Series
Blogs
Series
Blogs
On 25 March 2026 the Supreme Court handed down its long-awaited judgment in UniCredit Bank GmbH, London Branch v Constitution Aircraft Leasing (Ireland) 3 Ltd and anor; UniCredit Bank GmbH, London Branch v Celestial Aviation Services Ltd [2026] UKSC 10, unanimously dismissing the appellants' appeals and allowing the Bank's cross-appeals. While the case involved two specific prohibitions under UK sanctions regulations, the Supreme Court’s conclusions on their true interpretation are of far broader application. In particular, the judgment underscores the broad scope of the prohibitions and the central role of the licensing regime in mitigating any unintended consequences of the regulations.
The Supreme Court upheld the Court of Appeal's decision that regulation 28(3)(c) of the Russia (Sanctions) (EU Exit) Regulations 2019 (“Russia Regulations”) prohibited UniCredit Bank GmbH ("UniCredit" or the “Bank”) from making payments under standby letters of credit connected with aircraft leases to Russian airlines, until licences to do so were obtained.
In a further win for the Bank, the Supreme Court departed from the Court of Appeal's obiter analysis of section 44 of the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA"), which provides protection from civil liability for certain acts done for the purpose of sanctions compliance. The Supreme Court held that section 44 does provide protection against actions to recover a debt, awards of interest on the debt, and associated costs, where the debtor held a reasonable belief that non-payment was in compliance with sanctions regulations.
The proceedings arose from 12 letters of credit issued by Sberbank of Russia and confirmed by UniCredit (acting through its London branch) in connection with leases of civilian aircraft to two Russian airlines, the beneficiaries of which were various Irish-incorporated entities. The leases were entered into, and the letters of credit issued, well before Russia’s invasion of Ukraine and the imposition of the sanctions in question.
Since 1 March 2022, regulation 28(3)(c) of the Russia Regulations has prohibited the provision of financial services or funds in pursuance of or connection with arrangements whose object or effect is directly or indirectly making restricted goods (including civilian aircraft) available to persons connected with Russia or for use in Russia. Shortly after this prohibition came into force, the lessors terminated the aircraft leases and made demands on UniCredit for payment under the letters of credit. UniCredit refused to pay on the basis that regulation 28(3)(c) prohibited it from doing so.
UniCredit applied for and ultimately obtained UK licences from the Export Control Joint Unit and the Office of Financial Sanctions Implementation on 22 September 2022 and 13 October 2022 respectively. Following the grant of licences, the principal amounts under the letters of credit were paid. However, the appellants had commenced proceedings in the meantime contending that regulation 28(3)(c) had never prohibited the Bank from making payments. By the time of judgment, the dispute was confined to interest on the principal amounts and costs.
Two issues arose for determination:
First, whether the Bank's obligation to make payments under the letters of credit was prohibited by regulation 28(3)(c) during the period from the date the payment obligations fell due until the date upon which the licences were obtained.
Second, whether, if regulation 28(3)(c) did not prohibit the Bank from making payments, section 44(2) of SAMLA nevertheless protected the Bank against an action to recover a debt, an award of interest on the debt, and an award of associated costs, where the Bank held a reasonable belief that non-payment was in compliance with the sanctions regulations.
At first instance, the Court held that regulation 28(3)(c) did not prohibit the Bank from making payments under the letters of credit. The judge reasoned that the purpose of the regulation was to prevent financial assistance being provided to Russian parties in relation to the supply of aircraft, and that the supply had occurred long before the prohibition came into effect. On section 44 of SAMLA, the judge found that the Bank held the requisite belief that its refusal to pay was in compliance with sanctions, but that the belief was not reasonable. The judge awarded the appellants interest and costs.
The Court of Appeal allowed UniCredit’s appeal on regulation 28(3)(c), holding that payment under the letters of credit was "in connection with" the aircraft leases, which were arrangements whose object was making aircraft available to persons connected with Russia or for use in Russia. It did not matter that the supply of aircraft had occurred long before the imposition of the sanctions. The Court of Appeal held that the regulation was "a relatively blunt instrument" casting a wide net, with the licensing regime serving as the mechanism to mitigate unintended consequences. On section 44 of SAMLA (addressed obiter), the Court of Appeal upheld the Bank's belief as reasonable but held that section 44 did not protect the Bank against an action to recover a pre-existing debt, an award of statutory interest or associated costs.
The Supreme Court rejected the appellants' primary submission that regulation 28(3)(c) required a causal connection between the provision of financial services or funds and the prohibited supply of aircraft. The Court held that, on a plain reading of the regulation, the language does not require a connection between the provision of financial services or funds and the prohibited supply; rather, it requires a connection between the provision of financial services or funds and an "arrangement". The Court also noted that the regulation uses two distinct phrases, "in pursuance of" and "in connection with", which must be given different meanings. "Funds” provided under or in accordance with the terms of the relevant arrangements would be covered by “in pursuance of”, but "in connection with" is far broader and, in conjunction with “in pursuance of”, encompasses anything which factually connects the provision of funds to the arrangement, without requiring any causal link.
The Court also held that the purpose of the Russia Regulations (to put pressure on Russia by, for instance, disrupting strategic industries such as aviation) is served by casting the net wide with a licensing system available to mitigate unintended consequences. The vital public interests underlying the sanctions regime mean that the licensing authority, rather than private individuals, should be the arbiter of those interests, given its institutional competence and accountability to Parliament.
The Court also rejected the appellants' submissions that the aircraft leases were not relevant "arrangements" because the agreements were performed before the prohibitions came into force and in any event had been terminated. The Court found no support for that proposition in the wording of the regulation, and noted that the object of the leases (making aircraft available to Russian airlines for use in Russia) was unchanged by their termination. If an agreement ceased to be a relevant “arrangement” upon termination, that would lead to the absurdity that the prohibition could be avoided by simply drafting leases so that payment follows after termination.
The Supreme Court dismissed the appellants' appeals on this issue, holding that the Bank was prohibited under regulation 28(3)(c) from making payments under the letters of credit until licences to do so were obtained. The Bank's payment obligation was therefore suspended until the UK licence process was completed on 13 October 2022, and statutory interest did not accrue during that period.
Although not strictly required to given the conclusions above, the Supreme Court addressed this issue given its significance for other cases. Departing from the Court of Appeal's obiter remarks, it held that section 44 of SAMLA does provide protection against an action to recover a debt, an award of interest on the debt and an award of associated costs, where the debtor held a reasonable belief that non-payment was in compliance with sanctions regulations.
The Court reasoned that the purpose of section 44 is to provide protection for a person who acts or omits to act in the reasonable belief that the act or omission is in compliance with sanctions regulations. This protection furthers the public purpose of the sanctions provision: a person with the requisite belief should have that protection because making payments might undermine the sanctions regime. The Court held that section 44 provides a defence in civil proceedings (rather than prohibiting such proceedings, which would require clear words). Civil proceedings to recover a debt are only brought if the debtor fails to pay, and the Bank's liability was "in respect of" its omission to pay upon receipt of a demand under the letters of credit. A failure to pay a claim for interest or costs was also an omission "in respect of" the debtor's failure to pay the debt, falling within the language of section 44. The Bank's cross-appeals were allowed.
30 March 2026