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England and Wales High Court (Commercial Court) Decisions
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Cite as:  EWHC 2866 (Comm)
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
B e f o r e :
| LITASCO SA
|- and -
|(1) DER MOND OIL AND GAS AFRICA SA
(2) LOCAFRIQUE HOLDING SA
Yash Kulkarni KC and Gaurav Sharma (instructed by Withers LLP) for the Defendants
Hearing date: 2 November 2023
Draft Judgment Circulated: 7 November 2023
Crown Copyright ©
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Wednesday 15 November 2023 at 11:00am.
The Honourable Mr Justice Foxton:
i) that they have a realistic prospect of defending the claim; and
ii) even if they do not, there is a compelling reason for a trial in any event.
"14 FORCE MAJEURE
14.1 If by reason of 'force majeure', which for the purpose of this Agreement shall mean any cause beyond the reasonable control of the affected Party including, but not limited to, any act of God, war, terrorism, riots, acts of a public enemy, fires, strikes, labour disputes, accidents, or any act in consequence of compliance with any order of any government or governmental or executive authority, either Party is delayed or hindered or prevented from complying with its obligations under this Agreement, the affected Party will immediately give notice to the other Party stating:
14.1.1 the nature of the force majeure event;
14.1.2 its effect on the obligations under this Agreement of the Party giving the notice;
14.1.3 the estimated date the contingency is expected to be removed.
14.2 To the extent that the affected Party is or has been delayed or hindered or prevented by a 'force majeure' event from complying with its obligations under this Agreement, the affected Party may suspend the performance of its obligations until the contingency is removed.
14.3.1 the force majeure event cannot be permanently removed; or
14.3.2 a force majeure event results in a delay extending beyond ten (10) days;
14.3.3 either Party may terminate the Agreement upon notice and both the Parties will be relieved of their further contractual obligations, except for their accrued rights and obligations which shall survive the termination of the Agreement in accordance with this provision.
14.4 Neither Party shall be responsible for any loss or damage caused by any failure or delay in the fulfilment of its obligations under the Agreement if such failure or delay arises out of or is caused by force majeure events as described in these provisions."
15 TRADE SANCTIONS
15.1 Each Party acknowledges and understands that the performance of the Parties' respective obligations arising out of the Agreement shall be in compliance with any United Nations Resolutions or any Regulations which have the force of law in Switzerland, the EU, the United States of America, the United Kingdom and/or the country or countries in which the Oil may be loaded, delivered, discharged stored or transit during the performance of the Agreement and/or the counter of origin of the Oil, and which:
15.1.1 are directly or indirectly applicable to one or both of the Parties or to the transaction contemplated under this Agreement;
15.1.2 relate to foreign trade controls, export controls, embargoes or internal boycotts of any type (applying, without limitation, to the financing, payment, insurance, transportation, delivery or storage of the Oil); and
15.1.3are imposed against:
(a) any natural or legal persons, entities or bodies from a particular designated country; or
(b) any natural or legal persons, entities or bodies controlled by such persons, entities or bodies, any other natural or legal persons, entities or bodies that are, in any way, subject to such controls, embargoes or boycotts,
hereinafter referred to as the "Trade Sanctions".
15.2 If, at any time during the validity of the Agreement, there is an effective amendment to any existing Trade Sanctions or new Trade Sanctions have become or are due to become effective, which in the reasonable belief of the Seller may:
15.2.1 result in or risk the Seller breaching Trade Sanctions by performing any one or more of its obligations under the Agreement; and/or
15.2.2 result in or risk the imposition of any penalty, prohibition or impediment in any way of the payment obligations between the Parties,
hereinafter referred to as "Sanctions Changes"
then at any time following such occurrence, may, at its sole and absolute discretion (with no obligation), suspend performance of any one or more of its obligations under the Agreement (including without limitation those which are affected by the Trade Sanctions), without any liability to the other Party whatsoever. Any such suspension of performance shall be notified by the Seller to the other Party.
