GTLK Europe Designated Activity Company v Companies Act 2014

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr. Justice Michael Quinn
• Judgment Date: 01 December 2023
• Neutral Citation: [2023] IEHC 674
• Docket Number: [2023/88 COS]

In the Matter of GTLK Europe Designated Activity Company (In Liquidation)

And in the Matter of An Application by Swan Hellenic Cruises Limited, Catstans Holding Limited, Valbridge Limited and Diamant SA, Fastlead Limited and Maracol Limited

[2023] IEHC 674

[2023/88 COS]

THE HIGH COURT

JUDGMENT of Mr. Justice Michael Quinn delivered on the 1 ^st day of December, 2023

1 . The SH Minerva is a cruise ship intended primarily for extreme polar expedition cruises. It is capable of travelling to the Arctic and Antarctic regions at most times of the year without icebreaker assistance. It was built in 2021 at a cost of US $116 million.

2 . The Minerva was purchased from Helsinki Shipyard OY by STLC Europe Nine Leasing Limited, a company incorporated in the State (“ STLC”). STLC chartered it to Swan Hellenic Cruises Limited (“ Swan Hellenic”), a cruise operating company incorporated in Cyprus, which took delivery of the vessel on 3 December, 2021.

3 . The charter terms included a hire purchase arrangement whereby Swan Hellenic would acquire ownership of the vessel at the expiry of the charter term of fifteen years, or earlier on certain conditions.

4 . STLC is a subsidiary of GTLK Europe DAC (“ GTLK Europe”), a company now in liquidation by order of the High Court. GTLK Europe had its registered office at 2 Hume Street, Dublin 2. Its ultimate parent company is Joint Stock Company GTLK, an entity incorporated in Russia and in which the sole shareholder is the Ministry of Transport of the Russian Federation.

5 . GTLK Europe is the top level company for the operations of the GTLK group in Europe and the Middle East. Its activities include aviation and maritime leasing, trading in transport assets, marketing, asset management and consulting on commercial aircraft and shipping transactions.

6 . After the invasion of Ukraine by Russia in February 2022 Swan Hellenic found that because the registered owner of the Minerva was an entity controlled by the Russian Federation, service providers, port authorities, suppliers, insurers and customers were unwilling to continue engaging and providing goods and services to and in respect of the vessel. The vessel was at that time at a port in Uruguay for scheduled maintenance. Since that time it has not left Uruguay and is “stranded” there unable to function and generating no revenue. No cruises can be made or planned. As the operator, Swan Hellenic are earning no revenue and are incurring the costs of basic maintenance and such insurance as it can obtain. It is said that the costs incurred in respect of maintenance and security of the vessel by Swan Hellenic are running at a rate of $500,000 per month.

7 . On 8 April, 2022 JSC GTLK and entities owned and controlled by it, including GTLK Europe, were designated as sanctioned entities pursuant to the provisions of EU Regulation 269/2014 (“ the Sanctions Regulation”). That Regulation establishes measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

8 . On 2 August, 2022 similar designation was made in respect of Joint Stock Company GTLK and GTLK Europe and subsidiaries by the US Department of State pursuant to Executive Order No. 14024.

9 . The effect of all of these sanctions is to preclude companies in the GTLK group from utilising assets to obtain funds, goods or services and from normal trading activities. The Minerva remains stranded.

Liquidation of GTLK Europe

10 . On 19 April, 2023 creditors of GTLK Europe and of another company in the group GTLK Europe Capital DAC petitioned this court for the winding up of those companies.

11 . On 31 May, 2023, the court (Dignam J.) made an order for the winding up of the companies and appointed joint liquidators, Messrs. Damien Murran and Julian Moroney of the firm of Teneo Restructuring (Ireland) Limited.

12 . Following their appointment the joint liquidators brought an application to this court pursuant to s.631 of the Act for certain directions regarding the application of the Sanctions Regulation to the companies. In particular they sought directions as to the effect of the liquidation on a presumption of control which applies to subsidiaries of companies designated under the Regulation. This court made orders in respect of these questions on 11 July, 2023 which included inter alia the following declarations:

• (1) That the presumption of control by JSC GTLK which arises in respect of GTLK Europe under the Sanctions Regulation is rebutted by the appointment of joint liquidators.

