UK Supreme Court judgment in Celestial Aviation appeal – judgment on UK Russia reg 28 and s.44 SAMLA defence

25 March 2026

The UK Supreme Court has given judgment in the Celestial Aviation case.

Background

3 Irish companies leased civilian aircraft to 2 Russian airlines between 2005 and 2014. UniCredit Bank GmbH issued letters of credit to the Irish companies as security for obligations under these leases between 2017 and 2020.  The Irish companies terminated the leases and demanded the return of the aircraft. The aircraft were not returned, and UniCredit would not pay under the letters of credit on the grounds that it would breach regulation 28(3)(c) of the UK’s Russia sanctions regs which prohibit the direct or indirect provision of financial services or funds “in connection with an arrangement whose object or effect is… directly or indirectly making restricted goods or restricted technology available… for use in Russia.” UniCredit said even if it was wrong about the effect of regulation 28(3)(c), it could rely on its reasonable belief that payment would breach sanctions as a defence under s.44 of SAMLA.

Judgments below

The Irish companies won in the High Court, which held that:

• Regulation 28(3)(c) did not prevent payment because the supply of the aircraft was before the prohibition came into effect.

• Although UniCredit believed that sanctions prevented it from paying, that belief was not reasonable, so it had no defence under s.44 of SAMLA.

UniCredit appealed and won in the Court of Appeal, which held that:

• Regulation 28(3)(c) had suspended its obligation to pay under the letters of credit.

• s.44 of SAMLA would not have protected UniCredit from an action to recover a debt which was lawfully due.

• UniCredit could not rely on US sanctions to excuse it from making payment, because it had not made reasonable efforts to obtain a US licence. UniCredit did not appeal on this point.

Supreme Court judgment

The Irish companies appealed the regulation 28(3)(c) issue to the Supreme Court, UniCredit cross appealed on s.44 of SAMLA. The Supreme Court has dismissed the companies’ appeal and allowed UniCredit’s cross-appeal, holding that:

• Regulation 28(3)(c) prohibited UniCredit from paying under the letters of credit because the Irish companies’ leases were an “arrangement” within the meaning of the regulation. It was not relevant that the arrangement was not prohibited at the time when made, or that there was no causal connection between the provision of financial services and the prohibited supply of aircraft.

• In any case, UniCredit had a defence under s.44 of SAMLA because UniCredit’s refusal to pay under the letter of credit was because of its reasonable belief that payment would have breached UK sanctions. The court said this would have protected UniCredit from an action to recover a debt, an award of interest on the amount of the debt, and an award of associated costs.