15.3 Where such suspension subsists for a period extending beyond ten (10) days, the Seller may terminate the Agreement upon written notice and both Parties will be relieved of their further contractual obligations, except for their accrued rights and obligations which shall survive the termination of the Agreement in accordance with this provision.
15.4 Where delivery of the Oil has taken place prior to the suspension of performance but payment in relation thereto remains outstanding, the Seller's payment obligation shall continue to be suspended after termination of the Agreement until the effect of the Sanctions Changes cease to exist, following which the Seller shall make payment within a reasonable period of written demand for payment by the other Party.
15.4.1 Where payment for Oil has already been made prior to the suspension of performance but delivery in relation thereto has not been effected the termination of the Agreement shall be without prejudice to any applicable Force Majeure Clause."
i) A meeting took place on 21 July 2022 between Litasco and the Defendants. The evidence of Mr Racine Sy for the Defendants is that, at that meeting, Mr Suleymanov for Litasco made it clear that Litasco wanted to do business with the Defendants in a joint venture, which could be used as means of resolving the outstanding payments. He also says that the Defendants were given a month to come up with a new payment plan and that "it was clear to me that these two issues were linked and that the joint venture was going to be used as a way to help with the outstanding payments".
ii) On 7 August 2022, a PowerPoint presentation was prepared by Litasco which was described as "support material for discussion." The presentation outlined a proposed joint venture, which would involve establishing a joint venture company to be owned 50:50. The presentation was circulated under a covering email which stated:
"As usual, for all purposes, we specify that this email and all the communications between us are made without prejudice to the rights of Litasco (in particular under the Deed of Payment) as well as to the legal proceedings currently under way in the English courts."
iii) On 9 August 2022, Litasco sent a revised version of the presentation to the Defendants, ahead of a discussion scheduled for the following week.
iv) On 22 August 2022, Locafrique sent Litasco an email discussing "a new repayment schedule based on 2 mechanisms". The first was payment of €2 million a month for 9 months. The second was described as a "commercial component" and provided a mechanism for separate payments or credits every quarter. It is important to note that the Defendants' proposal did not contemplate that all outstanding amounts would be paid from the proceeds of joint venture business done between Litasco and Der Mond. It was only the second aspect of the proposal – "the commercial component" – which envisaged such a link.
v) In particular, the proposed "commercial component" envisaged a revolving credit line for Der Mond which would be used to source cargo from Litasco to sell to West African customers. It was envisaged that payments made under letters of credit opened in favour of Litasco would reduce the debt (the assumption being that the West African customers would pay more for the cargo than the sale price as between Litasco and Der Mond, and that "margin" would be a credit against the outstanding debt). The credit would be reduced by 25% every quarter, or some €7.5m.
vi) Mr Roy for Litasco responded to the proposal by adding the following passage:
"In case the Parties could not agree on commercial transaction(s), then the ¼ reduction of the trade line becomes due for settlement at the end of the quarter (respectively its balance between the amount amortized during the quarter through commercial transactions and the EUR 7.5 mln) with the first maturity on the 31.12.2022".
Mr Ba for the Defendants was asked to and did confirm that this was acceptable "as discussed previously."
vii) On 23 August 2022, Litasco replied asking Locafrique to confirm that the communication was "without prejudice to the rights of Litasco SA (in particular under the Deed of Payment) as well as to the ongoing legal proceedings", which confirmation Locafrique gave.
viii) On 26 August 2022, the Defendants' solicitors wrote to Litasco's solicitors putting forward a proposal which would involve Der Mond paying €2 million a month for 9 months, to be guaranteed by Locafrique, and Litasco providing a revolving line of credit for the remaining amount to be applied to allow Der Mond to order oil products from Litasco. The line of credit would be reduced by transactions with third parties purchasing Litasco product from the Defendants, and also by 25% in value every quarter (€7.5m). If Litasco and Der Mond could not agree on any commercial transactions in any given quarter, then €7.5m would be paid by Der Mond to Litasco every quarter in cash.
