The long arm of sanctions: Lessons from the English courts
Recent English court judgments signal a purposive approach to sanctions enforcement, balancing commercial certainty, foreign policy and national security against an evolving sanctions landscape. An analysis by WFW.
The Russian sanctions landscape has become an issue in recent English court decisions. Four judgments—UniCredit Bank GmbH v Celestial Aviation Services Ltd and UniCredit Bank GmbH v Constitution Aircraft Leasing (Ireland) 3 Ltd and another [2026] UKSC 10, LLC EuroChem v Societe Generale & Ors [2025] EWHC 1938 (Comm), UniCredit v RusChemAlliance [2024] UKSC 30 and Ismailov v Secretary of State for Foreign, Commonwealth and Development Affairs [2026] EWHC 1188 (Admin)—highlight a developing body of judicial thinking in this area.
While arising in different contexts, these judgments show that the English courts are interpreting sanctions regulations purposively having regard to the substance of the underlying disputes and the underlying objectives of the sanctions.
SUSPENSION OF OBLIGATIONS
The Supreme Court’s decision in UniCredit Bank GmbH v Celestial Aviation Services Ltd and UniCredit Bank GmbH v Constitution Aircraft Leasing (Ireland) 3 Ltd and another [2026] UKSC 10 deals with the application of sanctions to contractual obligations in autonomous instruments.
The case concerned 12 standby letters of credit issued by UniCredit’s London branch, as security for aircraft leases to Russian airlines by Celestial Aviation and other lessors. Following termination of the leases and the introduction of Russian sanctions in March 2022, UniCredit refused to process payments relying on Regulation 28(3)(c) of the UK Russian Sanctions Regulations. This prohibits directly or indirectly providing financial services or funds in connection with an arrangement whose object or effect is the direct or indirect supply or delivery of restricted goods (which includes aircraft) to a place in Russia.” Although UK and EU authorities later granted licences covering the principal sums, issues remained as to liability for interest and costs.
The Supreme Court addressed three questions whether: (i) payment under the letters of credit was prohibited by Regulation 28(3)(c); (ii) the leases constituted “relevant arrangements” (i.e. arrangements caught by regulation 28(3)) despite being lawful when entered into; and (iii) section 44 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) protected the bank from civil liability for non-payment.
Departing from the High Court’s narrow interpretation of the scope of the restriction, the Supreme Court adopted a broad and purposive reading of the sanctions regime, unanimously deciding that payment was prohibited absent a licence, as the obligation was “in connection with” a prohibited arrangement—namely, the supply of aircraft for use in Russia.
Crucially, the court held, having regard to the purpose of the sanctions and the language of the provision, that the provision required only a factual nexus, not a causal link.
As a result, UniCredit’s payment obligations were suspended during the period in which performance would have breached sanctions. The court also confirmed that section 44 of SAMLA would have protected UniCredit from liability where it reasonably believed that payment was prohibited.
Celestial Aviation demonstrates that even obligations ordinarily regarded as absolute in their independence—such as letters of credit—may lawfully be suspended, and that commercial expectations of certainty may yield when payment would, without a licence, breach a sanctions prohibition.
ENFORCEMENT OF ON-DEMAND BONDS: SUBSTANCE OVER FORM
If Celestial Aviation illustrates how sanctions affect the identity of counterparties and the enforceability of payment obligations, EuroChem demonstrates their impact on the underlying enforceability of English-law governed bond instruments even when a contracting party is not designated. EuroChem is a case which looked at de facto control in an EU context (which is analogous to Regulation 7(4) of the UK Russian Sanctions Regulations). It demonstrates that restructuring arrangements that do not in fact divest control will not be respected by the English Courts.
The dispute related to six on-demand bonds, governed by English law, that were issued by Société Générale and ING Bank in favour of LLC EuroChem North-West-2 (“EuroChem NW2”) for a construction project in Russia. Following Russia’s invasion of Ukraine, the EU imposed sanctions under Council Regulation (EU) No 269/2014 (as amended) (“EU Regulation 269”) on Andrey Melnichenko, the founder of EuroChem Group, his wife Aleksandra Melnichenko, and Vladimir Rashevsky, then CEO of EuroChem Group.[1]
When EuroChem NW2 made demands under the bonds, the banks refused to comply, arguing pursuant to Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287 that the guarantees (which would need to be performed in the EU) were unenforceable, as performance had been rendered illegal by the EU designations of Mr. Melnichenko, his wife and Mr. Rashevsky.[2]
Mr. Justice Bright held that EuroChem (although not a designated entity) was both owned and controlled by Mr. Melnichenko, notwithstanding a nominally independent discretionary trust structure and the involvement of Mrs. Melnichenko as a supposed beneficial owner. The judge emphasised that the documentary and factual evidence showed that Mr. Melnichenko retained de facto control and that the trust structuring was ineffective to displace the EU sanctions. The judge found that the place of performance was the EU rather than Russia and therefore the decision in Ralli Bros would apply because payment would breach both Article 2 of Regulation 269 and Council Regulation (EU) No 833/2014. Even if Ralli Bros did not strictly apply, a breach of foreign sanctions law could render enforcement contrary to English public policy on grounds of comity.[3]
SANCTIONS DO NOT DISPLACE THE ENGLISH COURTS’ UPHOLDING OF ARBITRATION AGREEMENTS
A complementary thread emerges from the Supreme Court’s reasoning in UniCredit v RusChemAlliance. The dispute concerned on-demand bonds worth approximately EUR 440 million, governed by English law and subject to Paris-seated ICC arbitration agreements.
