The Supreme Court has today handed down judgment in Celestial Aviation Services Ltd v UniCredit Bank GmbH [2026] UKSC 10, dismissing the claimants’ appeals and allowing UniCredit’s cross-appeal.
The case concerned the impact of sanctions legislation on the bank’s payment obligations under letters of credit.
UniCredit was the confirming bank in respect of the letters of credit, which had been issued as security for obligations under a number of leases of aircraft by Irish lessors to Russian lessees. The leases were all entered into, and the letters of credit issued and confirmed, before 2020. The claimants were the beneficiaries under the letters of credit.
In March 2022, shortly after the Russian invasion of Ukraine, the Russia (Sanctions) (EU Exit) Regulations 2019 were amended so that reg. 28(3)(c) made it unlawful for a person directly or indirectly to provide financial services or funds in pursuance of or in connection with an arrangement whose object or effect is making civilian aircraft available to a person connected with Russia or for use in Russia.
The claimants then made demands under the letters of credit. UniCredit did not pay, until it obtained licences from the relevant UK authorities in October 2022. By the time of the hearing in the Supreme Court, the issues were, first, whether payment was prohibited by reg. 28(3) absent a licence; and secondly, whether UniCredit could avoid liability for interest and costs on the basis of s.44 of the Sanctions and Anti-Money Laundering Act 2018, which provides that a person is not liable to any civil proceedings in respect of an act (or omission) done in the reasonable belief that it is in compliance with the applicable sanctions legislation.
The Supreme Court (Lord Stephens JSC giving the judgment) unanimously accepted UniCredit’s position on both issues, upholding the decision of the Court of Appeal on the reg. 28(3) issue and overturning its decision on s.44.
On reg. 28(3), the court rejected the claimants’ contention that a causal connection between the provision of funds and the supply of aircraft was required; it was sufficient that there was a connection between the provision of funds and the arrangement itself. The court accepted UniCredit’s contention that the regulation deliberately cast a wide net, with the licensing system available to mitigate any unintended consequences. The court went on to hold that the leases were “arrangements” within the scope of reg. 28(3)(c), notwithstanding that they predated the sanctions, had been entered into lawfully, and had been terminated before payment fell due under the letters of credit.
On s.44, the court held that the provision did not prohibit civil proceedings, but provided a defence. It held that s.44 protected UniCredit from the claimants’ claims in debt, and also interest and costs, each being “in respect of” UniCredit’s omission to pay in the reasonable belief that this was in compliance with reg. 28(3).
The Supreme Court’s decision provides important and authoritative guidance on the interpretation of a sanctions regime which has had a major impact on commercial transactions involving UK persons.
A copy of the judgment is available here.
James Sheehan KC acted for UniCredit, with David Quest KC (3VB) and Rachel Barnes KC (Three Raymond Buildings) , instructed by Davina Given at Reynolds Porter Chamberlain LLP.