ix) On 14 September 2022, the Defendants' solicitors circulated an amended draft of the document which became the Addendum (which Litasco's solicitors had originally sent to them). Litasco's solicitors responded on 20 September 2022 stating that Litasco was willing to allow the Defendants more time to pay, but were not willing to surrender their accrued rights. Certain passages in the Defendants' draft were specifically objected to because they "appear to suggest that payment will only be made from 'the proceeds of sales of the cargo'. If that is what you intend, then we must advise you that it is not acceptable to our clients. Payment for the Cargo is not in any way to be dependent on on-sales by your clients." Litasco's solicitors also stated that unless the Defendants accepted that there were no current sanctions preventing payment, "it is hard to see that the Addendum serves any purpose at all".
x) According to Mr Sy, on 20 September 2022 a draft of an MOU was produced by Litasco. Negotiations about a possible joint venture continued in September and October 2022. Those negotiations envisaged a joint venture company being established in the UAE with a branch office in Senegal. Mr Sy gives evidence of a call on 7 September 2022 in which the Defendants "specifically confirmed that the deals would be required to fund any repayment plan".
xi) On 28 September 2022, the Defendants' solicitors reverted on the Addendum. There was no challenge to the statements made by Litasco's solicitors on 14 September.
xii) On 30 September 2022, Litasco's solicitors stated that "the purpose of the Addendum is not to include additional obligations or protections, but rather to amend the terms of payments for the outstanding sums from Der Mond to Litasco under the Deed of Payment". There was no challenge to that statement.
xiii) On 5 October 2022, the version of the draft MOU before the court was circulated. This provides in Recital C that "the parties wish to enter into negotiations for considering a potential cooperation". Clause 2.2 envisaged that, once signed, either party could terminate the MOU automatically if it decided not to become involved or remain in the project. The MOU was expressly stated not to be binding and provided that "should for whatever reason the Parties fail to agree on the terms and conditions relating to the Project it is agreed by the Parties that neither Party shall have any recourse against the other Party whatsoever". The MOU anticipated the conclusion of a number of detailed written contracts if the joint venture negotiations succeeded. The draft MOU makes no mention of the repayment obligations which were the subject of parallel negotiations in relation to the draft Addendum.
i) Der Mond "irrevocably and unconditionally agree[d]" to pay €18m in nine €2m monthly instalments (from 10 November 2022 to 10 July 2023).
ii) Der Mond "irrevocably and unconditionally agree[d]" to pay the balance, described as the "Credit Amount", in four quarterly instalments (in January, April, July and October 2023, the last payment being due on 31 October 2023).
iii) Provision was made for the Credit Amount to be reduced or extinguished by any other cash or letters of credit procured in favour of Litasco.
"On the business side, as explained during our meetings we currently have a lot of opportunities in the West African region and we want to partner with Litasco to capture the market. We think that we need to move fast on the creation of the JV in Dubai so we can trade from there."
A meeting in Dubai in 10 days' time was proposed, and "in the meantime" two sales opportunities in West Africa were identified.
i) The first payment was made via EcoBank, a West and Central African bank.
ii) The second payment was made via FBN Bank Senegal, a subsidiary of First Bank of Nigeria.
"It was always our intention to fund a large portion of these payments from future deals we entered into with you and our customers. However, as you are aware, we have been working with your team in order to facilitate further deals with our regular customers but we have been finding it difficult in the current political climate to complete these deals. A number of our regular customers have shown some uncertainty about completing a deal for oil with origins in Russia. We are confident that we can identify other customers for these deals but would require a bit more time in order to complete these deals (which would obviously benefit Litasco as well).
