UniCredit Bank GmbH v Constitution Aircraft Leasing (Ireland) 3 Ltd and Another [2026] UKSC 10

Why It Matters

The ruling delineates banks’ obligations under evolving sanctions, confirming that payments linked to sanctioned assets require licences and that Section 44 offers legal protection for good‑faith compliance, shaping risk management for financial institutions engaged in cross‑border trade.

Key Takeaways

• Sanctions amendment bars payments without license for aircraft leases.
• Supreme Court upheld licensing requirement for letters of credit payments.
• No causal link needed between funds and aircraft availability.
• Section 44 shields banks acting in good faith under sanctions.
• Interest awards denied; bank protected from debt recovery claims.

Summary

The Supreme Court examined whether UniCredit Bank could honour letters of credit issued for civilian aircraft leases to Russian airlines after the 2022 sanctions amendment. The amendment to regulation 283C prohibited providing funds that facilitate the availability of aircraft to persons connected with Russia, effectively requiring a licence before any payment could be made. The Court rejected the lessees’ argument that the bank’s earlier issuance of the credits insulated it from the new regime, holding that the underlying lease arrangement remained an object of the sanction. Consequently, the bank was barred from paying the Irish lenders until a licence was obtained, and the licences subsequently granted validated the payments. In interpreting section 44 of the Sanctions and Anti‑Money‑Laundering Act 2018, the Court affirmed that a bank that reasonably believes its non‑payment complies with the sanctions is protected from debt‑recovery actions, including interest and costs. This protective shield applied to UniCredit, which had acted on the basis of the amended regime. The decision clarifies that sanctions compliance hinges on the purpose of the underlying transaction, not merely the timing of the credit issuance, and that banks can rely on statutory immunity when acting in good faith under the licensing framework.

Original Description

UniCredit Bank GmbH, London Branch (Respondent) v Constitution Aircraft Leasing (Ireland) 3 Ltd and another (Appellants)

https://www.supremecourt.uk/cases/uksc-2024-0102.html

Case ID: UKSC/2024/0102

UniCredit Bank GmbH, London Branch (Respondent) v Celestial Aviation Services Ltd (Appellant)

https://www.supremecourt.uk/cases/uksc-2024-0103.html

Case ID: UKSC/2024/0103

Judgment date: 25 March 2026

Neutral citation: [2026] UKSC 10

On appeal from [2024] EWCA Civ 628

The linked appeals raise materially identical facts. Constitution Aircraft Leasing (Ireland) 3 Limited and Constitution Aircraft Leasing (Ireland) 5 Limited (together, “Constitution”) and Celestial Aviation Services Limited (“Celestial”) are Irish companies that entered, either directly or through other companies in the same group, into civilian aircraft leasing agreements with Russian airlines between 2005 and 2014. As security for the lessors’ obligations under the leases, a Russian bank issued a total of 12 letters of credit between 2017 and 2020, of which Constitution and Celestial were between them the beneficiaries. UniCredit Bank GmbH (“UniCredit”), a German bank acting through its London branch, acted as the confirming bank for each letter of credit.

Following the Russian invasion of Ukraine in February 2022, the United Kingdom amended the Regulations to expand the scope of the sanctions it imposed on Russia. The leases all terminated for default in March 2022 and Constitution and Celestial made demands to UniCredit for payment under the letters of credit. UniCredit considered that the amended Regulations, in particular Regulation 28(3), prohibited it from making the payments until it obtained a licence from the UK authorities, which it applied for the same month.

Constitution and Celestial each brought claims against UniCredit. After the first instance hearing but before judgment, UniCredit obtained a licence and paid the principal amounts due under the letters of credit. The dispute was thereafter confined to interest and costs. The High Court found in favour of Constitution and Celestial. The Court of Appeal allowed UniCredit’s appeal. Constitution and Celestial now appeal to the Supreme Court.

The issue is:

Does Regulation 28(3) of the Russia (Sanctions) (EU Exit) Regulations 2019/855 (the “Regulations”) prohibit a German bank from discharging payment obligations owed to Irish companies under letters of credit issued as security for agreements to lease aircraft to Russian airlines, where those lease agreements were lawful when entered into and terminated before the payment obligations fell due?

The Supreme Court unanimously dismisses the appeal and allows the cross-appeal.

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