core business concerns the leasing of aircraft and ships to commercial operators. JSC is a sanctioned entity.

These proceedings involve two Irish subsidiaries of JSC, GTLK Europe DAC and GTLK Europe Capital DAC (collectively "GTLK"). These companies were put into liquidation in late May 2023 and the respondents Julian Moroney and Damien Murran of Teneo Restructuring were appointed joint liquidators (the “Liquidators").

The primary assets of GTLK comprise 37 commercial aircraft collectively valued for insurance purposes at in excess of $2 billion. These aircraft are currently in the Russian Federation and apparently under the control of JSC. The Liquidators consider that the prospect of recovering any of these aircraft is remote and have made a claim against the insurers of the aircraft before the courts.

In late March 2022, GTLK entered into “pledge agreements” with JSC which purported to grant JSC security in the form of charges over the aircraft in exchange for certain advances allegedly made by JSC to GTLK.

The Liquidators were unaware of these pledges until they received correspondence from JSC in late September 2023 claiming that JSC was the owner of the 37 aircraft pursuant to the pledge agreements. The Liquidators examined the matter and formed the view that the pledge agreements were void or voidable and, accordingly, brought an application before the High Court pursuant to s. 631 of the Companies Act 2014 seeking declarations.

A hearing took place before the High Court in which JSC did not participate and resulted in the pledge agreements being declared void. JSC appealed.

The Court’s Decision

The issue before the Court of Appeal was whether JSC could pursue an appeal, not having appeared before the High Court. Relevant to this issue was whether the failure to appear was deliberate, inadvertent, or due to circumstances beyond the JSC’s control.

The Court began its decision by setting out the chronology of events, which clearly showed 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.

Among other things, the Liquidators never received a substantive response to their letter to JSC setting out their view that the pledge agreements were void, and were required to obtain an order for substituted service of their application on JSC by way of email. JSC chose not to attend the application even though JSC was aware of it, taking the position that the Russian courts had exclusive jurisdiction over the matter. JSC went on to institute anti-suit injunction proceedings in the Russian courts, and the injunction was ultimately granted.

JSC then appealed the High Court decision, and the Court had to determine whether JSC’s tactical decision not to participate in the High Court proceedings precluded it from pursuing an appeal before the Court of Appeal, not just on the merits, but also on the question of jurisdiction.

Where an order is obtained in the High Court in the absence of one of the parties, the Rules of the Superior Courts provide for certain remedies, depending on the circumstances of the non-attendance. Where an order is made after a trial, O. 36, r. 33 provides that: "Any verdict or judgment obtained where one party does not appear at the trial may be set aside by the court, upon such terms as may seem fit, upon an application made within six days after trial."

The Court reviewed the authorities on this rule, including the Court of Appeal’s decision in Danske Bank v Macken [2017] IECA 117, and concluded that the rule is designed to deal with situations where a litigant, by reason of oversight or force majeure, is prevented from actually attending court on the day in question. A party who deliberately elects not to participate at a particular hearing may not invoke r. 33, at least in the absence of quite particular extenuating circumstances.

The Court also looked at the Court of Appeal’s decision in P.C. v The Minister for Health and Ors. [2020] IECA 28, which considered an analogous provision of the Rules of the Superior Courts — O. 52, r. 12 — which is concerned with motions (rather than trials) where a party fails to attend. In that case, the Court stated:

“It is, however, not open to appellants to this court to decide that they will not participate in a hearing at first instance and then seek to have their case heard de novo on appeal. In general, the function of this court is to correct error in the determination of the trial court, not to hear argument for the first time from a party who deliberately absented him or herself from that court. … A conscious decision to abstain from appearing in a matter, perhaps in anticipation of an unsuccessful outcome, and then seeking to appeal when that anticipation is realised, is a manipulation of litigation and an abuse of process."

Those comments applied equally here. As the JSC’s non-participation in the proceedings before the High Court was a deliberate tactical decision, it followed that the pursuit of the appeal was an abuse of process.

Conclusion

Accordingly, the appeal was dismissed.

Judges: Noonan J., Binchy J. and Butler J.