We would, therefore, respectfully request a three month pause in the payments under the [Addendum]. We can agree that interest continues to accrue on all unpaid amounts during this pause and if we can make payments sooner then we will try to do so."
i) The Addendum had formed part of a broad commercial arrangement between the parties under which "it was mutually anticipated that [Der Mond] would act as [Litasco's] regional partner in relation to sales of Litasco's cargoes to Der Mond's customers in West Africa over the period 2021-2024."
ii) The Addendum was negotiated in tandem with the MOU, it being intended that the joint venture would provide the Defendants with the wherewithal to pay the amounts due under the Addendum and the Defendants would not have entered into the Addendum otherwise.
iii) Litasco represented when the Addendum was concluded that it intended to enter into the MOU and enter into the joint venture.
iv) Further, it was an implied term of the Addendum that "Litasco intended to execute" the MOU, alternatively there was a collateral warranty (sc. that "Litasco intended to execute" the MOU).
v) That representation was false, Litasco not intending and/or not having a reasonable belief that it would enter into the MOU and the joint venture it was intended to establish. This appears to be a plea of fraudulent and negligent misrepresentation.
vi) The implied term and collateral warranty were breached for the same reason.
vii) The Defendants are entitled to rescind and have rescinded the Addendum and/or are entitled to damages "for misrepresentation", breach of the implied term or breach of the contract (the precise basis on which damages are claimed being unexplained).
THE APPLICABLE PRINCIPLES
THE MISREPRESENTATION DEFENCE
Do the Defendants have a realistic prosect of establishing that a representation was made?
i) "Der Mond agreed to a repayment plan on the understanding that it had agreed to a joint venture arrangement with Litasco which would allow sufficient funds to be raised to make the outstanding payments and also to possibly overcome the obstacles to payment which had been put in place by those sanctions …. However to my surprise and disappointment, after Der Mond signed up to a revised payment plan Litasco failed to complete the joint venture agreement."
ii) "Der Mond was induced to enter into a JV [sic – not the contract which the Defendants allege that they were induced to enter] on the basis of promises by Litasco that it would provide Der Mond with a rolling line of credit for it to sell Litasco's property into the West African market".
iii) "From Litasco's words and conduct I was clear in my belief that Litasco was agreeing to enter into the JV alongside the Addendum to allow us to raise funds to make the payments under the Addendum."
i) In its communications, Litasco had been careful throughout to reserve its freedom of action: see [10(ii), (vi), (vii), (ix) and (xiii)]. It is highly improbable, against that background, that it could reasonably have been understood as making a representation as to its present intention to contract for the purpose of inducing the Defendants to act on such a representation.
ii) The terms of the proposed joint venture were entirely "up in the air" when the Addendum was signed. The parties had not even signed the MOU, the terms of which would not have committed them in any meaningful way, and the terms of the draft MOU and the surrounding communications make it clear that there remained much to be discussed before any agreement was concluded: see [10(x) and (xiii)] above and  below. Against that background, it would have made little commercial sense for Litasco to represent that it intended to enter into a joint venture, when discussions relating to the possible terms and scope of such a venture were at such an early stage.
iii) Litasco's solicitors stated on 20 September 2022, without challenge, that the amounts payable under the Addendum would be due whether or not there were any sales of cargo. They also stated that unless the Defendants accepted that there were no current sanctions preventing payment, "it is hard to see that the Addendum serves any purpose at all". The Defendants' solicitors never challenged those assertions, nor did they suggest (as the Defendants now do) that the sole purpose of the Addendum was, together with the proposed joint venture, to provide a new mechanism for the Defendants to pay Litasco without the difficulties which had been experienced to date.
iv) The Defendants' email of 5 November 2022 is inconsistent with any understanding on its part that business to be done under a yet-to-be concluded joint venture was to provide the means of paying the amounts due under the Addendum.
