UK Law and Practice Contributed by: John Binns, BCL Solicitors LLP
Letters of Credit (LoCs) issued in relation to aircraft leases to Russian airlines, on the basis that making the payments would have breached Regulation 28 (3). Initially, the High Court ruled that UniCredit was not entitled to refuse payment under the LoCs, as the aircraft had been supplied before the relevant sanc - tions took effect in March 2022. So, “financial assis - tance” was provided at the point in time the LoCs were issued, which was before the regulation came into effect. Consequently, since the provisions were not retrospective, UniCredit was not relieved of its payment obligations. The Court of Appeal overturned this decision, as it found that the lower court did not properly engage with the wording of Regulation 28 (3) and erred in its assessment of the purpose of the Russia regulations. Its reasoning on this issue was later upheld by the Supreme Court. The appeal courts also interpreted the Russia regula - tions broadly, finding that they applied to any arrange - ment connected with the supply of restricted goods (including aircraft) to Russia, regardless of the timing of the arrangement. The courts said that a broad inter - pretation was consistent with the overall purpose of the sanctions regime, which was to put pressure on Russia. While the broad reading may unintentionally capture arrangements that were otherwise compliant with the regulations, the risk was mitigated by excep - tions and licences. Accordingly, UniCredit’s payment obligation under the LoCs was suspended until the UK licence process was completed. The Court of Appeal held that rea - sonable efforts to apply for a licence must be made. The Effect of the Immunity The Supreme Court’s decision in UniCredit Bank effectively clarified that compliance with UK sanctions laws takes precedence over fulfilling contractual obli - gations, where such performance is likely to breach UK regulations.
The decision also provides comfort to businesses that while Section 44 of SAMLA does not prohibit civil pro - ceedings, it protects if they withhold performance or payments (including of interest and/or costs), where they do so in the reasonable belief that they are com - plying with sanctions regulations. 6.2 Enforcement Effect of the Immunity on Court Awards In Boris Mints v PJSC National Bank Trust , the Court of Appeal ruled that the entry of a judgment, and the ensuing judgment debt, in favour of a DP would not breach financial sanctions prohibitions and so would not require an OFSI licence. The Foreign, Commonwealth & Development Office (FCDO) is responsible for making designation deci - sions. 7.2 Scope of Designation Financial sanctions (specifically, the “asset freeze” and related provisions) apply not only to DPs them - selves but also to entities that are directly or indirectly owned or controlled by a DP. 7.3 Circumvention 7.3.1 Prohibiting Provisions In addition to the direct prohibitions they impose, sanctions regulations also prohibit intentionally partic - ipating in activities knowing that their object or effect is (directly or indirectly) to circumvent any of those prohibitions or to enable or facilitate their breach. 7.3.2 Criminal Penalties Breach of the prohibitions also constitutes a criminal offence. Where the breach relates to financial sanc - tions, the maximum term of imprisonment is seven years; where it concerns trade sanctions, the maxi - mum term is ten years. Unlimited fines can also be imposed. 7. Designation, Compliance and Circumvention 7.1 Executive Body
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