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Court of Appeal confirms broad interpretation of sanctions against Russia

Author: Syedur Rahman  27 June 2024
2 min read

The Court of Appeal handed down its judgment in Celestial Aviation Services Limited v UniCredit Bank GmbH, London Branch[1]on 11 June 2024. 

The decision overturned the Commercial Court’s findings at first instance. It brings clarity to the application of UK sanctions against Russia, confirming that the regulations should be interpreted broadly to achieve the overall purpose of putting pressure on Russia.

The point of contention

The contentious issue was that UniCredit refused to pay standby letters of credit issued by a Russian bank in connection with aircraft leasing transactions. 

UniCredit considered that such payment was prohibited by UK and US sanctions against Russia, that were imposed in response to the invasion of Ukraine.

The first instance decision: UniCredit had no right to refuse payment

At first instance the judge held that UniCredit was not entitled to refuse payment under the letters of credit. The reason being that the UK’s Russia sanctions did not apply where the aircraft were supplied before the sanctions came into effect.

Court of Appeal decision: UniCredit was right to refuse payment

The Court of Appeal overturned the Commercial Court’s decision and held that UniCredit was right to refuse payment. 

Under Regulation 28(3) of the Russia (Sanctions) (EU Exit) Regulations 2019, SI 2019/855 (the UK Regulations) the supply of aircraft to Russia, or for use in Russia, is prohibited. 

At first instance, the judge held that Reg 28(3) was not engaged. But Falk LJ disagreed saying that the letters of credit were plainly ‘in connection with’ the leases.

She said that identifying the purpose of the legislation is of central importance. The purpose of the regulations was not simply to prevent further aircraft going to Russia by preventing financial arrangements. Instead, it cast a wide net to achieve the overall purpose of putting pressure on Russia. 

Is there a defence under Sanctions and Anti-Money Laundering Act 2018?

UniCredit contended that if the prohibition in Reg 28 (3) did not apply, then it still had a defence under s.44 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), that it believed that it was complying with the UK Regulations.  

At first instance, the judge held that UniCredit could not rely on s.44 of SAMLA. It had established the necessary subjective believe, but its belief was not a reasonable one. 

On appeal, Falk LJ said that in light of her conclusion on Reg 28(3), it was not strictly necessary to address s.44 of SAMLA.

That’s because if UniCredit succeeded in its appeal on Reg 28(3) then its payment obligation under the letters of credit was suspended until the UK licence process was completed. 

However, she addressed s.44 of SAMLA because it raises points of significance which have not previously been considered by the Court of Appeal. 

The Court of Appeal held that UniCredit could not rely on s.44 of SAMLA. The defence is available for acts done for the purposes of compliance, when there is reasonable belief that the act is required. It did not protect a party with the reasonable, but mistaken, belief that sanctions applied, from being pursued in respect of an underlying debt. Nor did it prevent the payment of interest on the debt, or the costs of litigation to recover it. 

Appeal allowed in part

UniCredit’s appeal was allowed in part. The Court of Appeal reversed the judge’s conclusion that Reg 28(3) of the UK Regulations did not prevent payment under the letters of credit. 

To the extent that US sanctions remain relevant in the light of that decision, Falk LJ decided that they did not assist UniCredit for a different reason to that given by the first instance judge; namely that UniCredit had not established that it made reasonable efforts to obtain a licence from the Office of Foreign Assets Control.


  1. [2024] EWCA Civ 628
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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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