v) On the Defendants' case, it must have been apparent by early January 2023 that a joint venture agreement was not going to be forthcoming. If, by its conduct, Litasco had "represented that it intended to enter into the Joint Venture imminently following the conclusion of the Addendum," it would soon have become apparent that this was not the case. However, there was no suggestion by the Defendants that they had been misled into signing up to the Addendum. Mr Ba's email of 24 January 2023, in the passage quoted at  above, did not suggest that there was any common understanding that payment under the Addendum would be made from a joint venture with Litasco, only that "it was always our intention to fund a large portion of these payments from future deals we entered into with you and our customers". Further, the email did not suggest any lack of commitment on Litasco's part to such a joint venture in the period after the Addendum was signed, but referred to the difficulties "in the current political climate" of completing these deals. There was no suggestion the Defendants had been misled. It is simply impossible to reconcile this email with the Defendants' current case theory, and with the "surprise" Mr Sy claims to have experienced when no joint venture materialised.
Do the Defendants have a realistic prospect of establishing that Litasco did not intend to enter the MOU when the Addendum was signed?
i) No facts said to support the allegation that Litasco "began to withdraw from the JV" are put forward, beyond the statement that it did not sign the MOU.
ii) No source is given for Mr Sy's alleged understanding, which is evidentially worthless.
iii) The documents lend no support to the assertion that Litasco changed its attitude to a proposed joint venture in such a manner as to be capable of supporting an inference of fraud.
iv) There was a "fruitful meeting" (as the Defendants described it on 5 November 2022) with a further meeting proposed for some 10 days' time.
v) Mr Sy suggests that a further draft of the MOU was circulated on 9 November 2022.
vi) I have been shown no documents in which the Defendants chased the finalisation of the MOU thereafter, or referred to any lack of engagement by Litasco.
vii) There were abortive attempts to complete transactions in November and December 2022 which failed, in at least one instance because of the customer's concerns about the Russian origins of the oil.
viii) As noted above, in January 2023 the Defendants attributed the lack of joint venture business with Litasco to the concern of their clients arising from the current political situation, rather than any lack of willingness on Litasco's part. There was a further attempt at a transaction of the kind the proposed joint venture had envisaged in April 2023.
i) Far from being a document which would "formalise" the parties' joint venture (as Mr Sy claimed), even if it had been signed, the MOU was not binding and terminable at will, for any reason whatsoever, without any liability. Even if the MOU had been signed, it imposed no relevant obligations on Litasco. There is no basis for implying an obligation or contract which placed Litasco under an obligation to enter into a joint venture.
ii) The terms of the parties' discussions and as contemplated by the unsigned MOU made it clear that there would be extensive and complex negotiations before any binding joint venture could come into effect. That state of affairs is wholly inconsistent with a promise to the Defendants on 4/5 November that Litasco would enter into a joint venture agreement which would provide the means of making the payments due under the Addendum.
Where do the misrepresentation and contractual defences take the Defendants?
THE FORCE MAJEURE DEFENCE
Is it arguable that there has been a force majeure event for the purposes of clause 14?
i) The Defendants have adduced evidence of five African banks with whom they had established banking relations who were unwilling to make payments to Litasco because of sanctions concern when contacted between February and May 2022 and, in one case when contacted again in November 2023.
ii) However, Litasco has adduced evidence showing payments it has made through to and received from a variety of international banks throughout 2022 and 2023: Credit EuropeBank; Natixis; Deutsche Bank, BCGE, Credit Agricole, BIC-BRED, Arab Bank Switzerland, BCP Geneve, Citibank, UBAF, Raiffeisen Meine Bank and CIM Banque.
iii) Further, the whole premise of the joint venture arrangement which the parties began discussing in August 2022 was that West African customers would be able to open letters of credit directly in favour of Litasco, which would provide at least one of the means by which the Defendants could meet their payment obligations. Those plans did not materialise, but that was because of issues relating to the sale of oil of Russian origin (Litasco's claim here relating to the supply of West African crude), rather than because of issues about paying Litasco.