• (2) That the assets of the companies (which includes the shares of GTLK Europe in STLC) are under the control of the joint liquidators who are the only persons entitled to deal with the assets of the companies.

13 . The judgment delivered by this court on 31 July, 2023 [ 2023 IEHC 486] (“ the First Judgment”) contains a detailed description of the background to GTLK Europe and the GTLK Group and to the winding up of GTLK Europe, which it is unnecessary to repeat here.

14 . STLC is a special purpose vehicle incorporated to acquire the Minerva and charter her to Swan Hellenic. It is not in liquidation. Following their appointment as joint liquidators of GTLK Europe, the liquidators, exercising their powers and authority in respect of the shares in STLC, replaced the directors of STLC and appointed new directors nominated by them. For reasons explained in an affidavit of Mr. Moroney sworn on 17 ^th November 2023, that process took some time and the appointments of those new directors took effect on 6 September, 2023.

15 . In the proceedings for the winding up of GTLK Europe the applicants have issued a notice of motion “pursuant to s. 627 and/or 631 of the Companies Act, 2014 and/or pursuant to the court's inherent jurisdiction directing and/or determining that”:

• “1. GTLK Europe DAC and its subsidiaries cannot recover damages from a counterpart for unpaid lease payments during a period when the asset the subject matter of the lease could not be used by reason of the sanctions imposed by Council Regulation EU 269/2014.

• 2. GTLK Europe DAC and its subsidiaries should be identified with their ultimate parent, the Russian Federation, for purposes of determining whether GTLK entities are liable for damages for breach of contract where the breach is as a result of the sanctions.

• 3. The joint liquidators of GTLK Europe DAC cannot, in the absence of a prima facia basis for alleging that there has or will be a breach of sanctions, lawfully require counterparties to comply with the so called enhanced due diligence protocol before contracting with them or complying with existing contracts.”

16 . For reasons which appear in the chronology below, I refer to this as the applicants' fourth application.

17 . This judgment relates only to a preliminary objection to this application made by the joint liquidators.

Locus standi

18 . Swan Hellenic claims that it makes this application as a creditor. It claims that STLC and GTLK Europe are liable to it for damages for loss of profit and operational expenses. This claim was first notified in a Default Notice served on STLC only on 17 June, 2022 in an amount of $16.262 million. More recently it was said to be quantified at a figure of $32 million. The joint liquidators say that the claim for damages is disputed.

19 . The joint liquidators do not for the purpose of the decision I have to make at this stage dispute the standing of Swan Hellenic to apply for directions. They reserve their position as to the standing of the applicants as creditors but that is not an issue on which I am required to make a decision at this stage.

20 . It emerges very clearly from the affidavits and submissions, and is openly stated by the applicants, that their objective in this matter is to acquire the vessel, either directly or by acquiring the shares in STLC, so that they can resume their business having invested heavily in the vessel and incurred expenses already. There is nothing wrong with that commercial objective. It is a valid commercial objective to resolve the position in relation to the vessel and get it back into operation. It does however call into question whether in truth this application is being moved by the applicants qua creditor, or pursuant to their commercial interests as a counterparty to STLC.

21 . In the very different context of applications for directions in examinerships, in Re Ladbrokes (Ireland) Limited and Cos. Act [2015] IEHC 381 and Re Eircom Kelly J., 17 May 2012, the court was in each case willing to recognise the locus standi of the applicants even though the applications related not to their status as creditors, but to their interest as putative investors. I propose to follow the same approach, particularly in light of the indication by the joint liquidators that they take no issue on this point.

Preliminary objection

22 . The joint liquidators submit that the questions raised in the notice of motion are not appropriate for determination by an application pursuant to s. 631. They say that if the applicants wish to pursue these questions, they should do so when they arise in a plenary action which they commenced against GTLK Europe and STLC on 19 August 2022.

23 . The parties agree that if the determination of these questions were to proceed by way of an application for directions pursuant to s.631 it would be necessary to exchange pleadings and submissions and possibly even evidence before a substantive hearing of the application could take place. It was therefore agreed that the court should first determine the objection raised by the joint liquidators on the very question of whether s. 631 is an appropriate mode of determining these questions. I heard submissions on this preliminary question and this is my judgment on the objection.

24 . I have concluded that the objection of the...