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On 11 June 2024, the UK Court of Appeal handed down its judgment in the case of Celestial Aviation Services Limited v UniCredit Bank GmbH (London Branch) [2024] EWCA Civ 628. In summary, the Court of Appeal determined that, in the context of payment obligations under standby letters of credit ("LCs"), sanctions measures relating to financing the supply of restricted items can apply retrospectively as well as prospectively, significantly widening the scope of application of such measures and creating uncertainty around the permissibility of payments where they have a degree of connection with restricted items, including where those items were lawfully supplied prior to the sanctions being introduced. The Court of Appeal overturned the 2023 High Court judgment that found UniCredit was not justified in refusing to make payment to aircraft lessors under LCs issued in connection with aircraft leases to Russian companies that were entered into prior to the relevant sanctions being introduced
The Court of Appeal considered:
The Court of Appeal concluded that UniCredit was entitled to withhold payment on the basis the arrangement fell within the applicable sanctions regime. Furthermore, the Court found that even if the relevant sanctions restrictions did not apply, UniCredit would have been able to avail itself of a "reasonable belief" defence in support of withholding payment.
The Court of Appeal's decision has far-reaching implications for any parties involved in trade finance transactions (either banks or beneficiaries), or other financing activities connected to trade in goods that are (or have become) subject to sanctions. The case is also significant in highlighting the extent to which UK courts may take differing views of key elements of the UK sanctions framework.
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