iv) The Defendants were able to make payments to Litasco in both November and December 2022. It is no answer for the Defendants to say they were able to make the first of those payments because Der Mond had sufficient Euros deposited with EcoBank to do so, but the payment exhausted its balance. Lack of foreign currency is not a force majeure event, and no explanation is offered as to why funds could not have been transferred by the Defendants into the Eco Bank account from elsewhere. Nor would the fact (as Mr Sy suggests) that its inability to trade Russian oil reduced its ability to earn foreign currency be capable of amounting to a force majeure event so far as its obligation to pay Litasco is concerned. While the Russian-Ukraine war and the sanctions imposed in response to it may have caused a downturn in Der Mond's trade, and reduced its inflows of foreign currency, those events cannot be said to have hindered or prevented performance of accrued payment obligations, because the causal effect of such events on the Defendants' ability to pay is too remote.
v) So far as the second payment via FBN Bank Senegal is concerned, the explanation offered for why no further payments were made is that FBN Bank did not have sufficient foreign currency to do so. However, no explanation is offered for why the Defendants could not themselves have transferred further foreign currency to FBN Bank Senegal beyond the suggestion by Mr Kulkarni KC that "the funds you would be injecting into the account would be foreign currency funds, and what is being said is because we are not able to trade with the sorts of people that would pay us in euros, we don't have euro reserves." However, for the reasons I have explained, lack of foreign currency because of difficulties in trading, even if resulting from sanctions on Russian oil, do not amount to a force majeure event.
"Did the inability to pay arise from the war; or was it, like Mr Micawber's, a chronic inability, equally present in war or peace? Numbers of debtors, however, urged with great vehemence to an unsympathetic Court that only this unforeseen war had prevented them finding El Dorado".
It is equally important, in the context of a force majeure clause such as clause 14, to distinguish between those prevented from or hindered in complying with their obligations because of the effects of a force majeure event, and those, such as the Defendants, who simply lack the financial resources to meet their obligations.
Is clause 14 engaged at all?
"Notwithstanding this clause, neither Party shall be relieved of making payment in full and in accordance with this Agreement of any sums that have accrued due under this Agreement prior to its suspension or termination including but not limited to price, demurrage and/or any other financial obligation whatsoever".
IS THERE AN ARGUABLE SANCTIONS DEFENCE?
i) The Contract contains provisions that may restrict the circumstances in which the 2019 Regulations could be relied upon to excuse performance as a matter of contract, albeit that would not prevent the 2019 Regulations taking effect as part of the law of the United Kingdom.
ii) The Contract gives effect to sanctions which "in the reasonable belief of the seller" have or risk certain consequences, permitting a party to suspend performance.
iii) The application of the 2019 Regulations as a matter of general law will depend on the terms of those regulations properly construed on the basis of the actual facts, not the reasonable belief of a contracting party as to the position or the risks it may face.
iv) It has been held that the 2019 Regulations do not prevent the court from entering a money judgment in favour of a sanctioned party: Mints v PJSC National Bank Trust  EWCA Civ 1132. It necessarily follows that they do not provide a defence to a claim for such a judgment.
Does clause 15.2 apply?
"If, at any time during the validity of the Agreement, there is an effective amendment to any existing Trade Sanctions or new Trade Sanctions have become or are due to become effective".
Those changes are referred to as "Sanctions Changes".
"as at the Effective Date [7 November 2022] the execution, delivery and performance of this Deed does not and will not contravene any law or regulation to which it is subject, including in relation to any relevant sanctions, or any provision of its memorandum and articles of association, and all governmental or other consents requisite for such execution, delivery and performance are in full force and effect."
If clause 15.2 applies, is it arguable that it is engaged?
i) The 2019 Regulation must be "directly or indirectly applicable" to one or both of the parties or the transaction.
ii) The 2019 Regulations must relate to foreign trade controls, export controls, embargoes or internal boycotts of any type.
iii) The 2019 Regulations must be "imposed against … any natural or legal persons, entities or bodies from a particular designated country" or "any natural or legal persons, entities or bodies" controlled by "such persons, entities or bodies" or "any other natural or legal persons, entities or bodies that are, in any way, subject to such controls, embargoes or boycotts."
