On 25 March 2026, the UK Supreme Court issued an important judgment in the case of UniCredit Bank GmbH, London Branch v Constitution Aircraft Leasing (Ireland) / Celestial Aviation Services Ltd [2026] UKSC 10, confirming that a key aspect of the UK’s sanctions framework (namely, the prohibition on providing financial services or funds in pursuance of or in connection with trade in prohibited goods and services) should be interpreted very broadly.
The judgment will have far-reaching impacts in a wide range of areas. In particular, companies and financial institutions that make use of trade finance instruments such as letters of credit will need to carefully assess whether particular steps are permissible, if any underlying goods or services under the trade finance arrangements, or any of the parties to those trade finance arrangements, become subject to sanctions. Businesses that have previously supplied or agreed to supply goods or services that have become restricted will also need to consider their exposure in the event of a customer claim.
We have summarised below key aspects of the case background, the legal findings of the Supreme Court, and key implications for companies.
The Supreme Court’s judgment follows a prior judgment by the Court of Appeal, which also set out a broad interpretation of the prohibition on the provision of financial services and funds in connection with trade in prohibited goods. Our previous client alert on the Court of Appeal’s judgment is available here.
Case background
In summary, the case concerned whether or not it was permissible for UniCredit to withhold payment under 12 letters of credit issued by Sberbank to Celestial Aviation and Constitution, two Irish-incorporated entities that had previously leased aircraft to Russian airlines, which UniCredit had confirmed. All relevant leases were entered into, and all aircrafts under the leases were supplied to Russia prior to, the entry into force in March 2022 of certain sanctions restricting the supply of aircraft to Russia. The letters of credit were issued in favour of the Irish entities to provide security in respect of obligations under the relevant leases.
Under regulation 28 of the Russia (Sanctions) (EU Exit) Regulations 2019 (“UK Russia Regulations“), it is prohibited to directly or indirectly provide financial services or funds to a person connected with Russia in pursuance of or in connection with an arrangement whose object or effect is the export, supply, delivery, making available or transfer of restricted goods / technology, or the direct or indirect provision of technical assistance relating to restricted goods or restricted technology.
The case turned on whether UniCredit was correct in arguing that, without a licence, it was prohibited from making payment under the letter of credit arrangement to the Irish companies, on the basis that doing so would be “in connection with” an arrangement related to prohibited supply of a controlled item to Russia – notwithstanding that the aircraft themselves were supplied to Russia a long time before the imposition of the relevant sanctions. Celestial Aviation and Constitution argued that these restrictions should be interpreted in a purposive way, in that there needed to be more of a causal link between the provision of the financial services and funds, and the actual making available of the restricted aircraft in Russia (which would be more in line with the equivalent “financial assistance” provisions under the EU’s sanctions framework).
The case also considered the extent to which UniCredit was able to rely on the statutory defence under section 44 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”), which provides that a party will have a defence in civil proceedings in respect of acts done in reasonable belief that they are in compliance with UK sanctions.
Supreme Court judgment
Scope of restriction on provision of financial services and funds in connection with trade in prohibited items
In summary, the Supreme Court aligned with the Court of Appeal, taking a very literal interpretation of the restrictions under regulation 28 of the UK Russia Regulations. The Court found that these sanctions measures relating to financing the supply of restricted items can apply both where those items were lawfully supplied prior to the sanctions being introduced and where they are supplied once the restrictions have come into effect. The Court noted in particular that the UK Russia Regulations prohibit funding arrangements based on whether the object or effect of the underlying arrangement is to supply goods that are listed in the UK Russia Regulations, and not when the arrangement is performed.
The Court also focused on the fact that the restrictions can apply when the financial services or funds are merely provided “in connection with” prohibited trade, and not whether they cause or facilitate that trade: “The words “in connection with” are far broader than “in pursuance of”. In conjunction with the phrase “in pursuance of” they mean anything which factually connects the provision of the funds to the arrangement. The phrase does not require there to be any causal connection.”
The Court stated that a broad interpretation of this aspect of UK sanctions serves to impose pressure on Russia (in line with the objectives of the legislation), and the UK’s sanctions licensing framework exists to allow parties to obtain authorisations in respect of otherwise-prohibited acts: “The structure of casting the net wide with a licensing system available to mitigate any unintended consequences serves the purpose of regulation 28(3)(c). The net is cast wide because vital public interests are involved and the arbiter of those interests should be public authorities involved in the licensing process.” The Court acknowledged that the scope of the sanctions is extensive – the judgment references the Court of Appeal’s description of regulation 28 as being a “blunt instrument” – but opined that its broad application would be tempered by the licensing regime.
Scope of section 44 defence regarding acts done in reasonable belief of compliance with UK sanctions
The Supreme Court also took a broad interpretation of the scope of the section 44 defence. Given the Court’s finding that payment by UniCredit was prohibited under regulation 28, the Court also found that the section 44 defence would have provided protection in respect of (i) an action to recover a debt, (ii) an award of interest on the amount of the debt, and (iii) an award of associated costs.
Key implications
The Supreme Court’s landmark judgment raises various far-reaching implications, in particular given (i) the broad reading on the restriction on provision of financial services and funds “in connection with” trade in prohibited goods, and (ii) the dramatic increase in the range of items controlled under sanctions measures targeting Russia and other jurisdictions.
- For financial institutions and other parties that have entered into trade finance or similar arrangements (including transactions involving advance payment guarantees or similar reimbursement mechanisms), it will be imperative to assess whether the underlying arrangement relates to trade in any items that have now become prohibited under relevant sanctions. Given the complex ways in which goods can now be subject to sanctions product controls (including controls imposed by reference to HS codes, export control classifications, broad descriptions of items, or otherwise), this assessment will not always be straightforward. Parties may also undertake greater consideration of the likelihood of an item becoming sanctioned in future, prior to entering into such trade finance arrangements.
- For parties that have supplied goods or services in the past that have now become restricted, or that have terminated contracts for the supply of goods or services due to restrictions coming into force, claims from current or former customers should be assessed carefully. While the Celestial case focuses on trade finance, there may be similar impacts on claims for refunds or damages resulting from (for example) supplies of faulty goods, breaches of contract, or cancelled orders.
- The judgment emphasises that parties can apply for licences to mitigate the broad effects of UK sanctions. However, the judgment is silent on common challenges that companies can face when looking to apply for trade sanctions licences in the UK, including that (i) an appropriate licensing ground may not be available, and (ii) licences may take a prohibitively long time to be granted. Licence applications made under sanctions legislation undergo particular scrutiny, with review timetables often extending far beyond the Government’s 20 working day target. Extended timeframes of this nature can cause significant challenges for businesses (including in an intra-group context).
- Put together, this judgment may have a profound impact on the efficacy of trade finance instruments to beneficiaries who conduct business with counterparties that, or operate in jurisdictions that, may in the future become subject to sanctions, who may now perceive the trade instruments issued in their favour to afford significantly weakened practical protection.
- At the same time, businesses engaged in trade that becomes sanctioned (and those financing such trade) may benefit from the Court’s broad interpretation of the section 44 defence, which provides broad protection to UK parties attempting to comply with the sanctions.
Please do reach out to our team if you have any questions on any of the matters raised in this post.
