The Litasco Case: UK court provides further interpretation on the sanctions control test
On 15 November 2023, Mr Justice Foxton granted summary judgment in favour of the claimant, Litasco SA, in a claim totalling over 44 million Euro and related to a breached agreement providing for the rescheduling of payments following the delivery of West African crude oil. The case explored issues involving the UK’s Russian sanctions regime, force majeure, and allegations of fraud.
The dispute involved the Litasco's counterparty and receiver of the cargo, Der Mond, and the parent guarantor under the rescheduling agreement, Locafrique. The defendants raised various defences, including fraudulent misrepresentation, breach of collateral warranty, force majeure and illegality based on UK sanctions on Russia. Litasco itself is wholly owned by Russian oil company, Lukoil PJSC.
As relevant to this blog, the judge dismissed defences based on illegality related to UK sanctions, as well as force majeure and frustration. As regards the sanctions issues, the defendants argued that Litasco's payment obligations were suspended or extinguished due to alleged refusal by certain banks to effect payments, invoking force majeure under the rescheduling agreement. However, Foxton J rejected these arguments, finding no "Sanctions Change" following the agreement and deeming the application of UK regulations unclear.
Importantly, Foxton J commented on the recent Court of Appeal decision in the case Mints v PJSC National Bank Trust & Anr  EWCA Civ 1132 (Mints). This was explored since one of the alternative arguments presented in in the case suggested that Litasco was under the control of President Putin (as well as former Lukoil CEO, Vagit Alekperov) and consequently funds may not be made available to such persons (regulation 12 of the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2019 (Russia Sanctions Regulations)); or alternatively no dealing may occur in funds controlled by such persons (regulation 7).
Foxton J suggested that a more accurate interpretation of the control test for the purposes of the Russia Sanctions Regulations (discussed obiter by the High Court in Mints) is that it is concerned with the existing influence of a designated person over a company's relevant affairs, not a situation that a designated person could potentially bring about. The judge pointed out that if it were interpreted differently, it would imply that President Putin could be considered in control of companies of which he was completely unaware and that operated routinely without any consideration of him.
In this way Foxton J distinguished Litasco from the facts in Mints on the basis that the entity under review in the latter case was PJSC National Bank, a bank owned and controlled almost entirely the Central Bank of Russia, itself part of the Russia state. Also consistent with Mints, Foxton J held that even if Litasco were found to be sanctioned, the Russia Sanctions Regulations did not prevent a monetary judgment in its favour.
These remarks and the associated reasoning are likely to be relevant and interesting in other cases involving the UK sanctions regime.
Relevance to the UK Overseas Territories
The UK Overseas Territories, including the British Virgin Islands, the Cayman Islands and Bermuda all implement the Russia Sanctions Regime as amended by the Russia (Sanctions) (Overseas Territories) Order 2020. As such the Mints and Litasco judgments will be of critical importance when determining whether a designated person may be considered to have control over an entity incorporated in these jurisdictions, or else funds belonging to such entities.
The judgment can be found here.