Is it arguable that the 2019 Regulations are "directly or indirectly applicable to one or both of the parties or the transaction?
i) The regulations must be "directly applicable to one or both of the Parties or to the transaction contemplated."
ii) The regulations must be imposed against persons from a particular designated country, or those controlled by such persons.
"Application of prohibitions and requirements outside the United Kingdom
3 (1) A United Kingdom person may contravene a relevant prohibition by conduct wholly or partly outside the United Kingdom.
(2) Any person may contravene a relevant prohibition by conduct in the territorial sea.
(3) In this regulation a "relevant prohibition" means any prohibition imposed— (a) by regulation 9(2) (confidential information), (b) by Part 3 (Finance), (c) by Part 5 (Trade), (d) under Part 6 (Ships), or (e) by a condition of a Treasury licence or a trade licence.
(4) A United Kingdom person may comply, or fail to comply, with a relevant requirement by conduct wholly or partly outside the United Kingdom.
(5) Any person may comply, or fail to comply, with a relevant requirement by conduct in the territorial sea.
(6) In this regulation a "relevant requirement" means any requirement imposed— (a) by or under Part 8 (Information and records), or by reason of a request made under a power conferred by that Part, or (b) by a condition of a Treasury licence or a trade licence.
(7) Nothing in this regulation is to be taken to prevent a relevant prohibition or a relevant requirement from applying to conduct (by any person) in the United Kingdom."
"21 Extra-territorial application
(1) Prohibitions or requirements may be imposed by or under regulations under section 1 in relation to—
(a) conduct in the United Kingdom or in the territorial sea by any person;
(b) conduct elsewhere, but only if the conduct is by a United Kingdom person.
(2) In subsection (1) "United Kingdom person" means—
(a) a United Kingdom national, or
(b) a body incorporated or constituted under the law of any part of the United Kingdom.
(3) For this purpose a United Kingdom national is an individual who is—
(a) a British citizen, a British Overseas Territories citizen, a British National (Overseas) or a British Overseas citizen,
(b) a person who under the British Nationality Act 1981 is a British subject, or
(c) a British protected person within the meaning of that Act."
Is it arguable that Trade Sanctions have been imposed against Litasco?
The 2019 Regulations
"(1) A person ("P") must not make funds available directly or indirectly to a designated person if P knows, or has reasonable cause to suspect, that P is making the funds so available.
(2) Paragraph (1) is subject to Part 7 (Exceptions and licences).
(3) A person who contravenes the prohibition in paragraph (1) commits an offence.
(4) The reference in paragraph (1) to making funds available indirectly to a designated person includes, in particular, a reference to making them available to a person who is owned or controlled directly or indirectly (within the meaning of regulation 7) by the designated person."
"(1) A person who is not an individual ("C") is "owned or controlled directly or indirectly" by another person ("P") if either of the following two conditions is met (or both are met).
(2) The first condition is that P— (a) holds directly or indirectly more than 50% of the shares in C, (b) holds directly or indirectly more than 50% of the voting rights in C, or (c) holds the right directly or indirectly to appoint or remove a majority of the board of directors of C.
(3) Schedule 1 contains provision applying for the purpose of interpreting paragraph (2).
(4) The second condition is that it is reasonable, having regard to all the circumstances, to expect that P would (if P chose to) be able, in most cases or in significant respects, by whatever means and whether directly or indirectly, to achieve the result that affairs of C are conducted in accordance with P's wishes."
"…although he does not have such an interest in the body, it is reasonable, having regard to all the circumstances, to expect that he would (if he chose to) be able in most cases or in significant respects, by whatever means and whether directly or indirectly, to achieve the result that affairs of the body are conducted in accordance with his wishes."
