Recent judgments show that English courts are taking a purposive view of sanctions, weighing commercial expectations against foreign-policy and security goals. The trend emerges from a series of high-profile cases involving Russian-related finance, where judges have looked beyond the literal wording of regulations to the substance of the transactions.
Supreme Court limits autonomy of letters of credit
The Supreme Court’s 2026 decision in UniCredit Bank GmbH v Celestial Aviation Services Ltd and related appeals addressed twelve standby letters of credit issued by UniCredit’s London branch. Those credits secured aircraft leases to Russian airlines, and the bank halted payments after the United Kingdom imposed sanctions that barred the supply of aircraft to Russia.
Regulation 28(3)(c) of the UK Russian Sanctions Regulations prohibits providing financial services “in connection with” an arrangement whose effect is the delivery of restricted goods. The court examined whether the payment obligation fell within that prohibition, whether the lease itself qualified as a “relevant arrangement”, and whether section 44 of the Sanctions and Anti-Money Laundering Act 2018 shielded the bank from civil liability.
Departing from a narrower High Court view, the Supreme Court read the regulation purposively, finding that a factual nexus to the prohibited supply was enough. It held that, absent a licence, the bank could not honor the letters of credit without breaching the sanctions. The judgment also confirmed that section 44 would protect a bank that reasonably believes a payment is prohibited.
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Consequently, UniCredit’s obligations were suspended for the period in which performance would have violated the sanctions, signalling that even “autonomous” instruments such as letters of credit can be halted when they intersect with sanctions regimes.
Bond enforcement hinges on actual control
In a separate commercial dispute, the High Court considered six on-demand bonds issued by Société Générale and ING Bank in favour of LLC EuroChem North-West-2. The bonds were governed by English law but were linked to a construction project in Russia. After the invasion of Ukraine, the EU sanctioned the founder of EuroChem Group, Andrey Melnichenko, his wife and the group’s chief executive.
Although EuroChem NW2 was not itself listed, the judge found that Mr Melnichenko retained de facto control through a discretionary trust structure. The court emphasised that the place of performance was the EU, meaning that the EU sanctions rendered the guarantees unenforceable under the Ralli Bros principle. The ruling showed that merely reshaping ownership on paper does not evade sanctions when factual control remains.
For companies that rely on on-demand bonds to secure financing, the decision illustrates that the courts will look past formal arrangements and assess who truly directs the entity. If the underlying control links back to a designated individual, the bond may be deemed illegal to enforce, regardless of any nominal separation.
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In practice, this means that lenders must conduct deeper due-diligence on the ultimate beneficiaries of their counterparties, not just the immediate legal owners. A superficial check could leave a bank exposed to a sudden suspension of payment rights, disrupting cash flow and jeopardising project timelines.
Arbitration agreements survive sanctions pressure
The Supreme Court’s ruling in UniCredit v RusChemAlliance added another layer, focusing on an anti-suit injunction tied to on-demand bonds governed by English law and subject to ICC arbitration agreements seated in Paris. The court rejected RusChemAlliance’s argument that Russian mandatory law overrode the arbitration clause, stressing that foreign mandatory statutes cannot unilaterally defeat an agreed arbitration process. The decision reaffirmed the English courts’ commitment to upholding arbitration agreements, even when the dispute originates in a politically sensitive context.
High Court affirms scope of designation powers
Judgment in the administrative challenge concerning a familial designation clarified that the courts will not intervene in the executive’s assessment of who falls within the sanctions regime. The claimant, a UK-resident relative of a designated oligarch, argued that the extension of the definition to include nieces and nephews was disproportionate. The court, however, deferred to the executive’s policy rationale, noting that foreign-policy considerations lie beyond judicial expertise.
Consequently, the ruling confirmed that once a designation order is made under the relevant regulations, the threshold for overturning it is exceptionally high. The decision emphasized that challenges to designations must focus on procedural defects rather than the substantive breadth of the criteria.
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Commercial implications for English-law financial instruments
Subsequent commentary from practitioners highlights that the series of decisions collectively signals a shift toward substance-based analysis in sanctions disputes. Lenders and exporters are now expected to scrutinise not only the legal form of counterparties but also the practical control and benefit structures that may trigger prohibited links. The courts have demonstrated willingness to look through trusts and other façade arrangements when factual evidence points to retained influence by a sanctioned individual.
Moreover, the upheld anti-suit injunction in the arbitration context confirms that parties cannot rely on foreign mandatory statutes to escape agreed arbitration venues. The Supreme Court reiterated that the mere existence of sanctions inconvenience does not satisfy the stringent test for impossibility, thereby preserving the integrity of arbitration clauses even where geopolitical tensions are high.
Practitioners advise that robust internal compliance programmes should now incorporate checks for ultimate beneficial ownership that extend beyond immediate shareholders. The emphasis on de facto control means that any ties to a designated individual, however obscured, could render performance of English-law governed obligations unlawful in the place of performance, potentially invoking public-policy defenses.
