Sanctions Ground $69M Aircraft Payments: UK Supreme Court Rules Banks Can Say “No”

In a significant ruling on the interplay between international sanctions and commercial finance, the UK Supreme Court has held that UniCredit Bank GmbH (London Branch)

• Is not obliged to make payments under letters of credit issued as security for aircraft leases to Russian airlines.

The decision

• Clarifies the broad reach of UK Russia sanctions.
• Was handed down on 25 March 2026 in the linked cases
• UniCredit Bank GmbH, London Branch v Constitution Aircraft Leasing (Ireland) 3 Ltd and another and
• UniCredit Bank GmbH, London Branch v Celestial Aviation Services Ltd ([2026] UKSC 10),

Background to the Dispute

• The case involved three Irish aircraft leasing companies (Constitution Aircraft Leasing entities and Celestial Aviation Services) that had leased civilian aircraft to Russian airlines between 2005 and 2014.
• As security for the lessees' obligations under these leases, letters of credit (LCs) were issued by a Russian bank, with UniCredit (acting through its London branch) as the confirming bank.
• The leases were entirely lawful when entered into. However, following Russia's invasion of Ukraine in February 2022, the UK imposed sweeping financial sanctions via the Russia (Sanctions) (EU Exit) Regulations 2019 (as amended).
• The aircraft leases terminated for default in March 2022 amid the escalating crisis, leaving many planes stranded in Russia.
• The Irish lessors subsequently demanded payment under the LCs, seeking to recover approximately $69.3 million.
• UniCredit refused, arguing that making the payments would breach UK sanctions, specifically Regulation 28(3)(c), which prohibits providing financial services or funds "in connection with" arrangements whose object or effect is to make aircraft available to persons connected with Russia.

The Supreme Court's Key Findings

In a unanimous judgment delivered by Lord Stephens (with whom Lords Hodge, Sales, Burrows, and Lady Simler agreed), the Supreme Court dismissed the lessors' appeals and allowed UniCredit's cross-appeal on two critical points:

1. Prohibition under Regulation 28(3):
• The Court held that the payments under the LCs were prohibited by the sanctions regime.
• It ruled that the original aircraft leases constituted "arrangements" caught by the regulation, even though:
1. The leases pre-dated the relevant sanctions amendments.
2. The supply of aircraft was lawful at the time.
3. The leases had already terminated before the payment obligations under the LCs fell due.
4. There was no direct causal link between the payments and the ongoing supply of aircraft to Russia.
• The Court emphasised that the sanctions are drafted expansively to cast a "wide net," focusing on any connection to making aircraft available in Russia.
• Payment under the LCs would still be "in connection with" those arrangements.
2. 'Reasonable Belief' Defence under Section 44 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA):
• Even if the primary sanctions prohibition did not apply, the Supreme Court held (obiter) that UniCredit had a complete defence.
• As long as the bank reasonably believed that payment would breach the Regulations, it was protected from liability for non-payment, including claims for the debt itself, interest, and costs.
• This provides important comfort to financial institutions navigating complex sanctions compliance.

The ruling upholds the Court of Appeal's earlier decision and reinforces that sanctions can override pre-existing contractual payment obligations where a sufficient connection to sanctioned activities exists.

Implications for Banks and the Aviation Sector

This judgment has significant ramifications for compliance in international trade finance, particularly in sectors like aviation leasing where long-term contracts can be disrupted by geopolitical events:

• Banks:
• Financial institutions can take greater confidence in refusing payments where there is a "reasonable belief" of a sanctions breach.
• The broad interpretation of "in connection with" arrangements means banks must carefully assess historical deals linked to sanctioned jurisdictions or entities. Licences from the Office of Financial Sanctions Implementation (OFSI) may still be sought to resolve such blocks, as UniCredit ultimately obtained them in this case.
• Lessors and Creditors:
• Aircraft leasing companies and other counterparties face heightened risks when dealing with Russian-connected transactions.
• Pre-sanctions deals are not insulated if payments can be linked to sanctioned arrangements. The decision may complicate recovery efforts for assets stranded in Russia.
• Sanctions Regime:
• The ruling underscores the UK's expansive approach to Russia sanctions, prioritising policy objectives over strict causation or timing arguments.
• It highlights the licensing regime as a "safety valve" for mitigating unintended commercial consequences.

Legal experts from chambers involved, including Brick Court Chambers, have noted

• The importance of the decision in clarifying the scope of Regulation 28 and the protective effect of the SAMLA "reasonable belief" provision.

Broader Context

• The case forms part of a growing body of UK jurisprudence on the extraterritorial and retrospective effects of sanctions following the 2022 Ukraine invasion.
• It comes amid continued efforts to isolate Russia's aviation sector, where many Western-leased aircraft remain grounded or repurposed due to sanctions and export controls.

For full details, the judgment is available on the UK Supreme Court website and BAILII.

Official Judgment & Court Pages

• UK Supreme Court Official Judgment Page: https://supremecourt.uk/cases/judgments/uksc-2024-0102
• UK Supreme Court Case Summary: https://www.supremecourt.uk/cases/uksc-2024-0102

BAILII (Full Judgment Text)

• BAILII Judgment: https://www.bailii.org/uk/cases/UKSC/2026/10.html

Chambers & Law Firm Commentaries

• Brick Court Chambers (involved in the case): https://www.brickcourt.co.uk/news/detail/supreme-court-decision-on-the-reach-of-russian-sanctions
• 3VB (David Quest KC acted for UniCredit): https://3vb.com/david-quest-kc-acts-for-successful-respondent-in-uk-supreme-court-case-on-aviation-related-sanctions-against-russia/
• Hausfeld Commentary: https://www.hausfeld.com/en-gb/what-we-think/perspectives-blogs/win-for-the-bank-in-aviation-letter-of-credit-claims-supreme-court-holds-sanctions-bar-payments
• Essex Court Chambers Commentary: https://essexcourt.com/supreme-court-decision-effect-of-sanctions-on-letters-of-credit/

Other News & Analysis

• Solicitors Journal: https://www.solicitorsjournal.com/sjarticle/unicredit-v-constitution-aircraft-leasing-uk-supreme-court-rules-on-russia-sanctions-and-letters-of-credit
• Law360 UK: https://www.law360.com/commercial-litigation-uk/articles/2457227/russian-sanctions-blocked-69m-unicredit-lease-payments

These links cover the official judgment, summaries, and expert commentary from chambers involved in the case.  

This article is for informational purposes only and does not constitute legal advice. Sanctions compliance is highly fact-specific and subject to ongoing regulatory developments.