UK Supreme Court Rules on Sanctions Impacting Aircraft Leasing Payments

• •UK Supreme Court ruled sanctions can cancel bank obligations in credit transactions.
• •UniCredit Bank withheld US$69.3 million in payments linked to Russian aircraft leases.
• •Court emphasized broad scope of sanctions regulations affecting financial transactions.

The UK Supreme Court has ruled that sanctions regulations can negate a bank's obligation to pay under letters of credit in a case involving aircraft leasing companies and UniCredit Bank. The court dismissed appeals from Celestial Aviation Services and Constitution Aircraft Leasing, which sought US$69.3 million after Russian airlines failed to return leased aircraft post-Ukraine invasion. The ruling clarified that payments under letters of credit were 'in connection with' the leasing arrangements, thus subject to sanctions. UniCredit had initially withheld payments until receiving a license from UK authorities, which was granted in October 2022. The court's decision emphasizes the broad scope of sanctions regulations and their implications for financial transactions involving sanctioned entities. The ruling also highlighted that UniCredit would not be liable for accrued interest during the payment delay, as it acted under a reasonable belief of compliance with sanctions. This case sets a precedent for the use of letters of credit in similar contexts.