Supreme Court decision on the reach of Russian sanctions

25/03/26

The Supreme Court today gave judgment in UniCredit Bank v Celestial Aviation Services, addressing the application of Russian sanctions to English law governed payment obligations.

A lessor of aircraft supplied aircraft to Russian airlines under leases entered into before the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Regulations”) came into force. UniCredit was the confirming bank under seven letters of credit (“LCs”) opened in relation to those leases. In March 2022, the lessor served a demand under the LCs. UniCredit refused to pay, claiming that the Regulations made it unlawful to do so. Following an OFSI licence, the principal amounts under the LCs were then paid, leaving costs and interest in issue.

The dispute focused on regulation 28, which (in summary) provides that a person must not provide funds in connection with an arrangement whose object or effect is the supply of aircraft to Russia. Did payment under the LCs constitute the provision of funds in connection with the supply of aircraft to Russia?  The Commercial Court had held that it did not, essentially because the LCs were opened and aircraft supplied before regulation 28 came into force. The Court of Appeal disagreed with that analysis, holding that payment of the LCs was “in connection with” the leases, and it mattered not that aircraft were subject to a prohibition only from March 2022 onwards.

The Supreme Court has upheld the Court of Appeal’s interpretation of regulation 28. The Court held that regulation 28 prohibited payment under the LCs, notwithstanding (i) that the supply of aircraft was lawful when the LCs were entered into and that (ii) the lack of any causal link between payment and the supply of aircraft to Russia. The Court held that the Regulations are drafted expansively so as to cast a “wide net”, subject to the safety-value of a licensing regime to mitigate any unintended consequences of the reach of the sanctions.

The Court went on to address section 44 of the Sanctions and Anti-Money Laundering Act 2018, which gives a defence to a person who holds a reasonable but mistaken belief that sanctions apply. The Court held (disagreeing with the Court of Appeal’s analysis) that section 44 would have given UniCredit a defence to paying interest and costs, in the event that Regulation 28 had not applied. 

The judgment is here.