A UK appeals court has overturned a ruling against UniCredit in a high-profile sanctions case, determining that the bank was justified in refusing payments under letters of credit (L/Cs) issued prior to Russia's invasion of Ukraine.

The dispute arose out of the non-payment of US$69.3 million by UniCredit of standby L/Cs issued in connection with aircraft leases to Russian airlines. The bank contended that payment was prohibited by UK and US sanctions.

Decision overturned

In a March 2023 ruling, a lower court held that UniCredit was not entitled to refuse payment and that the UK sanctions did not apply in circumstances where the aircraft had been supplied before the sanctions came into force and where the obligation under the L/Cs was an autonomous one.

But that decision has now been overturned by the court of appeal. It decided that the purpose of the regulation was "not simply to prevent further aircraft going to Russia by preventing financing arrangements that facilitate that, albeit it undoubtedly does achieve that."

"Rather, it is a relatively blunt instrument that is intended to cast the net sufficiently wide to ensure that all objectionable arrangements are caught, such that the overall purpose of putting pressure on Russia is achieved."

Right to refuse

Whilst that approach risks catching arrangements that might not be seen to be within the overall mischief, the solution that the UK government has adopted is to provide for a licensing regime, the court of appeal concluded.

It thus found that, even where goods only became sanctioned in March 2022, there was no wording in law to support the view that the sanctions applied only to future supplies of such goods. UniCredit was therefore right to refuse payment.

The full decision can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.