09.04.2026
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On 25 March 2026, the Supreme Court handed down its unanimous judgment in UniCredit Bank GmbH, London Branch v Celestial Aviation Services Ltd and v Constitution Aircraft Leasing (Ireland) 3 Ltd [2026] UKSC 10, dismissing the appellants’ appeals and allowing the Bank’s cross-appeals. The decision is the first Supreme Court judgment directly addressing the Russia (Sanctions) (EU Exit) Regulations 2019 (“Russia Regulations”). It confirms that the prohibition in Regulation 28(3)(c) extends to any payment with a factual connection to a pre-existing arrangement involving restricted goods, and that section 44 of SAMLA provides broader protection from civil liability than the Court of Appeal had held.
Background
The proceedings arose from 12 letters of credit issued by Sberbank of Russia and confirmed by UniCredit through its London branch, in connection with leases of civilian aircraft to two Russian airlines between 2005 and 2014. From 1 March 2022, Regulation 28(3)(c) prohibited the provision of financial services or funds in connection with arrangements whose object or effect is making restricted goods, including civilian aircraft, available to persons connected with Russia. Following demands for payment after the lessors terminated the leases, UniCredit refused to pay and applied for UK licences from OFSI. Licences were obtained by 13 October 2022 and the principal sums were then paid. The appellants had by that point commenced proceedings contending that the regulation had never prohibited payment. By the time the matter reached the Supreme Court, the dispute was confined to interest and costs accruing before the licences were granted. The Court of Appeal held that payment under the letters of credit was “in connection with” the aircraft leases and thus prohibited. It had also addressed, on an obiter basis (i.e., by way of non-binding observations), section 44 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”), concluding that section 44 did not protect a debtor against an action to recover a pre-existing debt, statutory interest or associated costs. Both issues came before the Supreme Court.
Interpretation of Regulation 28(3)(c)
The central question was whether Regulation 28(3)(c) required a causal connection between the provision of funds and the prohibited supply of aircraft, or whether a broader factual connection to the underlying arrangement was sufficient. The Supreme Court firmly rejected the causal connection argument. On a plain reading, the relevant connection is between the provision of funds and an “arrangement”, not between the funds and the prohibited supply itself. The Court drew a deliberate distinction between “in pursuance of” and “in connection with”: the former covers funds provided under the terms of the arrangement; the latter is considerably broader and encompasses anything that factually connects the provision of funds to the arrangement. No causal link to the underlying prohibited activity is required. The Court also rejected the submission that the aircraft leases ceased to be relevant “arrangements” once terminated. The object of the leases, making aircraft available to Russian airlines for use in Russia, was unchanged by termination, and reading in a temporal limitation would create an obvious avoidance mechanism. The prohibition in Regulation 28(3)(c) is therefore neither causally nor temporally restricted. UniCredit’s payment obligations were suspended until 13 October 2022, and statutory interest did not accrue during that period. The Court’s approach to “in connection with” may also be relevant to other sanctions regimes employing the same or similar drafting.
The Role of the Licensing Regime
Running through the judgment is a clear statement of the constitutional logic underpinning the sanctions regime. Parliament’s intention was to cast a wide net of prohibitions, and the licensing system is the designated mechanism for mitigating unintended consequences in individual cases. The licensing authority is the appropriate arbiter of competing interests, with the institutional competence and parliamentary accountability that individual firms lack. The judgment reinforces the importance of early and proactive engagement with OFSI rather than reliance on private legal interpretation. That message has practical force: OFSI applications can take several months to determine, and contractual deadlines and litigation timelines continue to run in the interim.
Section 44 of SAMLA
Although not strictly necessary given its conclusions on Regulation 28(3)(c), the Court addressed the section 44 question given its significance for other cases, and here it departed from the Court of Appeal’s obiter analysis in a way of considerable practical importance. Section 44 provides protection from civil liability for acts or omissions done for the purpose of sanctions compliance. The Court held that this protection extends to a defence against an action to recover a debt, an award of interest, and associated costs, where the debtor held a reasonable belief that non-payment was required. The Court of Appeal had concluded otherwise, reasoning that debt recovery proceedings were not caused by the omission to pay. The Supreme Court rejected that analysis: civil proceedings to recover a debt only arise because the debtor has failed to pay, and the Bank’s liability was in respect of that omission. A failure to satisfy a subsequent claim for interest or costs fell equally within section 44. The Bank’s cross-appeals were accordingly allowed.
Practical Considerations
The judgment is of immediate relevance to any financial institution with payment obligations connected, however indirectly or historically, to arrangements involving sanctioned goods or persons. Firms cannot rely on the pre-sanctions origin of a contract, its subsequent termination, or the absence of a direct causal link as a basis for concluding that a payment obligation falls outside the regime. Where a factual connection to a relevant arrangement exists, the prohibition should be assumed to apply until a licence is obtained.
The section 44 defence provides meaningful protection where a firm acts on a reasonable belief that payment is prohibited, now extending to claims for the underlying debt, interest and costs. However, the belief must be genuine, reasonable and contemporaneously documented. Compliance decisions should be taken through a structured process, supported by documented legal advice and recorded in real time. Licence applications to OFSI should be made promptly where any doubt arises. The judgment also raises questions for firms that are recipients of payments from sanctioned counterparties: the same broad approach to the scope of Regulation 28(3)(c) applies, and institutions in that position should seek legal advice as to whether their exposures are caught by the prohibition.
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