Here, the issue was not the enforceability of payment obligations but the sanctity of arbitration agreements in Russia-related disputes. When UniCredit refused to pay under the on-demand bonds, RusChemAlliance commenced proceedings in Russia in breach of the Paris-seated ICC arbitration agreements. The Supreme Court upheld the grant of an anti-suit injunction, stressing that English courts will continue to protect arbitration agreements, even in politically sensitive contexts.
Importantly, the Supreme Court stressed that foreign mandatory laws—namely, Russian legislative provisions designed to override foreign arbitration agreements—cannot unilaterally override the parties’ agreement to arbitrate.[4] Nor did the court accept RusChemAlliance’s contention that the sanctions landscape made the arbitration “incapable of being performed”. It confirmed that the threshold for establishing impossibility is high and concerns the objective feasibility of the arbitral process, not commercial inconvenience. Sanctions-related difficulties would not render arbitration unworkable.
DESIGNATION CRITERIA: HOW WIDE IS THE NET?
A recent High Court decision addresses the lawfulness of the designation criteria themselves.
In Ismailov v Secretary of State for Foreign, Commonwealth and Development Affairs [2026] EWHC 1188 (Admin), the High Court dismissed a statutory review challenge under section 38(1) of SAMLA brought by Sarvar Ismailov, the nephew of Alisher Usmanov, a designated individual. The claimant, a UK resident since the age of 13 with no political connections to Russia and no alleged wrongdoing, had been designated in July 2022 following amendments introduced by Regulations 6(6)(b) and 6(7) the UK Russian Sanctions Regulations expanding the definition of “associated with” to include “immediate family members”, expressly encompassing nieces and nephews of designated individuals.
Mr. Ismailov argued that designation on the basis of familial connection alone was disproportionate. The court rejected this, placing significant weight on the government’s judgement on matters of foreign policy and sanctions, and reaffirming that these are areas where the executive, rather than the judiciary, is best placed to assess necessity and impact.
The decision makes clear that, once the executive has exercised its designation powers, owing to the judicial review standards applying under section 38(1) the English courts will be slow to interfere, even when the connection between the designated individual and the underlying policy objective is attenuated.
CONCLUSION
These cases show that the English courts will, in commercial disputes, interpret the applicability of sanctions broadly, focusing on substance over form and accepting that sanctions can suspend or disrupt unconditional obligations such as payment under on-demand bonds, letters of credit or other autonomous financial instruments.
At the same time, they draw clear limits: arbitration agreements and jurisdiction clauses remain firmly enforced, and parties cannot rely on sanctions or foreign laws to sidestep them.
In addition, these cases demonstrate that the English courts will accord significant weight to the executive’s assessment of the designation criteria under the UK Russian Sanctions Regulations, particularly where those criteria form part of a broader foreign policy and national security framework.
As sanctions regimes continue to expand and become more complex, the English courts are likely to face increasing disputes where sanctions directly affect parties’ commercial interests and bargains. The judgments covered by this article suggest that they will continue to favour a purposive approach that gives weight to the underlying public policy behind sanctions.
Text by:
- Rebecca Williams, partner, WFW, London
- Lorraine Mintah, associate, WFW, Dubai
- Amir Mahdavi, senior associate, WFW, Dubai
- William Stewart, associate, WFW, Dubai
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Footnotes:
[1] Council Regulation (EU) No 269/2014 (as amended) imposes targeted restricted measures against designated persons and entities in connection with actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, including asset freezes and prohibitions on making funds or economic resources available to them.
[2] Ralli Bros established that an English-law contract will not be enforced if its performance requires an act that is illegal under the law of the place where that must take place.
[3] Council Regulation (EU) No 833/2014 (as amended) establishes sectorial sanctions against Russia, targeting key areas such as finance, energy, defence, and trade, through restrictions on, among others, exports of dual-use goods and technology, and the provision of specified services to Russian persons and entities. Article 11 of EU Regulation 833 contains a “no-claims” provision, prohibiting the satisfaction of claims brought by certain Russian persons or entities in connection with contracts or transactions whose performance has been affected, directly or indirectly, by EU sanctions.
[4] An example of the restrictive measures introduced by Russian legislation include Articles 248.1 and 248.2 of the Russian Arbitrazh Procedural Code, which was itself introduced by Federal Law No. 171-FZ (2020) commonly referred to as the ‘Lugovoy Law’.
