Parties whose contractual dealings have been affected by the imposition of sanctions now have increased clarity over their rights and obligations, following the Supreme Court’s decision in UniCredit Bank GmbH, London Branch v Constitution Aircraft Leasing (Ireland) 3 Ltd and another [2026] UKSC 10. In short, where sanctions prohibit a party from making an agreed payment: (a) the payment obligation is suspended pending receipt of the necessary licence(s); (b) the parties must make reasonable efforts to obtain those licence(s); and (c) if proceedings are brought in the meantime, the paying party may rely on s.44(2) SAMLA by way of defence.

 

Background

 

UniCredit issued letters of credit to secure the lease of civilian aircraft by two Russian airlines from Irish lessors (“the Lessors”). On 1 March 2022, the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2022, SI 2022/195 (“the Amended Regulations”) came into force. The Amended Regulations provide that a person must not directly or indirectly provide financial services or funds in pursuance of or in connection with an arrangement whose object or effect is directly or indirectly making restricted goods or restricted technology available to a person connected with Russia or for use in Russia. The definition of “restricted goods” includes aircraft.

 

Shortly after the Amended Regulations came into effect, the Lessors terminated the leases and demanded the return of the aircraft. The aircraft were not returned and remain in Russia, in breach of the terms of the leases. The Lessors then demanded payment from UniCredit under the letters of credit. UniCredit refused to pay, arguing that payment without a licence would breach sanctions. In its view, the letters of credit were connected to arrangements whose object or effect was to make restricted goods available for use in Russia. UniCredit applied for licences but did not receive them before the Lessors commenced proceedings, contending that the Amended Regulations did not in fact prohibit payment.

 

Licences were granted after trial but before judgment, and UniCredit then paid the principal sums. The remaining issues were liability for interest and costs.

 

As well as arguing that they had been prohibited from making payment, UniCredit also relied on s.44 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”), which applies to an act done in the reasonable belief that it is done in compliance with the Amended Regulations (s.44(1)(a)). Where the section applies, a person is not liable to any civil proceedings to which they would otherwise have been liable (s.44(2)).

 

First Instance

 

At first instance, the Judge found that payments under the letters of credit were outside the purpose of the Amended Regulations, as the supply of the aircraft had occurred long before they had taken effect. Although UniCredit had believed it was prohibited from making payment, the Judge did not consider this belief reasonable, and s.44 SAMLA did not apply.

 

Court of Appeal

 

The Court of Appeal overturned the Judge’s finding on the interpretation of the Amended Regulations. It also considered s.44 SAMLA, concluding that as proceedings for recovery of a debt were not barred, claims for interest and costs were likewise not barred.

 

Supreme Court

 

The Supreme Court delivered a unanimous opinion on 3 issues.

 

(1) No requirement for a causal connection

 

By the time of the Amended Regulations, the aircraft were already in Russia. There was, therefore, no causal link between payment under the letters of credit and the supply of aircraft. The Lessors argued that prohibiting a German bank from paying Irish companies in these circumstances was not ‘within the mischief’ of the Amended Regulations.

 

The Supreme Court found no support for the Lessors’ contention in the language of the Amended Regulations, the ‘very broad purpose’ of which was to ‘put pressure on Russia’. The sanctions regime cast the net wide ‘because vital public interests’ were involved and a licensing system was available to mitigate unintended consequences. It was only right that in instances such as this, the arbiter of debates over the accuracy of information provided in support of any payment was the licensing authority, which may have available other information enabling it to ‘see the larger picture’.

 

(2) Aircraft leases were ‘arrangements’ within the Amended Regulations

 

The Supreme Court held that the relevant prohibition concerned the funding of arrangements, whenever those arrangements were made or performed. It was immaterial that the leases had been entered into and substantially performed before the Amended Regulations came into force, or that they had since been terminated. Termination did not retrospectively alter the object of the leases.

 

(3) s.44(2) SAMLA

 

Because they had heard argument about it, and because it was likely to affect a significant number of other cases, the Supreme Court adjudicated upon the application of s.44 SAMLA. In a short passage of their judgment, the Supreme Court confirmed (albeit obiter) that, whilst the section did not prohibit civil proceedings, it provided a defence thereto. Because UniCredit’s alleged liability was ‘in respect of’ its omission to pay, the Court held that s.44(2) applied. As a result, s.44(2) would have provided protection to the Bank against an action to recover a debt, an award of interest on the amount of the debt, and an award of associated costs.

 

Practical effect

 

It was not in dispute on appeal that, if UniCredit was right in thinking that it was prohibited from doing so, its obligation to make payment under the letters of credit was suspended until it had received the necessary licence. Similarly, UniCredit did not appeal findings made earlier in the proceedings that it was always obliged to make reasonable efforts to apply for a licence. Indeed, its failure to apply for a licence in the US meant that it could not rely on US sanctions as preventing it from performing its obligations to pay under the letters of credit.

 

The effect of the Supreme Court’s decision is that, where sanctions prohibit contractual payment:

• • The payment obligation is suspended pending receipt of the necessary licence(s).
  • The paying party (and the receiving party, if appropriate) must make reasonable efforts to apply for the necessary licence(s).
  • If proceedings are brought against the paying party for non-payment (notwithstanding that it has made reasonable efforts to obtain the necessary licence(s)), that party may deploy s.44 SAMLA by way of a defence to those proceedings.