Quillon Law succeeds in setting aside a $60 million default judgment against Rossiya Airlines and securing indemnity costs for Aeroflot

Partner Mark Hastings led a team including Abigail Healey and Charles Anderson representing JSC Rossiya Airlines (“RA”) and PJSC Aeroflot – Russian Airlines (“Aeroflot”) in relation to the setting aside of default judgments entered against them.

The claimant, Gain Aircraft Ireland Limited (“Gain”), had leased two Airbus A319 aircraft to RA under separate lease agreements. RA’s obligations under the leases were guaranteed by Aeroflot, its parent company. Disputes under the deeds of guarantee were subject to an exclusive arbitration clause, whereas disputes under the leases were to be subject to the jurisdiction of the English courts or referred to arbitration.

Gain purported to terminate the two leases and demanded the return of the aircraft following Council Regulation (EU) 2022/328 of 25 February 2022, which restricted the provision of insurance and reinsurance services. The aircraft were not returned, and Gain issued invoices for the total value of the aircraft. When the invoices went unpaid, Gain issued a claim in the High Court against both Aeroflot and RA, seeking payment of the unpaid sums and damages. The claim against Aeroflot under the guarantees was limited to $40m.

Gain applied for default judgment against RA after it failed to acknowledge service, which was granted by the order of Mr Justice Andrew Baker in September 2022. Gain subsequently applied for default judgment against Aeroflot, which was granted by the order of Mr Justice Picken in October 2022.

Following the Office of Financial Sanctions Implementation issuing a general licence for litigation on 28 October 2022, RA was able to instruct Quillon Law to represent it, and an application to set aside the default judgment under CPR r13.3 was made in December 2022.

Aeroflot only became aware of the judgment entered against it in early 2023 and subsequently issued an application to contest jurisdiction under CPR 62.8 and section 9 of the Arbitration Act 1996, on the basis of the exclusive arbitration clause in the guarantees.

Despite being on notice of the jurisdiction challenge for approximately two months, Gain waited until shortly before the hearing to discontinue its claim against Aeroflot. Aeroflot therefore sought its costs under CPR r38.6 to be assessed on the indemnity basis, by reason of Gain’s conduct generally, and Gain’s bringing of the claim in the High Court constituting a breach of the arbitration agreement.

On 25 May 2023, Simon Salzedo KC, sitting as a Deputy High Court Judge, set aside the judgment in default for $57,498,399 entered against RA, and awarded Aeroflot its costs on the indemnity basis following the discontinuance of Gain’s claim against it.

In setting aside the judgment, the Judge found that RA had shown that it had reasonable prospects of successfully defending the claim on issues of both liability and quantum; and had some other good reason to be allowed to defend the claim (namely, the potential overlap of certain issues in the consolidated insurance claims being case managed by Butcher J (an article about the claims can be found here.))

The Judge addressed other notable questions, including: the extent to which CPR r3.9 and the judgment of the Court of Appeal in Denton applies to set aside applications (if at all); on which party the burden lies and in what circumstances it can shift; and the standard by which the merits of a defendant’s defence are assessed. Specifically, whilst Gain had never served particulars of claim, and had instead set out its case in brief terms on a claim form, it subsequently provided further particulars in reply evidence and submissions.

In making an award of indemnity costs in respect of the claim discontinued against Aeroflot, the Judge followed the reasoning applied in A v B & Ors [2007] EWHC 54 (Comm), namely that indemnity costs were appropriate where a claim is issued in breach of an arbitration agreement, as this measure can stand proxy for the losses in legal fees that were caused by that breach. Gain did not dispute that there was an arbitration agreement but sought to argue that the ordinary rule in A v B should not apply on the basis that Aeroflot could have consented to the proceedings continuing in the High Court. The Judge was not persuaded by that argument and held that in breaching the terms of the arbitration agreement, Gain must be taken to have accepted the risk of costs being recovered on the indemnity basis.

The judgment was handed down on 25 May 2023, and will be viewable here once it becomes available.