Recent English court decisions have provided important clarifications of the way in which UK sanctions apply to transactions and the circumstances in which sector actors can terminate contracts in order to comply with sanctions. These developments will be particularly relevant in the context of maritime and insurance/reinsurance business.
In Celestial[1], the UK Supreme Court has confirmed a broad interpretation of the circumstances in which the prohibition on provision of “financial services” (including insurance and reinsurance) will apply to a transaction. The court held that a direct link to the underlying prohibited activity (for example supply of Russian origin oil) is not required for the prohibition to apply. What is required is a connection between the financial services and the wider arrangement within which the prohibited activity takes place.
While this development potentially increases the exposure of sector actors to the engagement of sanction on business, in Catalan Sea[2] the Court of Appeal has provided some support for businesses making complex compliance decisions at pace in the course of business. Mitigating against a trend of recent cases making adverse findings against actors who made "cautious" compliance decisions, the Court of Appeal held that it was appropriate for a Party not to a perform a contract in reliance on sanctions clauses based upon an objectively reasonable assessment of the information available, rather than having to prove that a sanctions breach is a certainty.
The case
Catalan Sea: Reasonableness of Sanctions Risk Assessments [Maritime; Insurance/Re-Insurance]
Facts of the case
The case concerned a shipowners refusal to load cargo in reliance on a sanctions exclusion clause. The refusal was due to sanctions screening indicating links between the cargo shipper (identified in bills of lading) and a sanctioned individual. The information available to the shipowners concerning ownership and control of the cargo shipper by the sanctioned individual was not definitive. The dispute concerned whether the risk of sanctions breach on the information available was enough to justify the ship owner's decision to refuse to comply with the order to load cargo. The charterparty sought to provide legal opinions to shipowners which asserted that the sanctioned individual did not own or control the cargo shipper but which did not provide evidence to prove this assertion.
Decision
The Court held that shipowners were entitled to rely on the sanctions clause and refuse to perform contract by loading the cargo, as their conclusion that there was a real risk of sanctions exposure was objectively reasonable on the information available at the time. The shipowners were not required to prove performance of contract would in fact breach sanctions.
Significance
The decision confirms that where a sanctions exclusion clause refers to “reasonable judgment” and “exposure”, the relevant threshold for parties seeking to invoke the clause in order to decline to perform the contract is a reasonable judgment of real risk, not proof that sanctions would in fact be breached.
The decision acknowledges the commercial realities and complexity of sanctions compliance decision-making in in the course of business. Parties often have to make decisions quickly, on incomplete information, in circumstances where key information is often not publicly available, held confidential by another party and eminently contestable. On the other hand, sanctions regimes are broadly framed, complex, may overlap across jurisdictions and the consequences of getting the decision wrong may be severe.
It should be noted however that, before the Court of Appeal decision, the High Court had reached a different conclusion on the reasonableness of the shipowners decision on the basis of the information available at the time. Between the date of the High Court and Court of Appeal decisions there had been developments which placed further information in the public domain regarding the ownership and control of the cargo shipper. Each case will be considered on its facts and the differing views on the evidence, as well as the changing evidential position, highlights the residual risks to be managed when making urgent sanctions compliance decisions.
The case
Celestial: When will “Financial Services” be connected with an arrangement prohibited by UK Sanctions [Insurance/Re-Insurance]
Facts of the case
Letters of credit were issued as security in connection with aircraft leases to Russian parties. When the aircraft could not be recovered from Russia, claims were made under those letters of credit by the aircraft lessors. The dispute arose over whether paying those claims was prohibited under UK sanctions. The relevant UK sanctions prohibit the provision of financial services in connection with an "arrangement" whose "object or effect" is to do something prohibited by sanctions regulations.
Decision
The Court found that payment under the letters of credit was prohibited on the basis that to do so would amount to the provision of financial services in connection with an arrangements whose effect was to make aircraft available to Russia. The court found that it was not relevant that the arrangement to lease the aircraft in Russia was not prohibited at the time when made, or that there was no causal link between the provision of financial services (i.e. payment under the letters of credit) and the prohibited supply of aircraft. It was sufficient that there was a connection between the financial services and the arrangement (i.e. the aircraft lease) which had had the effect of supplying restricted goods in a way which was prohibited.
Significance
The decision potentially widens the range of financial services arrangements which fall within the scope of UK sanctions prohibitions as the decision clarifies that a causal connection between the financial services and the prohibited act itself is not required.
The decision also reveals a potential divergence between the position in UK and EU Regulations: The equivalent EU regulations prohibit the provision of financial assistance for the prohibited purpose. The effect of this difference is to make the scope of financial services engaged by the EU regulations more limited than the UK regulations (which is typical of the way in which EU and UK regulations are drafted generally). This is on the basis that, subject to further guidance, the drafting of the EU regulations indicate a requirement for a connection between the financial assistance/financial services and the prohibited act.
Potential divergence between the position in UK and EU Regulations: The equivalent EU regulations prohibit the provision of financial assistance for the prohibited person. It may be reasonable to conclude that the effect of this difference is to make the EU regulations more limited than the UK regulations (which is typical of the way in which EU and UK regulations are drafted generally). This is on the basis that it would be reasonable to interpret the EU regulations as requiring a connection between the financial assistance/financial services and the prohibited act.
[1] UniCredit Bank GmbH, London Branch v Constitution Aircraft Leasing (Ireland) 3 Ltd and anor; UniCredit Bank GmbH, London Branch v Celestial Aviation Services Ltd [2026] UKSC 10
[2] Tonzip Maritime (Singapore) Pte Ltd v 2 Rivers Pte Ltd, “The Catalan Sea” [2026] EWCA Civ 641
