Funders need to take note of a decision regarding the impact of sanctions regulations on assets that may be based overseas, and in sanctioned countries particularly. The decision from the Court of Appeal earlier this summer from Celestial Aviation Services Limited v UniCredit [2024] EWCA Civ 628 acts as a useful reminder for UK financial institutions, including lessors and asset financiers, in the context of leasing and funding assets overseas; especially mindful of the UK’s sanctions regime on Russia. Even if the borrower or lessee is not connected with the sanctioned country, in this case Russia, other considerations such as the location of those assets should be considered by the funder as to whether the UK Sanctions legislation prevents funding.
Following the Court of Appeal’s review of regulation 28(3)(c) of the Russia sanctions regulations[1], it was considered that the regulation may still be engaged where the provision of financial services or funds are to unconnected persons, but the underlying arrangement relates to the provision of goods to a person connected with Russia, or to goods to be used in Russia.
This decision affirms that the Courts are willing to take a broad approach to establish whether an arrangement has a connection with Russia, holding that when considering the words "in connection with" the question that should be asked is whether there is a factual connection to Russia.
The approach taken by the Court of Appeal risks catching arrangements which may not appear to be objectionable on the face of it. However, the Court has clearly indicated that the effect of the regulations should be sufficiently wide to cover objectionable arrangements, given that the overall purpose of the regulations was to “put pressure on Russia”.
Practical advice would encourage onboarding teams, including as Credit, Compliance and Legal, to continue making probing enquiries into the location of assets they are funding and consider where they may be used over the life of the lease or loan.
[1] Russia (Sanctions) (EU Exit) Regulations 2019
