Syed Rahman and Ulrich Schmidt of Rahman Ravelli assess the significance of UniCredit Bank GmbH, London Branch (Respondent) v Constitution Aircraft Leasing (Ireland) 3 Ltd and another (Appellants), and UniCredit Bank GmbH, London Branch (Respondent) v Celestial Aviation Services Ltd (Appellant) [2026] USKC 10.
Following a hearing on 8 and 9 of December 2025, the UK Supreme Court has handed down a long-awaited judgment in the so-called “Celestial” case.[1] The case concerned the impact of sanctions legislation on UniCredit Bank GmbH’s (UniCredit’s) payment obligations to the appellants under letters of credit.
The Supreme Court unanimously dismissed the appellants’ appeals and allowed UniCredit’s cross-appeal - affirming that the scope of sanctions prohibitions and legislation is very broad, and that unintended consequences of the regulations should be addressed via the licensing regime in place.
Case background
UniCredit, acting through its London branch, had confirmed (i.e. guaranteed, promised payment if the issuing bank failed to pay) 12 letters of credit issued by Sberbank of Russia, in connection with leases of civilian aircraft to two Russian airlines. The beneficiaries of the airlines were multiple Irish-incorporated entities, including Celestial Aviation Services Ltd, one of the appellants.
Following the Russian invasion of Ukraine, the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Russia Regulations”) were amended to make 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 available restricted goods or restricted technology – including civilian aircraft – to a person connected with Russia.[2]
Shortly after the Regulations were amended, the Irish lessors (i.e. the claimants) terminated the aircraft leases and made demands on UniCredit for payment under the letters of credit. UniCredit refused, stating that it was prohibited from paying under reg. 28(3)(c) of the Russia Regulations.
Grounds of appeal
Whilst the High Court had initially ruled against UniCredit, the Court of Appeal’s judgment, handed down almost two years ago on 11 June 2024, disagreed with this stance, stating that UniCredit’s belief that payment under the letters of credit would breach sanctions regulations was reasonable on the basis of s.44 of SAMLA; 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 – given the circumstances, a practical and realistic approach. The claimants appealed against these decisions.
Crucially, the Court of Appeal also held that UniCredit’s belief, whilst reasonable, could not protect it from liability for recovery of a debt that is lawfully due but unpaid because of sanctions imposed on the credit, after the debtor’s default. This meant that UniCredit would be liable to pay interest and cost relating to the unpaid amount under the letters of credit. It was this decision that was subject to the cross-appeal by UniCredit.
Findings of the Supreme Court
By the time the claim reached the Supreme Court, the circumstances had (as can happen) largely changed. UniCredit had obtained a special licence from the Office of Financial Sanctions Implementation (“OFSI”). Following this, UniCredit made payment of the principal amount under the letters of credit. This meant that the dispute was now limited to the (quite substantial) interest on the principal amount and costs.
The Supreme Court therefore decided on two crucial issues:
- Whether the bank’s obligation to make payments under the letters of credit was prohibited under regulation 28(3)(c) until a licence was granted; and
- Does the protection under section 44(2) of SAMLA include protection against an action to recover a debt, an award of interest on the amount of the debt, and an award of associated costs?
The Supreme Court, unanimously accepted UniCredit’s position on both issues – therefore upholding the Court of Appeal’s decision on regulation 28(3)(c) but reversing the decision reached regarding s.44 SAMLA.
The Supreme Court rejected the appellants’ submission that regulation 28(3)(c) required a causal connection between the provision of financial services or funds and the prohibited supply of aircrafts – a plain reading of the regulation simply did not reflect this stance. The Supreme Court stated that a connection was required between the financial services or funds and an arrangement.[3] The Supreme court also reiterated, as it had stated in its judgment in the case of Shvidler, that the “net” of the Russia Regulations was purposefully cast very wide to put pressure on Russia, and that the unintended consequences could be adequately addressed through the “safety valve” of the licensing regime in place.[4]
The Supreme Court also accepted UniCredit’s cross-appeal on s.44. It held (although notably only in obiter) that whilst s.44 did not prohibit civil proceedings, it provided a defence to them. Again, it stated that the sanctions regime had been cast wide – a necessity given its purpose. As such, someone with the reasonable belief of complying with this decision should have protection under the statutes.
Implications of this decision
The Supreme Court has endorsed its own approach to the sanctions regime - Parliament has used wide language within the statute and the Supreme Court will not restrict this. Instead, the licensing regime will have to be relied on by those affected by sanctions – whether those directly affected or those further along the chain, like the claimants in this case. Whilst the adequacy of the licensing regime has been contested, as seen in the case of Khan, it is now clear that the courts have placed utmost importance on it.
Companies, whether financial institutions or otherwise, must ensure that they undertake detailed and up-to-date due diligence to limit their sanctions exposure. Preventing sanctions issues from arising will always be the best course of action.
This decision raises a number of practical points for lawyers, whether they are in-house or at law firms. Those advising financial institutions and companies issuing and/or relying on letters of credit (once seen as independent payment obligations – to be paid “no matter what”) must ensure that their clients are aware of and protected against any downstream sanctions exposure that could arise from their arrangements. If they are exposed, there could be extreme negative consequences financially.
This judgment is a timely reminder that sanctions amendments can apply retroactively. Whether a lease is signed in 2005 or 2025 (i.e. before or after the Regulations) does not affect the Regulations’ applicability.
It should also be noted that the Supreme Court’s emphasis on the licensing regime may have practical commercial consequences for companies. Lawyers should consider, and make their clients aware, that heavier reliance on the licensing system could lead to delays in obtaining licences via a system that has already been criticised for being slow. Companies will have to consider whether licenses could be required in their transactions well ahead of time, which may have an impact on their commercial planning.
Sources
- UniCredit Bank GmbH, London Branch (Respondent) v Celestial Aviation Services Ltd (Appellant) - UK Supreme Court
- The Russia (Sanctions) (EU Exit) Regulations 2019
- UniCredit Bank GmbH, London Branch (Respondent) v Celestial Aviation Services Ltd (Appellant) - UK Supreme Court, Para. 75
- Ibid, para.76