The change appears to have been made because the government took the view that the previous definition was "insufficiently robust" and would "make it too easy for people to set up arrangements that, under the rules, would not be deemed to give them control, even though in practice it would be clear that they had control." OFCOM published Guidance on the definition of control of media companies on 27 April 2006, pursuant to its duty under s.357(2) of the Communications Act 2003. The Guidance discussed paragraph 1(3)(b) under the heading "de facto control", and makes it clear that, for its purposes, what matters are the company's interests "relating to its business as a broadcasting licensee or a newspaper proprietor" – a helpful reminder that it is always necessary to look at the context in which the issue of control arises when applying a definition of control.
Is it arguable that Litasco is controlled by Mr Alekperov for the purposes of Regulation 12?
i) Neither Litasco nor its parent Lukoil has been named as an entity sanctioned by the 2019 Regulations.
ii) Mr Alekperov was sanctioned under the 2019 Regulations on 13 April 2022. The sanction was imposed because "through his directorship of Lukoil, ALEKPEROV continues to obtain a benefit from and/or continues to support the Government of Russia by working as a director (whether executive or non-executive), trustee, or equivalent, of entities carrying on business in sectors of strategic significance to the Government of Russia, namely the Russian energy sector."
iii) Mr Alekperov stood down from the Litasco board in April 2022 after he had been sanctioned.
iv) Such evidence as there is shows that Mr Alekperov's shareholding in Lukoil is 8.5%, which would not be sufficient to amount to a controlling stake in Litasco.
v) I was provided with no evidence which suggested that Mr Alekperov continued to exercise control over Lukoil.
Is it arguable that Litasco is controlled by President Putin for the purposes of Regulation 12?
i) By excluding control arising from a political office, the Judge had put "an impermissible gloss on the language of the Regulation because of a concern on her part that, if the appellants were correct about the construction of the Regulation, the consequence might well be that every company in Russia was 'controlled' by Mr Putin and hence subject to sanctions."
ii) "If, as may well be the case, that is a consequence of giving Regulation 7 its correct meaning, then the remedy is not for the judge to put a gloss on the language to avoid that consequence, but for the executive and Parliament to amend the wording of the Regulations to avoid such a consequence."
iii) The relevant language "is not concerned with ownership, but with influence or control" and "is apt to cover the case of a designated person who, for whatever reason, is able to exercise control over another company irrespective of whether the designated person has an ownership interest in the other company, economic or otherwise."
iv) "The provision does not have any limit as to the means or mechanism by which a designated person is able to achieve the result of control, that the affairs of the company are conducted in accordance with his wishes".
"A person must not directly or indirectly make funds available to a person connected with Russia in pursuance of or in connection with an arrangement mentioned in (1)."
"(1) A person must not directly or indirectly provide, to a person connected with Russia, financial services in pursuance of or in connection with an arrangement whose object or effect is— (a) the export of energy-related goods, (b) the direct or indirect supply or delivery of energy-related goods, (c) directly or indirectly making energy-related goods available to a person, or (d) the direct or indirect provision of technical assistance relating to energy-related good."
i) Regulation 40(1) prohibits "the export of energy-related goods for use in Russia", Regulation 41(1) the "supply or delivery of energy-related goods for use in Russia", Regulation 42(1) making "energy-related goods available for use in Russia" and Regulation 43(1) providing "technical assistance relating to energy-related goods for use in Russia".
ii) Regulation 44(1) refers back to the activities in Regulations 40(1), 41(1), 42(1) and 43(1) and provides that a person must not "directly or indirectly provide, to a person connected with Russia, financial services in pursuance of or in connection with an arrangement" whose object or effect is one of those prohibited activities.
iii) Regulation 44(2) deals with making funds available in pursuance of or in connection with such an activity.
THE ILLEGALITY DEFENCE
IS IT ARGUABLE THAT THE CONTRACTUAL OBLIGATION WAS DISCHARGED BY FRUSTRATION?
SOME OTHER REASON FOR A TRIAL?